Greetings. Welcome to the Ribbon Communications First Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note this conference is being recorded.At this time, I will turn the conference over to Ms. Monica Gould, Investor Relations for Ribbon Communications. Ms. Gould, you may begin.

Good afternoon and welcome to Ribbon's first quarter 2020 financial results conference call. I am Monica Gould, Investor Relations for Ribbon. And on the call with me today are Bruce McClelland, Ribbon's CEO; and Daryl Raiford, CFO. Today's call is being webcast live and will be archived on the Investor Relations section of our website at ribboncommunications.com, where both our press release and our supplemental data are currently available, including slides detailing our historical financial performance.I'd like to remind you that during this call, we may make certain forward-looking statements. Such statements are based on current expectations, forecasts and/or assumptions regarding Ribbon's business, financial results, growth, anticipated benefits from acquisitions, restructuring and cost containment activities, global economic and health conditions including the ongoing COVID-19 pandemic and other opportunities in the marketplace that include risks and uncertainties that could cause our actual results to differ materially from the statements discussed today.Any forward-looking statements are qualified in their entirety by cautionary statements contained in Ribbon's most recent annual report on Form 10-K and the company's other SEC filings. While we may elect to update or revise forward-looking statements at some point, we specifically disclaim any obligation to do so, except as may be required by law.We utilize various metrics to assess the performance of our business. Not all of these metrics are GAAP metrics. And while our metrics are discussed on a non-GAAP basis, we have provided a reconciliation of GAAP to non-GAAP results in our press release and within the supplemental presentation on the Investor Relations section of our website. Statements about profitability refer to adjusted EBITDA unless otherwise indicated and are on a non-GAAP basis.Statements about Ribbon’s organic business, organic and Ribbon standalone and organic revenue growth as used in this earnings call, refer to the business continuing operations and/or financial results, as the context dictates, of Ribbon communications on a non GAAP basis, excluding the recently acquired ECI business. When we referred to overall Ribbon results, these are ribbons consolidated results and include the results for both Ribbon standalone and for ECI for the stub period from March 3, 2020 acquisition date through the end of the first quarter 2020.And now, I would like to turn the call over to Bruce.

Thank you, Monica. I'd like to thank everyone for joining us today during these challenging times and sincerely hope you and your families are safe and healthy. I'm delighted to join you on my first earnings call since becoming Ribbon’s CEO on March 1st. I've spent my entire career in the telecommunications industry working closely with service providers, and more recently, enterprise customers to develop and deliver sophisticated, large scale, complex systems that underpin the voice, video, and data services in many of the networks around the world.I’ve spent the first 11 years of my career at Nortel Networks and the last 20 years at ARRIS and most recently at CommScope. As the CEO of ARRIS we executed on a strategy to expand our target markets beyond service providers and into the larger, more diverse, enterprise segment. I've known Ribbon and many of the predecessor companies for almost 20 years, and I feel I have a good foundation both from a technology perspective and a commercial perspective. I have a successful history of doing business with the majority of customers Ribbon sells to today, and many others that we hope to work with in the future. I'm very excited to be here and to lead the next phase of innovation and growth for the newly combined Ribbon and ECI team.I'd like to thank the entire Ribbon team for a great welcome and for coming together to continue to support our customers throughout the COVID-19 pandemic. The energy from the team is invigorating and the response from customers has been very motivational. In my first 60 days, I've been able to meet with many employees and customers and visit many of our locations prior to moving to a work-from-home operating model in late March. I'm happy to report that we've had…

Thanks Bruce. For Ribbon, overall, we reported first quarter revenue of $158 million, non-GAAP EPS of $0.01 and non-GAAP adjusted EBITDA of $10 million. These overall results included ECI for the portion of time in March that we owned the business. For that stub period in March, we recognized $30 million revenue from ECI with breakeven non-GAAP adjusted EBITDA. Such ECI revenue was comprised of $22 million of product revenue and $8 million of service revenue.To help with comparability, I'll take extra time to lay out our results for Ribbon on a standalone basis that exclude the ECI results for the stub period in March. Our Ribbon standalone first quarter 2020 financial results as compared with the first quarter of 2019 were as follows:Total revenue was $128 million in the current quarter, up 8% from $119 million last year. Non-GAAP gross margin was 62%, up 6% percentage points from 56% a year ago. Non-GAAP operating expenses were in line with last year at $72 million. Non-GAAP diluted earnings per share was $0.02 as compared with the non-GAAP loss per share of $0.08 in the first quarter of 2019 and non-GAAP adjusted EBITDA was $10 million as compared with a negative $3 million in the comparable quarter last year.In our cloud and edge business, our software sales as a percent of Ribbon standalone product revenue grew to 53% from 39% in first quarter 2019. Software growth came from both network transformation solutions and from our virtualized software for SBCs as service providers could rapidly deploy our suite of virtualized software products into their networks to manage their network demand. In particular, network transformation solutions benefited as expanded call control capacity was in critical need at certain service providers and MSOs to respond to unexpected network demand spikes.Product revenue from the enterprise…

Great. Thanks, Daryl. I'd like to reiterate several key points of our near term strategy as we transform and strengthen the company. First, we will continue to emphasize and invest in the evolution of our cloud and edge products to leverage software, and as a service deployment models. Both our SBC portfolio and our network transformation application servers are available in both software-only and high performance appliance versions, and are complemented by our growing suite of analytics and capabilities in our Ribbon Protect platform.Second, we are very focused on growing the business we do with enterprise customers; banks, airlines, retailers, critical infrastructure providers, state and local governments and defense sectors. The communication needs for these market verticals continue to grow. And as they mature, the need for robust high performance solutions begin to look very similar to service providers, our sweet spot.Third, our combined sales team is aggressively pursuing opportunities to sell our total combined portfolio to existing customers to increase our share of total spend and increase our relevance and strategic value to these customers. In turn, we believe over time, this will enable us to win share in the North American packet optical space.While this won't happen overnight, this is the most strategic objective in the next 12 to 24 months. And I believe several of the capabilities that are designed into our packet optical platforms, such as HART, network slicing and precision timing will be key differentiators and entry points as service providers begin to really use 5G networks to enable new services and expand their business.And finally, as I mentioned earlier, we're completing a full portfolio review and expect to make adjustments over the short and medium term that will improve the efficiency of the organization and direct investment more squarely on growth areas for the company, reducing operating costs and increasing our competitiveness.As a result, and as was stated on our fourth quarter 2019 conference call, we expect Ribbon to exit 2020 as a company that is significantly stronger and more growth oriented. I couldn't be more excited.That concludes our formal remarks. At this time, I'd like to turn the call over to the operator for questions. Operator, we're now ready for our first question.

[Operator Instructions]. The first question is coming from the line of Paul Silverstein with Cowen. Please proceed with your question.

So I appreciate the environment has created a lot of moving pieces, not just for you, but for all of your peers and are recognizing challenge that entails. But a question for you relative to the 12 to 24 months strategic focus, the thought arises that in the current environment for any company trying to break into new enterprise business, whether an optical and unified communications, whatever the product market, there's the challenge of both getting access to staff given that there's reduced IT staff, that those enterprises survive and that have budgets, and that have business models that require either new projects or expanded equipment. And there's also the incremental challenge to begin your equipment in for trials and that probably doesn't go away maybe next year, but it probably persists well past the current quarter for some time to come.Secondly, some of the verticals you name, some of them should be relatively healthy like government, but others like airlines in particular, ones that you highlighted, there again, given what's going on in the airline industry and I guess things can change, but it's hard to imagine that that industry is going to come back in a robust way in the next six to 12 months, hopefully far robust than it is today, and that’s up another level. I mean the obvious question is, how do you overcome those challenges given the focus on enterprise in particular, understandable in a normalized environment, I get it. But in the current environment, how do you deal with those particular hurdles that are not unique to Ribbon, that any company trying to sell into enterprise and trying to sell into those verticals, those challenges you're going to have?

Hey, Paul, this is Bruce. And I appreciate the question. And, yes, I think you're right. I think there are clearly areas of the economy that are more impacted than others, airlines is a perfect example. And so we're going to go where the money is obviously right? I mean we can't capture share if dollars aren't being spent. And, as you know, our products are fairly well, right? Some of them sit right in kind of the middle of the unified communications flow. And that part of the business I think continues to be fairly robust as more capacity is being added in those areas. I do think you're right, reason we’re trialing equipment, where you're trying to bring product into a new customer, into new network and going through both the RFI process and RFP process and trials. Those are more challenging. And I think that reflects a little bit in what we're seeing in our packet optical business short-term.I think as you know, as we go to market to address enterprises, for the most part we're working through partners, either service providers or other type of communication service providers. And so we’ll kind of leverage that scale and into kind of the larger scale enterprises. I think you probably saw a recent announcement, our portfolio for working with Microsoft and their direct routing capability. So I think there are a variety of places that will continue to be more robust than others and we need to focus on those for sure.

Just one more if I may for you or Daryl. Can you give us any insight -- and if you have it in the slide deck I apologize, I haven't seen it yet. But can you give us any insight on the revenue mix geographically, both for traditional Ribbon and for ECI? If I go back to the comment ECI made when it was trying to go public, if I recall I think India at the time was 40% and Russia was around another 20%, I may be somewhat off on those numbers, but I assume India and Russia, while you have some understandable challenges there, I assume there's still a big piece today of the puzzle into your statement. I think I heard you say that you're expecting improvement in the second half, albeit visibility is bad. But the improvement that you're expecting, is that based upon what you're currently seeing or just business level is there so low they have to go up?

Yes. So, good question. And then as Daryl is digging out the numbers, I'll give you the first part of the response. So certainly with the ECI business historically, the three regions that are strongest for that packet optical business are Europe, Russia and India. And what we're currently seeing is that European [feeder] is pretty robust, and kind of ongoing deployment of capacity and those sorts of things have been pretty solid. The two markets we mentioned more impactful Russia and India, Russia somewhat related to COVID obviously and somewhat related to devaluation of currency and those sorts of issues given the oil environment. And in India, which is obviously a large and important market for the business, in addition to the COVID impact, just the general environment around the challenges between the wireless carriers and the government around taxation rules and those things have slowed down some of the capital spend short-term, the discussion around adjusted gross revenue and what taxations they owe.As I think Daryl mentioned in his script, we have already started to see improvements, both related to -- I think plans to get be able get back after COVID as well as I think just in general plans to start moving forward on deployments and purchases. But to your point, it’s going to take some time, and frankly, nobody knows for sure just how quickly that happens. And just in general what sort of impact in the global economy there is in general and unemployment rates and those sorts of things. So we are trying to be conservative in how we frame this for you. Daryl, I think you've probably got the numbers that he was requesting.

Hey Paul, I hope that you and your team and your families are doing well. It's nice to speak with you. Ribbon -- two parts, Ribbon historically has been approximately 60% United States, 40% outside of the United States in terms of the revenue mix. And when we put our 10-Q on file, you'll see that the case. In terms of the $30 million that we recognized in the shorter period in March for ECI, over a third of that is -- which is a pre-customary is -- was sold in the European region. A little -- less than a third of that was sold in the Indian region. And then the other regions fill in around that.

One last quick one if I may. In your optical business and ECI acquired platforms, who are you mostly coming up against in enterprise? I know the landscape in general in terms of major players in optical -- but within the enterprise market where you're selling, who are you most directly competing against?

Yes. So in some parts of that enterprise vertical and of course there's a variety of different types of enterprises, we'll see the normal names you'd expect, Ciena, Infinera, in international markets Huawei, in some cases Nokia, in particular where they’ve got a larger set of products or services that they're bringing into some of those enterprise verticals. So it's a variety of different players. And I think you probably saw in the past that ECI had announced a partnership with Ericsson in some regions going to market and we’re continuing that relationship that will help to accelerate results.

[Operator Instructions]. The next question is from the line of Mike Latimore with Northland. Please proceed with your question.

It’s [Stan] on for Mike Latimore. Do you expect stronger second half CapEx from your customers?

Yes, I apologize. You're breaking up a lot. Do you mind repeating that again?

Do you expect stronger second half CapEx from your customers?

We have a prediction on second half CapEx. I'm sorry, it really breaks up.

Oh! I'm sorry. I will repeat again. Do you expect stronger second half CapEx from your customer?

I believe what I heard and let me ask, are we seeing what is our projection of CapEx for our customers in the second half and would we believe the CapEx would be stronger?Yes. Well, in North America, it’s all obviously the carrier CapEx. In some cases, there's obviously an increase in CapEx. Verizon talked about increasing CapEx. And what we've seen is pretty robust spend in those areas. It's a little hard to tell what the second half looks like. I know if you -- you've talked to carriers, they're thinking about what happens with unemployment and disconnects and slow pace and those sorts of things. So I think they will be careful on their CapEx. So far, it's been pretty positive commentary around the CapEx environment, particularly as the traffic patterns have shifted so significantly. And I think expectations are, that continues for quite some time. And so, the kind of the retooling of how the network is performing and where the traffic is coming from et cetera, is certainly a change in the network.In the international markets, of course, the two that we follow most closely, India and Russia, it's hard to imagine that it doesn't improve in the second half of the year, it's come down. It feels like pretty substantially in the first half. And as things get back a little bit more normal -- I'd be surprised if it doesn't come back a little stronger from the first half, whether it gets back to last year or not, is a little hard to tell.And Europe, again, has been pretty stable. I think it will depend a little bit on just how significant the overall economy impact is and just how fast some of that comes back. So I don't know if that helps you too much but that's kind of what we're seeing at this stage.

Thank you. Were there additional questions for Mr. Raiford?

I think I will may be take them offline, maybe with a better audio.

Alright. Thank you. And at this time, I'll turn the call back to Bruce McClelland for closing remarks.

Alright, thank you, Rob. It's a busy earning season. So I know everybody is juggling a variety of different calls this evening. But we appreciate those who have joined here tonight, concludes our call and look forward to updating everyone again soon. We'll be participating in a variety of conferences and [Audio Gap] meet with many virtually. Alright, have a good evening. Thanks, Rob.

You're welcome. Thank you all. And this concludes today's conference. You may disconnect at this time. And thank you for your participation.