Ribbon Communications Lands $300 Million Verizon Contract Despite Weak Q1 Earnings

Ribbon Communications secures a $300M multiyear contract with Verizon to modernize the telecom giant's network, despite facing financial challenges in Q1 2024. This deal is seen as a critical shift that could drive Ribbon's future growth.

Salman Khan
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Ribbon Communications Lands $300 Million Verizon Contract Despite Weak Q1 Earnings

Ribbon Communications Lands $300 Million Verizon Contract Despite Weak Q1 Earnings

Ribbon Communications Inc. (Nasdaq: RBBN) announced on Wednesday a major $300 million multiyear contract with Verizon Communications Inc. (NYSE: VZ) to modernize the telecom giant's network. The deal involves Ribbon providing products and professional services to help Verizon decommission legacy equipment and migrate to cloud-based solutions. This is expected to generate over $300 million in revenue for Ribbon over the next three years.

The announcement came despite Ribbon reporting weak financial results for the first quarter of 2024. Revenue for Q1 was $180 million, falling short of analyst estimates. However, the company significantly narrowed its losses, with a GAAP net loss of $30 million compared to $38 million in the same period last year. Ribbon also saw strong performance in the EMEA region and a 9% increase in sales in its IP Optical Networks segment.

Why this matters: The Verizon contract is seen as a critical shift for Ribbon Communications that could serve as the foundation for the company's future growth. It demonstrates Ribbon's ability to land major deals with top-tier telecom customers, despite facing challenges in its overall financial performance. The deal also highlights the ongoing trend of carriers modernizing their networks and transitioning to cloud-based technologies.

Under the contract, Ribbon will provide Verizon with its portfolio of Voice Products, including the C20 Call Controller, G5 Line Access Gateway, G6 Universal Media Gateway, and virtual and cloud-native Session Border Controllers. These solutions will help Verizon consolidate and replace outdated equipment with more energy-efficient, software-centric platforms. The modernization program aims to improve service quality and reliability for Verizon's customers while reducing the carrier's environmental footprint.

Ribbon's CEO Bruce McClelland expressed optimism about the improving market environment and the potential for similar engagements with other customers. "This is a significant opportunity for Ribbon and we believe it will be a blueprint for other service providers who need to modernize their legacy infrastructure in the coming years," said McClelland during the earnings call.

Investors reacted positively to the Verizon deal, with Ribbon's stock surging 28% on Wednesday despite the disappointing Q1 results. Analysts suggest that Ribbon's stock may still be undervalued, even after the price jump, given the company's low price-to-sales and price-to-earnings ratios. Some see the Verizon contract as a game-changer for Ribbon that could lead to improved financial performance in the coming quarters.

For the second quarter of 2024, Ribbon projects revenue of $200 million to $210 million, non-GAAP gross margin of 53.5% to 54.5%, and adjusted EBITDA of $20 million to $25 million. The company expects the Verizon program and potential similar engagements with other carriers to drive a solid recovery in its cloud-based solutions business, which saw an 11% year-over-year decline in Q1 due to lower spending from Tier 1 service providers.

Key Takeaways

  • Ribbon Communications secures $300M multiyear contract with Verizon to modernize network.
  • Ribbon reports weak Q1 2024 results, but narrows losses and sees growth in EMEA and IP Optical.
  • Verizon contract seen as critical for Ribbon's future growth, demonstrating ability to land major deals.
  • Ribbon's stock surges 28% despite Q1 disappointment, analysts see it as undervalued.
  • Ribbon projects Q2 2024 revenue of $200-$210M, expects Verizon deal to drive cloud solutions recovery.