Research: Ribbon Communications

by Lsigurd on August 30, 2020

110mm shares at $4 for $440mm market cap
$81mm of cash
$391mm of debt
cash flow was okay though $37mm in H120 $22mm fcf in H120
company seems to generate a fair bit of FCF – see table at the end
this is one of those companies where their business description is all jargon which is a flag of sorts
software solutions provide a secure way for our customers to connect and leverage multivendor, multiprotocol communications systems and applications across their networks and the cloud
here it is in a nutshell: their products help CSPs and to lessor extent enterprises upgrade legacy infrastructure to cloud, IP-based networks
70/30 split with CSPs/enterprise
software is about 50% of product revenue

Their business is focused on:

here is how they break down what they are providing in the 10-K:

sell mainly to service providers – both fixed and wireless, MSOs, ISPs
I’m not sure if I have ever made money on a company selling to CSPs 😛
secure cloud-based delivery of UC solutions
use direct and indirect sales channels
These guys are a merger and acquisitions machine, making it even more complicated to look at

Competition:

Network transformation: AudioCodes Ltd., Mavenir Systems, Inc., Metaswitch Networks Corporation, Oracle Corporation (Session Border Controller) and ADTRAN, Inc (also MSFT recently bought Metaswitch)
Security and Analytics: SecureLogix Corporation, RedShift Networks Corporation, Empirix Inc. and Oracle Corporation.
A concern I see in transcripts is they are competing against much bigger companies, I guess referring to Oracle and Microsoft

Acquisition of Anova Data

Edgewater Networks

Network Edge Orchestration for the distributed enterprise and UC market – well at least I can understand what that one is
software leader in session border controlers
allows RBBN to get into SD-WAN market

GENBAND

not really clear what product these guys sell but improves RBBN position in move to IP networks and cloud-based networks

ECI Telecom Group

merger in Nov 2019
issued 32.5mm shares to ECI and $324mm of cash
leading packet optical solution provider
address markets like NFV and SDN
had $25mm EBITDA in 2018, $27mm EBITDA in 9m 2019
50% of ECI revenue comes from India and Russia
There’s some sort of adjusted revenue accounting problem in India right now with major CSPs and that is impacting the India business
the Cowen guys don’t think a lot of ECI
According to RBBN merger presentation ECI does have a big TAM – not sure if its growing much though

Kandy

this one was a divestiture
received 13mm shares of ACVtechnologies for Kandy
Kandy was a provider of deployments of UCaaS, CPaaS, and CCaaS for mid-market and enterprise
so these Kandy guys are competition to RingCentral, 8×8, Vonage
they had a slight loss in Q220 – revenue was significantly higher yoy though

This is from Cowen about the risk of competition now from MSFT:

Metaswitch portfolio is similar to RBBN both have session border controllers (SBCs), media gateways, voice applicationservers, and software under the Unified Communications
There is also an interesting point alluded to on last CC – asking whether UCaaS is going to be against headwinds
It seems like a lot of elements of their business are under headwinds
Makes you wonder what real reason was for acquisition of ECI

Cash flow

working capital was about -$30mm though so that would be something to look into more

Conclusion

while the stock is pretty cheap, I’m not sure its worth buying
The Cowen guys note on a number of pieces that they are going up against larger, better capitalized competitors
Would probably want to see that they can succeed first, esp with ECI acquisition
doesn’t really seem like they are in a good place, competing against very large competition, MSFT just bought up a smaller player to add to that competition, so I don’t know… seems like a pass for now