Greetings, and welcome to the Ribbon Communications Fourth Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tom Berry, Investor Relations. Thank you. You may begin.

Good afternoon, and welcome to Ribbon's fourth quarter and full year 2021 financial results conference call. I'm Tom Berry, Investor Relations of Ribbon Communications. Also on the call today will be Bruce McClelland, Ribbon's Chief Executive Officer; and Mick Lopez, Ribbon's Chief Financial Officer; and Sam Bucci, General Manager of Ribbon's IP Optical Networks business. 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 slides are currently available. Certain matters we will be discussing today, including the business outlook and financial projections for the first quarter of 2022 and beyond, are forward-looking statements. Such statements are subject to the risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties are discussed in our documents filed with the SEC, including our most recent Form 10-K and Form 10-Q. I refer you to our Safe Harbor statement included on Slide 2 of the supplemental slides for this conference call. In addition, we will present non-GAAP financial information on this call. Reconciliations to the applicable GAAP measures are included in the earnings press release we issued this afternoon as well as in the supplemental slides for this conference call, which, again, are both available on the Investor Relations section of our website. And now I would like to turn the call over to Bruce. Bruce?

Thanks, Tom, and thanks to everyone for joining us. I'd like to start the call this evening with a short assessment of our performance in 2021 and the actions we're taking to improve our results going forward. Despite incredible efforts by the employees of Ribbon during a challenging year, we were disappointed with our financial results for 2021. When we started the year, we had expected to achieve growth in both revenue and earnings. We have just completed a difficult 2020 with the onset of COVID, but performed exceptionally well despite this and posted improvements every quarter throughout the year. Of course, there are several reasons we missed our growth goals in 2021. We have extended COVID challenges, supply chain issues, heightened employee attrition and regional headwinds in areas like India, to name a few. But ultimately, our primary challenge has been the length of time it takes to convert our new IP optical customer wins into sustainable revenue while the investment that's needed to obtain and execute on the wins and develop our road map or our immediate investments. Similar to others in the industry, we've also been impacted by more than we expected by escalating macro supply chain issues from both the cost and predictability perspective. And we were particularly surprised by the increased intensity of issues in the last several weeks of 2021 and the impact it had on shipments and product costs. Costs across many of our products have increased. And as a result, we've adjusted our forward margin projections for fiscal 2022. We've taken a variety of actions to mitigate these issues, and the recent weeks have begun to see stabilization. But we remain cautious and are not assuming any significant improvement in component lead times throughout the remainder of the year and have adjusted…

Thank you, Bruce. From a macro perspective, demand for bandwidth continues to grow at unprecedented levels as 5G deployments accelerate and adoption of cloud networking and remote work create new traffic patterns and operational complexity. Dealing with these challenges while lowering total cost of ownership requires an IP Optical Network solution with better economics and a stepwise improvement in operational efficiency and simplicity. We are increasing our investment in developing solutions which provide optimized hardware and automation software within an open architecture, all under an umbrella of customer collaboration. This includes fit-for-purpose IP routing optimized for multiservice access, aggregation and metro networks; 400-gig optical transport everywhere; and practical automation software, which enables service providers to cross the automation divide at their own pace. To be more specific, our portfolio investment strategy revolves around three pillars. First, in our Neptune IP routing portfolio, we are adding several new solutions, notably the introduction of the Neptune 2000 series next generation of IP routers powered by our real-time network operating system. The Neptune 2000 series provides best-in-class economics for IP transport networks with a full range of form factors and payers who use pricing options, up to 16 terabits in capacity. The platform provides converted support for Ethernet, IP and POS, segment routing, flex Ethernet, TDM to IP, OTN and WDM, all optimized for aggregating, routing and backhaul traffic from the multi-service access edge to the IP core. The Neptune 2000 series routers support WDM interfaces up to and including 400-gig ZR and ZR Plus IP over WDM applications. The Neptune 2000 series is built around the Ribbon real-time network operating system, a state-of-the-art telco-grade NOS, which is based on Neptune's widely deployed routing software. The RNOS can be sold and deployed either on our own platforms or on third-party white-box platforms. The…

Great thanks, Sam. We expect these investments will result in substantial growth and establish Ribbon as a significant player in IP and optical networking. To capture this longer-term growth, we expect 2022 to be an investment year and are projecting negative adjusted EBITDA of approximately $35 million for the IP Optical segment. In light of our projections, we analyzed the carrying value of our IP optical goodwill and took a non-cash accounting charge in the fourth quarter. In our Cloud & Edge segment, the secure voice-over-IP business continues to be strong foundation for the company, and our visibility into 2022 is solid. We expect continued investment by many of our service provider customers as they modernize their voice networks and address their aging infrastructure, also helping them meet increasing environmental regulatory requirements. The backdrop of accelerating usage of platforms, such as Microsoft Teams and Zoom, provide an excellent opportunity for growth for our Cloud & Edge business. And the continued investment we are making both in road map and go-to-market support our projections for this business. And as both service providers and enterprises increasingly adopt cloud computing paradigm, our investment to adapt our voice-over-IP portfolio to leverage cloud native technologies provides some additional growth opportunity for the business. We had our first significant Telco Cloud win in Q4 with a major mobile carrier in Japan, who have selected our cloud native session border controller for deployment in their network. In addition, the dedicated go-to-market enterprise sales team we created in the middle of last year to better address the growing enterprise market opportunity is bearing fruit. And we had promising results in the fourth quarter, including new customer wins across the financial, IT and automotive verticals. As an example, we had a significant win with our partner Infosys to deploy…

Thank you, Bruce. Good afternoon, everyone. Beginning with our GAAP results. Our GAAP net loss of $96 million in the fourth quarter includes 3 significant amounts. First, we have a goodwill impairment related to the IP Optical Networks segment reflected as a noncash accounting charge of $116 million. In light of lower revenue growth than anticipated last year of our continued investment, we revised forward projections of the profitability of our IP Optical Networks reporting unit and as a consequence, have lowered its fair value Interpose. We remain optimistic in the future growth of IP Optical Networks as we continue to invest in research and development to create truly disruptive technologies. We also had a $7 million loss in our GAAP income statement related to the quarterly mark-to-market of our investment in AVCT. These 2 GAAP accounting losses were partially offset by an income tax valuation release of $28 million associated with the company's United States tax position as we have improved profitability expectations there. On an adjusted non-GAAP basis, fourth quarter 2021 results were as follows. Total revenue was $231 million, up 10% sequentially but down 5% organically year-over-year when adjusted for the sale of Kandy. Sales in the quarter were negatively impacted by approximately $10 million of shipments moving into 2022 due to supply chain-related constraints. These constraints impacted both segments equally, with shortages of key routing silicon and other components. We continue to face constraints in these areas so far in 2022 and are taking those into account with our first quarter guidance. We also had several high-margin software deals that did not close but moved into 2022. None of these opportunities were lost, but they did impact our results in the fourth quarter. Our book to revenue excluding maintenance was 1.14 times for the fourth quarter.…

Thanks, Mick. Once again, I'll emphasize that we continue to believe in the strategy behind the business. We have a growing number of proof points and strategic wins and are investing heavily to capture this multiyear growth opportunity. The thesis is completely intact, and we believe patience will pay off with higher growth in subsequent years. I'd like to thank the employees of Ribbon for their dedication and efforts in 2021. And I know they're committed to executing on our plans in 2022 to realize our growth objectives. Operator, that concludes our prepared remarks, and we can now take a few questions.

Thank you. Our first question comes from the line of Tim Savageaux with Northland Capital Markets. Please proceed with your question.

Hi.

Tim, your line is live. Here we go.

Can you hear me?

Yes. Now we can.

Okay, great sorry. A couple of questions kind of on the demand environment and then maybe directed towards Sam since we have him on the call. And sort of kind of different aspects of the carriers you might be pursuing. You mentioned pretty robust pipeline from a Tier 1 perspective. I wonder what your outlook is for that pipeline moving towards decision in 2022? I imagine there's not a lot included in guidance for any new wins, but more ramping what you've already got, but a review of that on the one hand. And then I want to follow-up and talk about kind of U.S. rural broadband-driven type opportunities?

Yes hey, Tim, it's Bruce. Thanks for the question. Yes, I think you're right. We're trying to estimate the exact timing of when we start to see revenue from new wins is one of the challenges we've got in predicting the business. The majority of what we've projected for 2022 is with the set of customers that we have in the win column already and ramp throughout the year. I think as you know, the regions that are largest for us today is the European region and the India market. And where we're really focused on growing is in North America. And it was great to see the progress we made last year in North America with the series of customers like Rogers and Viaero Wireless that we've mentioned. And as we talked about in the call, engagement we have with just a broad set of customers is pretty exciting, but trying to estimate the exact timing is a little trickier. So we've tried to be a little more conservative in the outlook for this year.

I guess, to follow-up on that, you did say, you expect maybe 10% plus growth. I mean, what factors could - maybe outside of the obvious, which is maybe a better supply environment, could lead to upside to that outlook for IP optical growth?

Yes, so what we're seeing, Tim, right now, is just a really active RFP environment with a whole variety of different customers in different regions, so both North America and Europe and Asia, I mentioned. And so it's a combination of wins with new customers, as well as new product insertions with existing customers. So whether it's a new cell site router opportunity, we're coming in as - a new supplier like MTN Group, I mentioned, in the Africa region, growing the business with some of the new accounts that we announced last year like MegaFon in Russia, Optus and Singtel in the Asia Pac regions, which really haven't started yet from a revenue perspective. There's been a lot of work going on qualifying the product, going through the network certification process, et cetera. And all of those contribute to the growth later in the year. And again, some of the new customers that we think we're going to win, again trying to predict the exact timing is more difficult. So we've not tried to factor them into the 10% growth rate, thus the - plus on the end of it, basically.

Okay. Thanks very much.

Thanks very much, Tim.

There are no other questions in the queue. I'd like to hand the call back over to Bruce McClelland for closing remarks.

Yes, thanks very much for everyone joining here this afternoon. And that - we're excited about the year ahead, and I really look forward to keeping everyone updated as we go along. So thanks very much.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.