Ribbon Communications Inc

NASDAQ:RBBN

Greetings, and welcome to the Ribbon Communications Fourth Quarter and Full Year 2023 Financial Results conference 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.) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joni Roberts, Chief Marketing Officer. Thank you. You may begin.

Good afternoon, and welcome to Ribbon's Fourth Quarter 2023 Financial Results Conference Call. I'm Joni Roberts, Chief Marketing Officer at Ribbon Communications. Also on the call today, Bruce McClelland, Ribbon's Chief Executive Officer and Mick Lopez, Ribbon's Chief Financial Officer. Today's call is being webcast live and will be archived on the Investor Relations section of our website at rbbn.com, where both our press release and supplemental slides are currently available.Certain matters we'll be discussing today, including the business outlook and financial projections for first quarter of 2024 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 these 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 our supplemental slides for this conference call.In addition, we'll present non-GAAP financial information on this call. Reconciliations to the applicable GAAP measure are included in the earnings press release we issued earlier today as well as the supplemental slides we prepared for this conference call, which again, are both available on the Investor Relations section of our website.And now I'd like to turn it over to Bruce. Bruce?

Great. Thanks, Joni, and thanks to everyone for joining us today. I'm very pleased to report solid financial results for the fourth quarter, our strongest quarter of the year and our most profitable quarter in almost three years. Despite a challenging macro environment for telecom suppliers, we're really starting to see the results of our strategy and the investment we have made over the last several years. For the first time, our IP optical business generated a profit on an adjusted EBITDA basis and was profitable for the entire second half of the year. Our strategy to cross-sell our portfolio to existing customers is working in all regions, U.S. rural, Tier 1 carriers, Japan, India, Europe and the Middle East. And the focus that we have on the enterprise market vertical continues to offset this period of lower spend by U.S. Tier 1 service providers. I think we're really standing out and executing well.Earnings for the quarter were $43 million on an adjusted EBITDA basis, an increase of 48% year-over-year and $91 million for the full year or 11% of sales, a 41% increase versus 2022. Cash from operations were $20 million in the quarter. This is just a great accomplishment given the macro environment. Revenue in the quarter was up 11% sequentially with growth from both segments and up 1% for the full year. This was below our original expectations, but a very solid result given the lower spending from U.S. Tier 1 service providers across the entire industry. Excluding sales to our large U.S. Tier 1 customers, revenue from all other customers in 2023 grew 8% year-over-year. The shortfall in revenue this quarter relative to our guidance was due to timing of a large U.S. federal project that has now been awarded, and we expect to recognize revenue this quarter.The real highlight in the quarter was the strong performance in our IP Optical Networks segment, the sixth straight quarter of year-over-year growth. Sales grew 7% year-over-year, exceeding $100 million for the first time since we acquired ECI. Gross margins were very strong at 44%, reflecting the improvement in product costs, favorable regional mix from North America and EMEA and higher volumes. The result was a strong positive earnings contribution for the quarter and for the entire second half of 2023. The strategy is really working. The [Cloud & Edge] business continued to drive strong profitability due to higher software mix with gross margin up 400 basis points year-over-year and with $34 million of EBITDA or 28% of revenue.In November, we held our annual Ribbon Tech forum in Plano, Texas with a significant number of customers in attendance. This was a great opportunity to showcase our latest new products and hear directly from our customers about their priorities and challenges. It was great to see many new names that have become customers over the last year and the solid foundation we've built going into 2024.Now a little more detail on each of our operating segments before I turn it over to Mick for more detail on our results. Sales of our Apollo optical transport products were very strong in the fourth quarter, increasing 47% quarter-over-quarter and 22% year-over-year. For the full year, optical sales increased 13%. We're continuing to innovate with the introduction of the new 1.2 terabit Apollo 9400 solution, which is definitely opening new opportunities and expanding the type of use cases we can address to include high-capacity metro and long-haul transport as well as data center interconnect and subsea applications. We've reached general availability on the first version of the 9400, which is focused on high-performance applications that maximize capacity over long distances and have made initial customer shipments. Availability is somewhat limited as we ramp production, but we have a good pipeline of customer trials over the next few months.Sales of our Neptune IP routers grew 16% in 2023 as we made good progress on our strategy to grow in this product segment. We're focused on several key areas of differentiation that are securing new wins, including TDM circuit emulation, 5G cell site routing, secure network services and IP MPLS broadband access aggregation. As previously discussed, the Neptune router is now also a key component of our Carrier Voice core solution, which is a very strategic entry point to carriers such as AT&T.As expected, EMEA was by far the strongest region in the fourth quarter, with IP optical sales increasing 50% versus the third quarter. This included a very strong quarter with the IDF in Israel and with MTN Global Connect in Africa, the seventh largest mobile operator in the world, providing telecom and data services throughout Africa. In North America, we continued our momentum with sales increasing 34% year-over-year with a combination of both IP routing and optical transport product lines. Growth in this region has been a key part of our strategy, and so it's very satisfying to see the results.Sales to rural broadband providers grew 26% year-over-year in the quarter. Last week, we announced a strategic win in the U.S. with American Electric Power. AEP is one of the largest energy distributors in the U.S. and manages an extensive, highly secure, reliable network that's a key part of our national infrastructure. After an extensive technical and commercial assessment, AEP has added the Ribbon networking portfolio to support their critical communication needs, which includes the Neptune, Apollo and Muse products. We already have a strong presence in the critical infrastructure market segment in Europe and look to further expand in the U.S. with major providers such as AEP.In Asia Pacific, sales to India in the quarter increased 34% year-over-year and for the full year. And in Japan, we've been successful winning several new accounts, resulting in revenue growth of over 300% in 2023. From a bookings perspective, we had a solid quarter in IP Optical with product and service bookings of 1.0x revenue. Given the significantly higher revenue level, this was a pretty strong result. In our Cloud & Edge segment, the lower spend from U.S. Tier 1 service providers continue to affect our year-over-year comparisons. But excluding U.S. Tier 1s, sales to all other customers were up 4% for the full year. Even with the lower sales, contribution earnings were strong with full year adjusted EBITDA of $121 million. Product and service bookings were good in the quarter and were 1.07x revenue and 1.03x for the full year.Sales to enterprise customers in 2023 grew 26% year-over-year, with the strongest growth related to voice modernization projects with the U.S. federal agencies. We collaborate closely with several of our service provider customers as well as a number of specialized secure federal integration partners to address this market. In particular, we're working closely with Dell to provide a comprehensive solution, as we highlighted in the press release earlier this week.In the fourth quarter, we expected to win and generate revenue from the first phase of a large federal project, but our integration partner was finally just awarded the project a few weeks ago. We now expect to recognize initial revenue on the project this quarter as well as across the year. We have a number of additional opportunities that are in late stages that we anticipate being awarded over the next six months.In the financial market vertical, we had a significant project in the fourth quarter with one of the largest global banks that included deployment of Ribbon's on-prem SBCs and centralized policy routing for their data center network upgrades. And the EMEA region was strong in the fourth quarter for Cloud & Edge with a significant win punctuated by an award we received from MTN Group called the Rise and Shine award. The project includes a new cloud-centric voice core, supporting interconnect traffic for MTN's wholesale group called [Baobab], and underpins the group's expansive telecommunication service across Africa. We continue to increase our focus on this region as Africa is expected to be one of the fastest-growing regions in the world in 2024.Finally, fourth quarter is our strongest period for renewing maintenance and support contracts. Our renewal rates remain very high, and bookings were strong in the quarter. At this point, we have almost 70% of the year's maintenance revenue and backlog for Cloud & Edge.With that, I'll turn it over to Mick to provide additional detail on our fourth quarter and full year results and then come back on to discuss outlook for 2024 in the first quarter. Nick?

Thank you, Bruce. Good afternoon, everyone. We were very pleased with our financial performance in the fourth quarter and full year of 2023 as we met the midpoint of our adjusted EBITDA profitability guidance due to very strong product gross margins and continued expense management. As always, please refer to our Investor Relations page on the Ribbon website for supplemental financial performance [lives].Let's begin with financial results at the consolidated corporate level. In the fourth quarter of 2023, Ribbon generated revenues of $226 million, which is a decrease of 3% from the prior year. For the full year of 2023, revenues were $826 million, an increase of 1% versus the prior year. Fourth quarter non-GAAP gross margin was 56.8%, which is 440 basis points higher than prior year due to very positive product mix, mostly in the IP Optical Networks business unit.For the full year, both business units increased gross margins. But as a result of a higher mix of IP optical products, the gross margin remained at 53.1%, which is the same as the previous year. For the fourth quarter, non-GAAP operating expenses were $90 million, an improvement of $7 million or 8% year-over-year, driven by reductions in R&D and sales expenses. For the year, operating expenses were $363 million, a net reduction of $24 million, driven by our restructuring programs.Quarterly non-GAAP net income was $22 million, which is a $6 million increase from the previous year. This generated non-GAAP diluted earnings per share of $0.12, which is an increase of $0.03 or 39% versus prior year. Full year 2023 net income was $36 million, which was more than double the prior year result. Diluted earnings per share was $0.21, up $0.10 or 93% higher than 2022. Our non-GAAP tax rate year-to-date was 34%. Our interest expense for the quarter was $7 million, which is a $1 million increase from the previous year, driven entirely by the interest rate increases.For the year, interest expense totaled $27 million, which is $8 million higher than previous year. Adjusted EBITDA was $43 million in the quarter, which is a $14 million improvement year-over-year. For full year 2023, adjusted EBITDA was $91 million, which is a $27 million increase from the previous year, mostly driven by the enhanced profitability for IP Optical Networks. Our basic share count was 172 million shares, and our fully diluted share count was 173 million shares for the quarter.Now let's look at the results of our two business segments. In our Cloud & Edge business, fourth quarter revenue was $122 million, a decrease of 11% year-over-year, driven by capital expenditure cutbacks from our U.S. Tier 1 service providers. For the full year, revenue was $478 million, which reflects a $30 million or 6% decrease from 2023. Our services business remained consistent at $293 million or 61% of revenues, delivering value to our customers and strong profit generation.The Cloud & Edge business had a strong fourth quarter non-GAAP gross margin of 67.8%, up 400 basis points from the prior year, driven by a large number of software sales, which were 69% of total product sales. For the full year of 2023, gross margin was 65.9%, up 80 basis points from prior year as we experienced lower cost of goods sold. For 2024, we would expect continued margins in the mid- to high 60% range.We continue to drive consistent profit contributions from the Cloud & Edge business segment. For the fourth quarter, adjusted EBITDA percentage was 28% or $34 million. This is a decrease of $2 million or only 5% from the previous year, although revenue decreased 11%. For full year 2023, adjusted EBITDA remained at 25% or $121 million.Let's turn to our IP Optical Networks business results. We recorded fourth quarter revenue of $104 million, which was an increase of $7 million, led by continued growth in EMEA, India, North America and Japan. For the year, revenues were $349 million for a strong 12% double-digit growth driven by the same strategic geographies and new product introductions.Non-GAAP gross margin for IP Optical was 44%, up 770 basis points from the prior year. This was mostly caused by a better regional mix from EMEA sales, lower product costs and increased fixed cost absorption from higher volumes. As we said in the last quarter, with higher revenues and especially with a greater percentage of sales in EMEA and America, we would improve gross margins beyond our targeted mid- to upper 30% range for IP Optical Networks.For the full year of 2023, gross margin was 35.7%, up 210 basis points. For 2024, we believe that we can achieve our targeted gross margin range of mid- to upper 30%. Adjusted EBITDA for the quarter was a positive $8 million. This is an improvement of $16 million year-on-year. This stellar performance validates that the IP Optical Networks business can achieve positive adjusted EBITDA with quarterly revenues over $100 million and better regional sales mix.For full year 2023, we improved IP Optical Networks adjusted EBITDA loss from negative $64 million to negative $31 million. Please note that we improved adjusted EBITDA by $39 million from the first half to the second half of the 2023 year in this business segment. We continue to be focused on achieving profitability for IP Optical Networks.Let's now discuss total company cash flows and capital structure. Cash from operations was excellent with a positive $20 million in the quarter and $17 million for the full year 2023. We used cash in the quarter of $3 million for capital expenditures and our quarterly $5 million term loan repayment. We ended the quarter with $27 million of cash and cash equivalents and the $75 million revolver loan at $0 balance outstanding.Our senior term loan balance was at $235 million, a decrease of $95 million from year-end 2022. Per the bank covenant calculations, which include $55 million of our preferred equity and total debt, among other adjustments, we comfortably met both of the amended term loan covenant metrics in the fourth quarter. The bank leverage ratio was 3.06x and the fixed charge coverage ratio was 1.55x. These covenant metrics are great improvements from December of 2022. The term loan A matures over one year from now on March 3, 2025, and the preferred shares mature even later on September 30, 2025.Given our 2023 financial performance and improved financial market conditions, our objective is to commence refinancing of our capital structure in the very near term. We are confident in the continued support of our financial partners to obtain a flexible and long-term capital structure to sustain our profitable growth.Now I'll turn the call back to Bruce to provide more comments on our outlook for 2024.

Great. Thanks, Mick. Entering the year, I'm very confident in our ability to continue to grow revenue and improve profitability. The investments that we've made in the IP optical business have transformed Ribbon into a data networking company, complemented by a unique voice communications practice with significant differentiation and a high barrier to entry. The combination is very powerful with a large addressable market that is constantly undergoing change in disruption, providing an excellent opportunity to expand our share in both the telecom carrier and enterprise markets.We accomplished a number of strategic goals in 2023. First and foremost, we improved the financial performance of the IP Optical Networks business every quarter last year, culminating in a profitable second half of the year. This is a dramatic improvement over the previous three years. We grew sales of both our optical and IP routing product lines and had strategic wins in all regions. There are three key factors behind this success. First, the deep relationships Ribbon has with service providers, particularly in North America and markets like Japan and Australia that we've leveraged to win and grow our IP Optical business. Second, the significant investment we've made to expand our portfolio with unique competitive advantages that have expanded our addressable market and third, the focused strategy we have on the Middle Mile segment of the market, where our combined IP and Optical portfolio is a perfect fit as networks blur the lines between optical transport and IP routing.In the Cloud & Edge business, we made good progress on our goal to expand sales in the enterprise market vertical. In particular, we have a strong position with large financial and health care providers, and we had a number of very strategic wins with U.S. Federal agents. And while our voice network transformation business was impacted by the lower spend by U.S. Tier 1 service providers, we had a very strong year internationally.Finally, we implemented a restructuring of the company early in the year, really the final phase of integration of Ribbon and ECI. This resulted in significant cost efficiencies, but more importantly, has improved execution and is helping unlock new innovation and product opportunities.Looking forward, we look to build on these accomplishments. The diversification in our business has been a key reason we're standing out from others in the industry. There are several key macro demand drivers driving investment (inaudible) that provide a clear road map for us. First, the investment being made to expand fiber reach is unprecedented and bolstered by governmental funding programs, particularly in the U.S. This was a major opportunity for us in 2023, and we expect continued growth this year. The middle mile portion of the network is a perfect fit for our portfolio, and we have a great pipeline of opportunities that includes a wide variety of critical infrastructure customers.Second, the global investment in deploying 5G has dramatically increased the capacity of the mobile RAN network and a similar investment is needed in the optical and IP access and aggregation networks. New generative AI applications are still in their infancy but are expected to create dramatically more traffic on the network in coming years. The access and middle mile parts of the network will require substantial investment to keep pace.Third, interactive platforms, such as Microsoft Teams and Zoom have become second nature for many of us, and adoption will continue to grow. This is a key catalyst behind the growth in our enterprise business. And finally, there's a relentless focus on lowering the cost to operate networks in order to fund investment in bandwidth and new services. And our solutions are a key enabler.While CapEx spending by U.S. Tier 1 service providers continues to be limited in the first half of the year, we expect this to begin to improve in the second half and be additive to the growth we have seen internationally. We're having detailed discussions with several of our largest customers regarding their plans over the next several years to address their remaining TDM and copper networks, and we expect a big push in this area. We also expect practically all U.S. federal agencies to initiate voice modernization projects in 2024, and we expect to build on the success in the win rate from 2023.From an investment perspective, we expect 2024 to be very similar to our approach in 2023, including additional efficiencies to offset normal inflationary effects. R&D investment is prioritized to capture new customers and deliver on road map commitments, strongly focused on the middle mile opportunity and the migration to cloud native architectures. We have new products across the portfolio that will continue to improve our competitive positioning and differentiation.Now on to guidance. We expect continued improvement in the financial performance of our IP Optical business with high single-digit growth in sales. Excluding maintenance, product and service revenues are expected to grow more than 10% year-over-year. With the higher sales and improved mix and lower product costs, we're targeting gross margins in the high 30s for the year and the potential to be accretive to company adjusted EBITDA.In Cloud & Edge, we're conservatively projecting revenue flat year-over-year with similar margins and EBITDA contribution. Visibility from U.S. service providers for the second half of the year spending is still developing. So, there's certainly an opportunity to do better than this as the year progresses. Our business has an element of seasonality with the second half typically much stronger than the first half as we've experienced in 2023. We anticipate a similar pattern in 2024 with the first quarter at the lowest point of the year.Overall, we're projecting 2024 revenue in a range of $840 million to $870 million. Excluding maintenance, this implies a product and service revenue growth rate of 6% for the company, which really stands out relative to an overall market that's growing low single digits. And as we continue to gain share in 2024 due to the investments we've made to modernize our product offerings. Adjusted EBITDA for the year is projected in a range of $110 million to $120 million, which would be more than 25% higher than 2023 at the midpoint.For the first quarter of 2024, we expect the lower U.S. Tier 1 service provider spending to continue and are therefore projecting revenue similar to last year but with significantly better margins and stronger bookings. Based on this, we're projecting revenue in the range of $180 million to $190 million, non-GAAP gross margins of 51% to 52% and non-GAAP adjusted EBITDA in a range of $5 million to $10 million for the quarter.As I stated earlier, demand for bandwidth and the growth in fiber networks is growing exponentially, and AI applications will supercharge this further with more stringent service level requirements. We believe this will be a catalyst for continued growth for Ribbon. As we continue to significantly improve our overall profitability, this should translate into significant value creation for our investors and our employees.Operator, that concludes our prepared remarks, and we can now take a few questions.

Thank you. (Operator Instructions). One moment, please, will be poll for questions. Our first question comes from the line of Erik Suppiger with JMP Securities.

Congrats on strong IP Optical. First off, just did you -- I know your carriers were weak. Did you have any 10% customers in the fourth quarter and for the year?

Erik, so, in the fourth quarter, we didn't have a 10% customer. We did for the full year. Verizon was 10% for the full year.

Okay. And then on the carrier front, it sounds like you think it could pick up. North American carriers could pick up as we get into the second half. What makes you think that, that will pick up in the second half? Or what context do you have around timing for improvements there?

Yes. Thanks, Eric. Good question. What we primarily sell into the carriers today is our voice modernization products. And so, what we've been working on is trying to lower the payback period basically for the deployment or the investment in those products. Today, if you're modernizing a Class IV or Class V switch, maybe the payback is seven or eight years. And a lot of it is related to the cost of real estate, power and cooling and those sorts of factors. Now if we can get that cost down to three or four or five years, I think it helps really improve the business case. So that's one of the key things that we've been working on.

And will that be available as you get into the second half of the year?

Yes. I think with the right kind of level of volume, we're able to lower those costs and be in that range. And I mentioned the discussions we're having. I think there's definitely a path here where the spending that we're seeing today in the first half of the year, which is consistent with the second half of last year, it starts to grow again in the second half of the year and get back to a little more historical levels.

Our next question comes from the line of Christian Schwab with Craig Hallum.

I just have -- my first question is a follow-up to the question that was just asked. And the service provider revenue in the second half being better. Can you give us an idea of what we should assume as the rough mix between the first half and the second half of the year?

Yes, Mick, I don't know if you have that off the top of your head, it's probably, what, 40% to 45% in the first half and 50% to 55%?

Yes, we've been averaging about 45% in the first half and the 55% in the second half and that follows the normal seasonal pattern of both telecom providers where they do their expenditures. They set their budgets in the first quarter and then most of the expenditures in the third or fourth quarter.

Okay. So even though the first half is starting to slow, the mix for the year looks to be relatively the same. Great. So, then we highlighted in the slides the B program and increased fiber investment could impact, as you talked about middle mile. Do you expect that to have a noticeable impact in the second half of 2024, or is that more of the 2025 event?

Right. So, about half of the programs, we're doing today in that rural broadband space, are leveraging some sort of governmental related funding program. So, it's not all of them. It's about half of them approximately. And most of those funding programs, all of them are not BEAD related. They're previous programs like RDOF and Reconnect America, those types of programs. So, BEAD would be additive to the current operating environment. And I don't see that funding coming in, in 2024. And if it does, it's probably not into our market segment, it might be in more of the access layer of the network. So, I think it's more of a 2025 phenomenon for us. So, the good news is we've done really well growing that business. I think last year, we were up about 88% year-over-year in the Rural Broadband segment without BEAD funding. So that could be -- we should be pretty additive to that.

Our next question comes from the line of Dave Kang with B. Riley Securities.

First question is on India and more specifically on Bharti. I think you have three programs there. Just wondering if you can give us an update, which program has started, which one is to follow any color on that?

Dave, so the India business was again pretty strong in the fourth quarter, very consistent with the third quarter. For the year, I think in India, we were up 34% for the full year, and we were up 34% in Q4 relative to the prior year. So, a really solid year in India, Bharti being our largest customer there. As you mentioned, there's kind of three areas of the business. One is around the optical transport, the second around cell site routers and then the third around their IP networking, the IP MPLS access layer aggregation layer of the network. All of those are active today. The cell site router was the one that we were ramping throughout last year. Our production is in a good spot now at this point. It's kind of balanced with the demand picture. And so, I think it's kind of leveled out, if you will, right? It's not -- I don't expect it to grow at the same rate in 2024 is what we saw in 2023 but should still be a pretty solid business.

So, a couple of European vendors. They said that third quarter was actually the peak and they saw a fairly sharp sequential decline in fourth quarter. You're not seeing that, and you still expect some growth all by slower pace for 2024?

Yes. So, what we saw in the fourth quarter was very consistent level to third quarter. We have seasonality in that region, just like we do in others. So, we -- the first part of the year will be slower. The budget cycle in India budgets are finalized at the end of March. So, I think we'll have better visibility on the second half of the year once we've gone through that process.

And wasn't India 10% or greater than 10% for the quarter and for the year?

Mick can double check the numbers there. Certainly, the growth, 30% plus growth year-over-year puts it right in that ballpark, Dave.

Yes. Certainly, for the company, it is above 10% and twice of that for the IP Optical business. Right.

Got it. And just a quick update on Neptune and AT&T. I think you were pretty bullish about maybe a figure opportunity. Can you give us an update on that? Maybe not this year, but can you reach that eight figures maybe by next year?

Yes. So not a lot of new information to share, and I don't want to get ahead of our customer on their plans. Early deployments are continuing. It's not a fast process to do these migrations, so it does take time to do the implementation. And I think we'll continue to grow the business there as the year progresses. And I still think the market opportunity is exactly as I described it on our last earnings call. And it will take a bit of time to get to those levels for sure, Dave. It's probably not a this-year thing, but I think as we get into next year.

And my last question is regarding IP Optical on adjusted EBITDA for first quarter. Is it going to be negative or positive?

Yes. So, we are expecting good margins in the first quarter, but at lower revenue levels than we had just in the fourth quarter, up considerably year-over-year, but not -- again, given the seasonality, it will be lower than Q4. So, I think the adjusted EBITDA in the first quarter is likely negative. We'll see what the final mix looks like, but dramatically better than what it was a year ago.

Our next question comes from the line of Tim Savageaux with Northland Capital Markets.

I'm trying to put a few more numbers together here. There's a lot of them. But in talking about -- I think you talked about Cloud Edge being up 4% ex Tier 1s in 2023. I mean, when I'm looking at it, that means your Tier 1s are down 40% or so, something like that. So, A, is that about right? And you outlaid a lot of anecdotal kind of growth drivers that we're honestly not really seeing in the guide very much. But it looks like if you're able to continue to grow Cloud Edge ex Tier 1s and from the sounds of the federal stuff and enterprise, that should be the case. You're expecting another down year in Tier 1s implicit in this flat guide. Am I getting something wrong there? And I'll follow up.

Yes. So, on the first part of the question, Tim, the Tier 1s were down in the mid-20s. That's sort of ballpark. So not at the 40% range, kind of mid-20s. And what was the second part of the question? I'm sorry, Tim.

Yes, that was U.S. Tier 1s I was talking about, by the way. I don't know if that answer is the same for both.

And that's only for -- well, obviously, pertains to Cloud & Edge.

For Cloud & Edge, right, U.S. Tier 1s. That's right, Tim.

All right. Well, if you have IP Optical business with U.S. Tier 1, it would be a good time to tell us about that right now.

Well, I mentioned one of the programs on the last earnings call and don't have a lot of updates this go around.

No, I mean for (inaudible) and these compares.

Yes. No, let me just be clear. The U.S. Tier 1 decline, we can describe it in two ways relative to the full company revenue or relative to Cloud & Edge in the Cloud & Edge all other customers, excluding U.S. Tier 1, were up 4% year-over-year for the full year. At the corporate level, it was 8%, given the increase in IP optical obviously.

Okay. And then the rest of the question was if you're guiding flat, it looks -- doesn't look like you're -- it looks like you're factoring in further declines in U.S. Tier 1s. That's what my number is -- So, that seems terribly consistent with easy compare and the relatively positive second half commentary.

Yes. We're being cautious still on what the outlook is and when the incremental spend starts to come back. We are growing clearly in enterprise. We're growing in federal. We're being cautious about what the service provider market looks like. Obviously, we've seen growth internationally in that segment. So, we'll see what we look like over the next few months here, and we get a better visibility into the second half of the year.

Okay. Just to beat this completely to death, and I should have started right here. So, do you expect to be north or south of that 4% growth rate ex Tier 1s in Cloud & Edge in 2024?

It's probably a similar number, I think, Tim. The momentum internationally, the programs, in fact, as we book some of these deals, the revenue gets recognized over a period of time. So, we've got a good start on that. And so, I think enterprise, international, federal, they all grow this year relative to 2023.

Okay. Great. Just 1.5 more here. You've got IP Optical growth decelerating. You had a couple of big wins you just announced. What sort of contribution material -- and it doesn't sound like -- it sounds like India is a bit of a tough compare, but not horribly. So, what sort of contribution do you have factored in from your big utility and your big telco when you've announced here in the last couple of quarters in 2024?

They're not dramatic tens and tens of millions of contributions. Each one of these contributes probably single-digit millions this year to the revenue line, Tim. And so, we need to keep adding those types of customers that will help us continue to grow. As I mentioned, we think the product piece of IP Optical grows at 10% or more this year. There'll be a piece of that. Of course, there will be some regions that don't grow. So, you've got to make that up in other areas. So that's our best view at this point.

Okay. So combined, it looks like there are a significant chunk, more than a third of your growth plus you expect India to grow. I'm just trying to get down to what you're telling us about the rest of the world here. Last question for me. If indeed, IP Optical can breakeven, looks like you're actually forecasting a pretty significant or at least modest margin decline for Cloud & Edge next year. It seemed like the anecdotal commentary there was flat. So, I just want to try and reconcile those, too.

Yes. So, our best view right now is the gross margin percentage for Cloud & Edge is pretty consistent. It doesn't move around dramatically. It will move 100 basis points here or there depending on some amount of hardware that we ship, but a lot of it is software, a lot of it is services. So, we don't think there's a dramatic change. If there is it's in the 100 basis point or so range, I think, Tim, not much more significant than that.

There are no further questions at this time. I would like to turn the floor back over to Bruce McClelland for closing comments.

Yes. Thank you, and thanks for everyone being on the call and your interest in Ribbon Communications. We look forward to speaking with many of you at our upcoming investor conferences. We've got the large Mobile World Congress coming up in Barcelona in a few weeks, and we'll see some of you there and the optical OFC conference in San Diego towards the end of March. So, with that, thank you, operator, and that concludes our call.

Thank you. You may disconnect your lines at this time. Thank you for your participation.