Q1 2024 Ribbon Communications Inc Earnings Call

Participants

Joni Roberts; SVP, Chief Marketing Officer; Ribbon Communications Inc

Bruce McClelland; President, Chief Executive Officer, Director; Ribbon Communications Inc

Miguel Lopez; Chief Financial Officer, Executive Vice President; Ribbon Communications Inc

Christian Schwab; Analyst; Craig-Hallum

Dave Kang; Analyst; B. Riley Securities

Trevor Wall; Analyst; JMP Securities

Presentation

Operator

Hello, and welcome to the Ribbon Communications first-quarter 2024 financial results conference call. (Operator Instructions) As a reminder, this conference is being recorded.
It is now my pleasure to turn the call over to Joni Roberts, Chief Marketing Officer. Please go ahead, Ms. Roberts.

Joni Roberts

Good morning, and welcome to Ribbon's First Quarter 2024 financial results conference call. I'm Jonae 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, our BPM.com. For 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 second 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 as recent Form 10 K. I refer you to our Safe Harbor statement included in the supplemental financial information posted on our website.
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 the call over to Bruce. Bruce?

Bruce McClelland

Great. Thanks, Joni. Good morning, everyone. And thanks for joining us at this new time today to discuss our Q1 results and outlook for the year. I'd like to start with a few comments on the major announcement we just released with Verizon this morning. As I've mentioned on recent calls, there's a significant opportunity with telecom service providers and large enterprises, including the U.S. federal government to complete the replacement of legacy TDM voice switching platforms with modern cloud-based solutions. There's a strong ROI for our customers with multiple benefits, including improved overall quality and reliability of their service.
Significant cost savings from lower power consumption and cooling requirements, a reduction in facilities and floor space that can be repurposed to meet the exponential growth in data consumption for mobile and broadband services and lower engineering and operations effort needed to manage this complex network, all while significantly reducing the environmental footprint made from providing this critical communication service. We're very excited about this new multiyear program with Verizon. It's an extension of the ongoing work we've been doing together, but on a much larger scale within will provide both product and professional services to rapidly decommission legacy central office equipment while fully maintaining current services and features.
The initial deployment phase of the program will be over the next three years, leveraging our full portfolio of virtual and cloud native call controllers and session border controllers, advanced analytics, online access and Universal Media Gateways. We expect the program to generate over 300 million in revenue for Ribbon over that period with potential for follow-on programs to continue to support for our business efforts in building the most advanced networks, we work closely with the Verizon team to reduce the implementation cost by defining a focused large-scale project that is economy of scale benefits.
This is a major endorsement of both Ribbon's portfolio and expertise from the migration of these complex communication networks. A measured approach, Verizon is taking to migrate services and preserve significant revenue streams is applicable to practically all our other service provider customers where we aim to develop similar programs and generate significant benefits from this cloud migration.
Now onto our first quarter 2024 results. We had an excellent first quarter where our strategy to leverage our long-term relationships to diversify and grow. Our business continues to pay off. Profitability improved significantly year over year and exceeded the high end of our guidance range. With adjusted EBITDA of $12 million. We benefited from a favorable mix of sales to customers in the quarter, particularly in the EMEA region, where sales increased 24% as compared to the first quarter last year. The higher sales in EMEA resulted in strong gross margins exceeding 40% in the IP Optical segment, as well as the seventh straight quarter of year-over-year sales growth. This includes customers across a number of markets, including service provider, defense and critical infrastructure.
Gross margin in the cloud and edge business was also strong in the quarter, primarily due to continued growth in the enterprise market with product sales increasing 15% year over year. This includes a number of voice modernization projects with US government federal agencies, strong gross margin and reduction in operating expenses of 5% year over year contributed to earnings exceeding the top end of our guidance for the quarter, adjusted EBITDA over the trailing 12 months increased to $105 million for the company, a major improvement trend over the last several quarters, while lower spending from U.S. Tier 1 service providers continued to impact our cloud-managed results with sales declining 11% year over year this quarter with our new Verizon program and the potential for similar engagements of other customers, we believe we've reached a low point and expect solid recovery in the business.
We expect the new Verizon program alone to underpin this business for the next several years. This quarter, we also continued to increase the software content of our product sales growing from 25% to 29% year over year. Increasing margins. Continued growth in enterprise has been a key driver behind higher software sales, improved margins and solid earnings contribution. Overall Company sales in the quarter were at the lower end of our guidance with a few million of equipment in transit at the end of the quarter and site readiness delays with a few smaller deployments for rural customers in the US.
Now a little more detail on each of our operating segments. Building on the momentum from the second half of 2023 IP optical network sales increased 9% year over year in the first quarter, with the majority of the growth coming from the EMEA region. This resulted in stronger margins for the segment, consistent with the previous quarter at 41% and a significant improvement of $17 million in adjusted EBITDA versus the first quarter last year.
In EMEA, the critical infrastructure private networks market segment continues to be a great fit for our portfolio where high performance and information security are major differentiators. We had a number of expansion projects in the defense sector with customers such as the Israeli Defense Force, the Swiss Army and the Finnish defense forces. We also had several new projects with customers in segments such as energy, distribution, railways and education. This all complemented ongoing business with a number of service provider customers across the region in the Asia-Pac region, sales to key customers in India, including Bharti Airtel and Tata Teleservices were down only slightly year over year and included a full portfolio of both optical transport and IP revenue products.
There are also very positive signs that Vodafone Idea will complete their long awaited capital injection with the company's public offering successfully completing this week, they plan to invest aggressively in 5G upgrades, and we believe we are very well-positioned to be a key suppliers that reinvest in their network driving growth for the India region in the second half of this year.
In the Americas region, IP optical sales increased year over year in Canada, and Latin America, while shipments into the US were lower in the rural broadband segment this quarter due to customer timing and site readiness delaying revenue recognition into the second quarter from a product line perspective, sales of our Apollo optical transport products were once again strong this quarter, increasing 9% year over year. This reflects the stronger mix of these products sold into the EMEA region and is a good start to the year. We expect this optical growth trend to continue as our new Apollo 94 hundred platform from shipments continue to grow, supporting the highest 1.2 terabit per second speeds available in the market today.
We're effectively expanding our addressable market with this platform and are able to better address services such as data center interconnect, complementing the current 96 hundred platform that's favored by telecom operators. We've shipped more than 50 94 hundred chassis so far and have a pipeline of more than 20 opportunities in process. Sales of our Neptune IP routers grew 2% year over year in the first quarter, reflecting lower rural sales this quarter. Also the first quarter of 2023 were the first volume shipments to Bharti for the 5G cell site router last year, climbing their deployments and building some inventory. We expect this product line to continue to grow with a very good pipeline of new customer opportunities.
Overall, IP optical product and service bookings were 1.07 times revenue in the quarter. Building backlog for the second quarter in our cloud and edge segment. As expected, the lower spend from U.S. Tier one service providers continued to affect our year-over-year comparisons with the reduced spending starting midway through the second quarter last year, excluding sales to our large US Tier one customers. Revenue in the first quarter for all other customers grew 1% year over year, despite lower overall industry investment with the new Verizon program, we expect a significant improvement going forward.
Enterprise Cloud & Edge product sales increased 15% year over year in the quarter with the continued expansion of a major voice modernization project with a US federal agency. We expect this trajectory to continue in the second quarter.
The cognitive business continued to drive strong profitability due to higher software mix and product and service bookings were good in the quarter at 1.06 times revenue. We expect a much stronger second half of the year in our cloud-managed business with the continued momentum in enterprise and a significant increase in sales to service providers. This includes the beginning of the new network modernization program horizon. We expect initial product shipments from that project to begin in the third quarter and deployment services to ramp as the program accelerates exiting the year at $100 million per year run rate once again with this key customer, providing a strong foundation for growth in this segment. We continue to maintaining strong reoccurring maintenance business across our customer base and have approximately 80% of this year's maintenance revenue and backlog are under contract for the cloud-native business as well as for the IP Optical segment.
With that, I'll turn it over to Mick to provide additional detail on our first quarter results and then come back on to discuss outlook for the second quarter.

Miguel Lopez

Yes, thank you, Bruce. Good morning, everyone. We were very pleased with our financial performance in the first quarter as we exceeded the high end of our guidance for gross margins and adjusted EBITDA on strong performance by IP optical networks, in particular, on a trailing 12 month basis, our adjusted EBITDA is $105 million back to levels over $100 million prior to the 2022 supply chain disruption as always, please refer to our Investor Relations page on the ribbon website for supplemental financial information.
We will also see that we have now included an Excel worksheet to facilitate your analysis let's begin with financial results at the consolidated corporate level. In the first quarter of 2024, Ribbon generated revenues of $180 million, which is a decrease of 3.5% from the prior year. Non-gaap gross margin was 55.1%, which is 700 basis points higher than prior year due to a positive product and regional mix. As you will hear, both business segments had significant improvements in gross margin percentages versus prior year.
Non-gaap operating expenses were $91 million, an improvement of $5 million or 5% year over year, driven by continued reductions in R&D and sales expenses from last year's restructuring efforts. Non-gaap net loss was negative $1 million, which is a $2 million improvement from the previous year. This generated non-GAAP diluted loss per share of negative $0.01, which is an increase of $0.01 versus prior year.
Our non-GAAP tax rate year to date was 35%. Our interest expense for the quarter was $6 million, consistent with the previous year. Adjusted EBITDA was $12 million in the quarter, which is a great $14 million improvement from last year's EBITDA loss of negative $2 million. This is the best first quarter profit performance in the last three years. Our basic share count was 172 million shares and our fully diluted share count was 175 million shares for the quarter.
Now let's look at the results of our two business segments. In our Cloud & Edge business. First quarter revenue was $102 million, a decrease of 11% year over year, driven by lower product sales at U.S. Tier one service providers. We are increasingly confident that we can grow our revenues for this business segment with the incremental business from Verizon's network modernization program, the cloud and edge business had a strong first quarter non-GAAP gross margin of 66%, up about 500 basis points from the prior year. This improvement was driven by an increasing mix of software product sales, which were 68% of total product revenues. Cloud & Edge business segment continues its steady cash and profit contribution with an adjusted EBITDA of $17 million or 17% of revenues.
Let's turn to our IP Optical Networks business results. We recorded first quarter revenue of $78 million, which was an improvement of $6 million or 9% increase versus the prior year. Non-gaap gross margin for IP Optical Networks was 41%, up about 1,400 basis points from the prior year from 27% in the first quarter of 2023. This resulted in gross profit of 32 million, which is a 12 million or 64% improvement from previous year, mostly driven by lower product costs and better regional mix from E. and EA. sales.
If you recall, one year ago, we made sales of our initial long-haul optical transport infrastructure equipment to India. Until remarks adjusted EBITDA for the quarter was a loss of $6 million, which is an improvement of $17 million year over year. This is the seventh straight quarter of year over year improvement in IBM profitability. We continue to strive for positive adjusted EBITDA for this business segment in 2024 as it continues to grow.
Let's now discuss total company cash flows and capital structure. Cash from operations was excellent. The positive $13 million in the quarter. That's now two positive cash flow quarters. We used cash in the quarter of $3 million for capital expenditures in our quarterly $5 million term loan repayments. We ended the quarter with $31 million of cash and cash equivalents, an increase of $4 million from the end of 2023.
Our senior term loan balance was at $230 million and a $75 million revolver loan had zero balance outstanding. Our bank covenant calculations which include $55 million of our preferred equity and total debt. Among other adjustments, we comfortably met both of the term loan covenant metrics in the first quarter. Our bank leverage ratio was at 2.71 times, which is within our target range of two times to three times. The fixed charge coverage ratio was 1.77 times. Speaking, of debt.
We have started the process of refinancing our capital structure, both the term loan and preferred shares. Part of this process. We have already received a B. two rating from Moody's and a BB minus from Standard & Poor's, both with a stable outlook. You may have noticed that we rescheduled this earnings call from the afternoon to the morning to accommodate the lenders kickoff meeting this very afternoon. Assuming stable market conditions, we expect to have our refinancing done in several weeks. We remain 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 the second quarter Great.

Bruce McClelland

Thanks, Mick. As I said last quarter, I'm very confident in our ability to continue to grow revenue and improve profitability. This year. The new Verizon program will provide a strong foundation for the Company with opportunity for similar programs with other telecom operators. We expect revenue from the Verizon program to begin in the third quarter with deployment ramping over time. The improved margin trend over the last few quarters. And the strong profitability in Q1 further increase our confidence of achieving our full year guidance.
In addition to the recovery in the cloud-managed telco business. We continue to add significant new wins with US federal agencies that are initiating their own voice modernization programs, but that we have a very strong and growing global government and defense business that leverages our entire portfolio of voice and data products and a strong professional services practice tailored for this market vertical, the scalability, reliability and information security aspects of our products are significant differentiators and there's a larger market that we are not yet fully addressing. We have made this a strategic area of investment given the large opportunity, particularly in North America and Europe. Globally, the government and federal market segment accounted for almost 10% of overall sales for Ribbon in 2023.
From a portfolio perspective, I'm excited about our innovation pipeline. As I mentioned earlier, our new Apollo 94 hundred compact modular optical transport platform is gaining momentum and significantly expands the portion of the market that we can address, including long haul transport, subsea networking and data center interconnect, what we've already been successful penetrating these markets and have multiple deployments with customers such as Bharti IPS, Cynthia and telcos, the 94 hundred platform has been purposely designed for the unique environmental requirements of these market segments.
We conservatively estimate $1 billion increase to our addressable market and are excited about the momentum behind this new product with the interest free leading 1.2 terabit per second coherent optics at the recent Optical Fiber Communication Conference in San Diego, we made a joint announcement with Cisco, highlighting the interoperability between our 94 hundred platform and the Cisco NCS 1014 platform interoperability and optical networking is very rare and is a great endorsement of our open networking strategy. This will enable our customers to stay on the cutting edge of technology without being locked into proprietary solutions.
In our IP routing portfolio, we continued to expand our product line and just completed the introduction of the Neptune 2,400 high-performance aggregation router, leveraging a common network operating system for 2,400 is a great fit for middle mile and edge aggregation applications and supports a rich set of IP routing features and capabilities. This allows us to address a growing number of IP services this 4.8 terabit non-blocking rather supports a significant number of 100 gig and 400 gig client-side interfaces, making it an ideal platform for a number of high-capacity applications with Coherent ZR plus optical uplinks, the lens by which our customers manage our portfolio.
Data Networking products is our cloud native news platform with our customers. We've identified a number of practical applications that can benefit from the power of generative. They are complex network planning, rapid fault isolation and root cause analysis and intelligent network optimization are great examples of the way we are leveraging generative AI to improve our products and differentiate our solutions. So we're off to a solid start in the first quarter and are making very good progress on our key strategic goals, including achieving sustainable profitability in our IP Optical business, returning to growth in our telco voice infrastructure business, diversifying and expanding sales in enterprise market verticals, including financial health care and government information security and accelerating innovation and capture and cost efficiencies with full integration of our product teams.
For the second quarter, we expect sequential growth in both of our businesses in IP optical, we expect continued momentum in the EMEA region as well as growth in North America and Asia Pacific. We expect gross margins to continue to be in the high 30s or better in cloud-managed. We expect improvement in the U. S Tier one environment, coupled with growth in enterprise as well as the additional US federal projects. Based on this for the second quarter, we're projecting revenue in a range of $200 million to $210 million, non-GAAP gross margins of 53.5% to 54.5% and non-GAAP adjusted EBITDA in a range of $20 million to $25 million. Our guidance for the full year remains unchanged, although as I mentioned earlier, we're definitely off to a good start to meet these financial objectives along with a strong second half.
Operator, that concludes our prepared remarks, and now we can take a few questions.

Question and Answer Session

Operator

(Operator Instructions) Christian Schwab, Craig-Hallum.

Christian Schwab

Hey, congratulations on the big Verizon order. I just had a couple of questions about that. One. Would you know what type of gross margin over time. Should we assume that that and some will be done that? And then as far as the CAD300 million from three year timeframe, is that back-end loaded or does that I know it's good start in the second half, but does it step up big in 25? Any color there would be great.

Bruce McClelland

Yes, hey, good morning, Christian. Thank you on. So on the gross margin question, we have a mix of product and services that we're supplying to the program. So it may vary a little bit just depending on the activity and uptick quarter on a blended, it's probably a little below the current gross margin level for cloud and edge, which is, as you know, high 60s. So it's a little below that just because of the higher content in hardware and services, but still pretty solid obviously.
And on the on on the question on kind of the speed and the ramp up. We definitely get started in earnest in the second half of this year and kind of achieve full velocity as we get into 2025 and stay at that level for a couple of years effectively. So this is a pretty extensive program. You can imagine that the effort that's required to go into these switching centers and switch out equipment seamlessly and everything. So there's quite a it's a it's a pretty long process, which is great. It's going to be a great program.

Christian Schwab

Great. And then I just have one quick follow-up just on the rural broadband stuff. I know other people inside the space are kind of suggesting that that really doesn't kick off until Q1 of 25, but it sounds like maybe some of the things that you're working on may start a little bit sooner than that. Just did I hear that incorrectly or how should we be thinking about that?

Bruce McClelland

Yes, it's a good question. So the middle, the bead program, the $42 billion B. program. So it doesn't really start until next year timeframe. In fact, I think for us. It's kind of second half of next year. About half of the rural broadband programs we have in process today are assisted in one form or fashion from other federal funding programs like aren't often those sorts of programs. So well, we've got a nice base, a nice funnel of activity there, even prior to the larger funding program coming in fantastic no other questions.

Christian Schwab

Thank you.

Operator

Dave Kang, B. Riley Securities.

Dave Kang

Thank you. Good morning and my first question is is the follow on on that Verizon when Verizon was a major customer. So I was just wondering what's the delta between the old program versus the new one?

Bruce McClelland

Yes, hey, good morning, Dave. Tom. So this is obviously a major step up from the current run rate we're at today on I think I mentioned in the remarks that we'd exit the year at a greater than $100 million per annum run rate with them, which is maybe where we were a few years ago back when other programs we're very active. So we get back to that level or better in the next few years here as this program really starts to gain energy.

Dave Kang

So like, you know, back to where Verizon was several years ago, but what was the run rate in recent years, like in the last year or two where they had like $50 million going to $100 million or in particular there?

Miguel Lopez

Yes, sorry, Dave? Yes. So the I'm given there were a 10% plus customer. We actually break them out in our Q and our K I can't remember the exact number for 23, but I think it was in the mix. You remember what the number was 10 or 11%. Yes. So in call it organic by 18? Yes, yes. Okay.

Dave Kang

All right. Thanks for that. And then on just on the question on India, if you can talk about what's going on there? And also, you mentioned the Vodafone Idea, what kind of opportunities do you see which product? Any color there would be great.

Bruce McClelland

Yes, absolutely. So on the first quarter, sales in India were essentially flat to what we did a year ago. And if you recall a year ago, we had a really good quarter. We started to step up the deployments in India. I think we grew 30% total last year. So it's good to see that business continue to be solid. And the key customers there today are names like Bharti and Tata and a little bit with Reliance and a few others on Vodafone, as you recall, is the third largest mobile operator in the region and that needed to refinance their balance sheet, which has been a discussion now for probably a year.
It was great to see actually on Monday this week bake they closed the on the equity raise process that they were doing the secondary offering I think it was well oversubscribed according to the articles I read. I think there's a debt funding that follows that. And then their strategy is to obviously work on catching up in the market investing pretty heavily both in 4G capacity as well as a 5G build-out. And what we provide is some of the optical and IP infrastructure as well as we're a provider on the on the voice side on the cloud and edge business as well. So we're glad to see that really start to move in the right direction and hope that business grows pretty substantially in the second half of the year.

Dave Kang

Got it. And my last question is on the CN. I sounded very cautious about the optical demand optical market right now, even European market, but not in Belize. So I get that from you guys. Is there like a market share shift going on? Why are you a little bit more optimistic than us Sienna?

Bruce McClelland

Yes, I think it depends on the segments, the part of the market on and we're focused on. Clearly, center has a large business with the large carriers on strong business with the ICPs where we're doing well as critical infrastructure, defense segments and some of the carriers. So it's the diversification that we've got has helped us here. Having both an optical portfolio and an IP routing portfolio really helps us. And so the result was yet again another another quarter of growth, seven quarters in a row now where we've had year over year. Growth in that segment I think was 9% in the first quarter.

Dave Kang

Got it. Thank you.

Operator

Trevor Wall, JMP Securities.

Trevor Wall

Great. Thanks, Tim, and thanks for taking my questions. Um, Bruce, you mentioned on last quarter about the larger federal deal that had slipped into 1Q on just more for confirmation on that. Did the bulk of the revenue expected from that deal then kind of fall in the quarter? Or might there be more kind of miss that further ramps up kind of next quarter throughout the year? And then I've got a follow-up. Just kind of a broader kind of federal spending Hemisphere.

Bruce McClelland

Hey, yes, good morning, Trevor? Yes, good question. So it turned out that deal that has been awarded the revenues actually still coming. So we expect actually more of it here this quarter and throughout the year in the in the first quarter, we actually closed another deal, another extension deal with another agency. So you can get the idea. There's a lot of these kind of going in parallel.
And as I've mentioned a few times trying to predict the timing on them tends to be a little bit of a challenge, but it's great to see that Tom we've got, I'll say, multiple irons in the fire, right? All these agencies need to do a modernization program, not unlike the program we talked about with Verizon, where we're replacing legacy TDM infrastructure with modern cloud based on technology. And so in the first quarter, we had another couple of release done substantial deals close and go to revenue. And the one I talked about last quarter is still coming forward, which is great.

Trevor Wall

Great. Thanks for the color. That's super helpful. And actually, a good segue to where I was going to kind of follow up. I'm just we hear kind of different takes on from companies that we cover that are doing business within the federal kind of sphere around just the government funding the continuing resolution, et cetera, and some of the challenges there with the current Congress.
Just curious to see how what your take is and whether or not that is or isn't kind of affecting some of the timing on some of these things and how you maybe see that progressing through the year and obviously not going to have you to pontificate necessarily on the on the election outcome, but just how you see that overall federal business kind of flowing and kind of maybe some of the trends that you're seeing specific to revenue?

Bruce McClelland

Yes. We definitely see it as a distraction, even if funding is allocated and available on a particular program that we're working on, which generally speaking is the case at the either that the CR process or the distraction around the shutdown threats back of a few a few quarters ago just tends to be a distraction for the people who are engaged with you can't they can't help, but be distracted by it, particularly if there's a looming shut down their planning around how they manage through that, et cetera.
Again, the good news is we've we haven't seen any programs be unfunded or canceled or delayed. It's just is it does it get over the finish line one quarter versus the next one is really what we see. So so far it seems to be manageable. I did emphasize a little bit and in fact, there's a new slide in our deck that's posted on the website. Just how significant the federal and the government space has become for the Company.
In addition to the work we're doing here in the US around voice modernization, we have a really important business internationally with a number of government agencies on both on the kind of the military side of the defense side as well as on the civilian side, where building out really secure highly secure information service networks is really important. And I think we're really differentiated there to get into the details on the products in the way that we encrypt traffic, the way that we protect our message flows, et cetera, is pretty unique. And so that that whole segment has really grown for us and was almost 10% of sales last year. So it's another important segment in diversifying the company.

Trevor Wall

Great. Terrific. And maybe just one last one for me and then I'll get back in the queue. On the you had mentioned in your prepared remarks around just some of the differentiating factors around the security and cyber aspects of of the products. I'm just wondering, is that a function of kind of competitive products not really having anything to kind of help customers on that front?
Or is it more just not just something that's not up on par with what you guys are kind of currently doing? Just could you maybe just double-click a little bit in terms of how you see that differentiation actually playing out on the security front?

Bruce McClelland

Yes. So I think it comes from kind of the close engagement with a number of these agencies where we're dialoguing with them on what are their requirements, what are their future needs and then building some of that into the products. So it starts out with somewhat of a custom capability and then we make it more general that we can bring it to market to other similar agencies and it actually helps out the rest of our Critical Infrastructure business.
If we're selling to us an energy company or an energy distribution company like like American Electric Power, AEP, we talked about last quarter capabilities that we built in for defense application end up differentiating us in that space as well. So it's a little bit of a long sales cycle, but once you're in dialoging, understanding the future requirements, it really makes the whole the whole portfolio better.

Trevor Wall

Great. Super helpful. Thanks, Bruce, and thanks, Matt. Appreciate the time.

Operator

Tim Savageaux, from and also in capital markets.

Hey, good morning and congrats on the results and the outlook around, especially on the US bottom line execution there. And you mentioned a P, Bruce, and that was really the Feraheme focus. And my first question from that was one of a couple of deals seemingly significant opportunities that you guys talked about last year along with them, AT&T and I guess I wanted to ask about contributions from from those opportunities in the first half. I guess, maybe Q1 or Q2 or what your expectations are for the year? And then maybe some broader commentary on your Tier one pipeline in IP optical. And I'll follow up from there. Thanks.

Bruce McClelland

Yes, hey, good morning, Tim, if I just kind of take those one time here. So on a PEA that the press release we did with them back early first quarter. It was at the combination of signing a contract with them and becoming one of their suppliers in the network. We're now we're now fully engaged with them on that program. And have not deployed anything yet, but in process, if you will. So that's mostly a second half your program for us from a actual revenue perspective. So So early days still But Tom, great to have that, that partnership start to want to develop. And again, very similar to the types of deployments we have in Europe already today with a number of energy distribution customers like like expos an example that's in the Switzerland, Swiss region.
The AT&T engagement continues to progress nicely, where we've been able to leverage both the voice core as well as our IP routing platforms into a of a combined solution that helps them modernize their TDM network, somewhat similar to the Verizon announcement today, but a little different deployment strategy there again, that program just kind of continues to progress quarter by quarter through throughout this year and and hopefully scale into future years here. And maybe, Tim, do you have any other further questions around some Tier one opportunities yet as we've seen on the sales cycle is long on these. But in particular, as I mentioned, with the new platform, we just introduced that really moves us into some kind of a leading edge around optical transport. We're seeing good, good engagement there, activity both from us and a lot on our PRI. five process as well as proof of concept trials in the lab in network, et cetera. So I'm hopeful we'll progress on some more of those types of announcements as the year goes on here.

Okay, great. And then switching over to the cloud edge, I think last quarter you're talking about some different trends across the Tier one and kind of enterprise federal part of the business for leading to some kind of a flattish outlook for the year, seems to be a change here in terms of looking for some growth and cloud edge maybe as a result of the Verizon deal, maybe some other factors. But can you confirm that your outlook is a little bit stronger here and talk about what's what's driving that for cloud IT?

Bruce McClelland

Yes. So the answer to that is definitely yes, on we put full year guidance together back to back in the early February timeframe. We had visibility on a number of these programs. We obviously had the discussion with Verizon in process at that point, and we're hopeful that that would come to fruition. And as we sit here today, clearly being able to announce that today is a big deal for us and really puts a solid foundation under that business, not only in the second half of this year, but the next several years.
So that significantly improves our confidence in that view. Not only are we expecting growth in enterprise and federal in cloud and edge? I think we definitely have the opportunity to grow now in service provider, which is a different kind of a different message. So it definitely gives us a lot more confidence in in the outlook. And we'll see we're at midyear.

Great. Thanks very much, Jeff.

Operator

We reached end of our question-and-answer session, and I'd like to turn the floor back over to Bruce for any further or closing comments.

Bruce McClelland

Okay, great. Well lot. Yes, thanks. Thanks for that, and thanks again for everyone being on the call here early this morning. And in the interest in Ribbon Communications. We really look forward to speaking with many of you in the upcoming investor conferences. We have quite a slate coming up here in the second quarter and keeping you updated on our progress. So thanks very much and have a good week.

Operator

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation.