Ribbon Communications Inc (RBBN) 2018 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Ribbon Communications Second Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded Tuesday, July 31, 2018. I would now like to turn the call over to Sara Leggat, Head of Investor Relations. Please go ahead.

Thank you, good morning, and welcome to our second quarter 2018 financial results conference call. On the call with me today are Fritz Hobbs, President and CEO; and Daryl Raiford, CFO. Today's press release and supplemental data have been posted to our IR website at ribboncommunications.com. A recording of this call and a transcript will be available on our IR website shortly after the call. Please note, that during this call, we'll be making forward-looking statements regarding items such as business strategy, pending acquisitions, future market opportunities and the company's financial results -- financial outlook. Actual events or financial results may differ materially from these forward-looking statements and are subject to various risks and uncertainties, including, without limitation, economic conditions, market acceptance of our products and services, the timing of customer purchasing decisions, revenue recognition, our ability to successfully integrate GENBAND and Sonus, our ability to successfully complete pending acquisitions, difficulty leveraging market opportunities and the impact of cost-containment efforts. A discussion of these and other factors that may affect our future results is contained in each of Ribbon Communication's latest annual and quarterly reports on Form 10-K and 10-Q, available on our IR website. And which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements. While we may elect to update or revise forward-looking statements at some point, we specifically disclaim any obligation to do so. During our call, we'll be referring to certain GAAP and non-GAAP financial measures. Reconciliations of historical non-GAAP measures to comparable GAAP financial measures are included in our presentation on our website and in our earnings press release issued today. With that, let me turn it over to our President and Chief Executive Officer, Fritz Hobbs.

Thank you, Sara, and good morning, everyone on the call. Today I intend to give you an update around the substantial progress we are making with our integration of Sonus and GENBAND. The 4 strategic priorities we set at the start of the year and thoughts on the remainder of 2018. Daryl will provide an update on both our financial performance this past quarter as well as our current view of the full year 2018 guidance. As you know, we announced in late June of this year, that we signed a definitive agreement to acquire Edgewater Networks, a market leader in network edge orchestration. We believe this acquisition significantly advances our enterprise edge addressable market and feature capabilities, which we believe will extend our leadership position in SBC and cloud UC, and aligns with Ribbon strategic focus on SBC, cloud UC, security and analytics. With this acquisition, we'll be able to offer our large customer base a complete core to edge product portfolio, unrivaled end-to-end service assurance and analytic solutions and SD-WAN service. As it relates to Ribbon's second quarter 2018 financial results, I'm very pleased with our strong financial performance. We had both year-over-year and sequential improvement in our profitability as we remain vigilant to drive down our cost structure and improve our operational efficiencies. We delivered non-GAAP total revenue of $145 million and an adjusted EBITDA of $20 million this past quarter. We have made excellent progress with our merger integration activities, and now, after completing the first half of this year, I'm pleased to report we have operationalized over $75 million in annualized cost synergies. Turning to the full year. We continue to be cautious with respect to macro market conditions in the service providers space, but we believe our opportunity pipeline in the second half of this year is solid and our level of operating efficiencies continues to improve. We, therefore, retain our beginning of the year view on our full year 2018 revenue trends and remain confident in our previously provided guidance of $75 million in adjusted EBITDA for fiscal 2018 on approximately $580 million of non-GAAP revenue. Daryl will speak more of our outlook for the year in a moment. Earlier in the year, I outlined our 1 and 4 strategy with our immediate near-term focus on swiftly catering -- capturing cost synergies, while our 4 strategic pillars are focused on capturing market opportunity. To give you a quick update on our integration process, we continue to expect a large portion of our integration efforts to be completed by the end of this summer. During the second quarter, we launched a common ERP platform and we were able to migrate the bulk of our business transactions to this system, and we integrated our accounting and reporting systems. I'm encouraged with the manner that all of our functions have tackled these challenging integration efforts. Turning now to our 4 strategic initiatives. I'm pleased to say, we're making solid progress. In terms of our strategic to invest -- our strategy to invest in our core products, we're moving forward along a number of fronts. For example, our early investment in the Japan market is beginning to pay off. Japan is still in the early stages of shifting from TDM to IP. With a mandate to migrate to IP by 2025, we believe the Japan market represents a meaningful opportunity for Ribbon over the next several years. This quarter we won a sizeable deal with SoftBank, which is accelerating its IP migration and replacing its legacy equipment with Ribbons SBC 7000s. Additionally, another large Asia-Pacific service provider selected Ribbon's SBC 5000 for network interconnect based on superior scale and flexibility as well as our ability to provide local support. We expect to recognize revenue from this customer in the second half of this year and in Asia-Pacific we continue to extend our virtualization lead with a win for our cloud-based SBC for a new Web 2.0 mobile provider. Ribbon, through its partnership with Verizon, signed a second customer, a large enterprise for Verizon's SBC as a service. We believe demand remains solid with a meaningful number of potential customers in the pipeline, ranging from large financial, technology, retail and healthcare companies to large municipalities. With this new software as a service offering Verizon can reduce client service activation times from months to days. We continue to invest in the federal vertical ahead of the competition. Recently, we completed, with our partner Verizon, one of the largest Voice over IP deployments in the Department of Defense's history, migrating more than 60,000 users to Ribbon's JITC certified application server technology. We believe this highly visible project will lead to more opportunities within the Department of Defense and the vertical -- and the federal vertical. Finally, we continue to gain share in the U.S. service and cable provider market, displacing our largest competitor at a major MSL and a wholesale service provider during the second quarter. We also continue our strategic work with a Tier 1 service provider for a major fixed network transformation interconnect project, leveraging Ribbon's 4 full core product portfolio and professional services. We believe this work will lightly -- likely lead to additional transformational projects going forward as network modernization continues. Our second initiative is to leverage our global footprint and installed base. We are broadening our opportunity pipeline with the products of both Sonus and GENBAND across our global unified sales force. Sonus SBC products are being trialed in numerous large GENBAND heritage service provider customers and we believe this represents an opportunity to grow this product offering in the coming year. Edgewater is another developing example. We believe our global sales force will be able to expand Edgewater's reach, which is primarily U.S.-based. We believe there are meaningful customer opportunities over time as we take Edgewater's product portfolio to our global installed customer base. Our third initiative is to expand into adjacent markets and related applications, we're focusing this initiative through our Ribbon Protect and Kandy product offerings. In terms of Ribbon Protect, it was just declared generally available last Friday and our first customer deployment with Softbank is underway, where we expect to recognize revenue from this project during the third quarter of 2018. Our pipeline is growing and we have numerous Ribbon Protect trials underway. We continue to make progress with Kandy. We signed an agreement with the city of Los Angeles to upgrade its unified communications capabilities and voicemail systems to Kandy's cloud-based UCaaS solutions. The city of LA project encompasses more than 40 departments and 50,000 plus employees. During the quarter, we migrated a large segment of the end users on this Kandy project to the cloud. We believe the city of LA project will be a strong reference point for other major U.S. cities. And lastly, our fourth initiative is to pursue and utilize strategic relationships, alliances and M&A. During the second quarter, Microsoft announced the last general availability of Microsoft direct routing for teams. Lastly week, we announced our first customer NuWave, who is leveraging our SBC in a Microsoft teams deployment using the direct routing feature. We expect a positive impact for our SBC portfolio as this migration maps up -- ramps up later this year and into next year. Of course, the pending Edgewater acquisition, leverages our scale into a faster growing SME market. Edgewater's product portfolio is highly complementary to ours and will strengthen both our Ribbon Protect and our Kandy UCaaS offerings by incorporating Edgewater's security, service assurance and analytics capabilities at the edge. Edgewater also gives us exposure to the fast-growing SD-WAN market. We continue to actively evaluate a number of other M&A opportunities as well. In summary, it was another very busy quarter as we continued our integration work to fully capture our targeted cost synergies. At the same time, we executed well against our 4 going -- our 4 ongoing strategic priorities. For the second half of '18, we remain completely focused on incrementing our market opportunities and ability to capture share within our core products as well as expanding adjacent growth markets. I'll now turn the call over to Daryl to discuss our financial results and 2018 outlook in more detail. Daryl?

Thanks, Fritz, and good morning, everyone. I'm going to review our non-GAAP financial results for the second quarter of 2018 and then provide commentary on our outlook for the remainder of the year. The slides on our IR website have the details regarding our historical financial performance. Our reporting framework is consistent with what we have presented in prior periods. I encourage you to get these materials from our IR website. As a reminder, when I refer to non-GAAP in conjunction with a financial metric, these financial metrics exclude the effects of purchase accounting and other items detailed in our earnings materials. Our non-GAAP financial metrics are reconciled for you at the end of both in today's press release and our earnings presentation. Both are available on our Investor Relations website. Turning to the second quarter, Ribbon produced strong financial results, as it relates to both revenue and adjusted EBITDA. This favorability was driven from a combination of orders closing earlier in the year than we had originally anticipated as well as an acceleration of our restructuring activities. Our second quarter 2018 non-GAAP financial results were as follows. Total non-GAAP revenue was $145 million, which was an increase of $10 million or 7% as compared with Q1 2018. The second quarter benefited from stronger than expected order volume of in-quarter booked/shipped revenue as we realized about $7 million in sales this second quarter that we had previously expected to complete within third quarter of 2018. Non-GAAP gross margin was 64%. The incremental revenue in the quarter disproportionally drove sequential improvement in our gross margin. Additionally, we had favorable product mix within our deals driven by large session counts coupled with high margin software content. Non-GAAP earnings per share was $0.14 as compared with the loss per share of $0.04 in the first quarter of 2018. Adjusted EBITDA was $20 million as compared with $1 million in first quarter of 2018. Our earnings benefited from the mix of higher margin revenue coupled with accelerated cost synergies as we drove to get the majority of our restructuring activities complete. Turning to the balance sheet. Cash and investments were $55 million as compared with $85 million at the end of the first quarter of 2018 and $83 million at fiscal year-end 2017. In the first half of 2018, cash used in operations was $23 million. The use of cash was primarily the result of $21 million of restructuring, acquisition and integration expense that was recorded over that same period. We project less than $10 million of restructuring and integration expense will be incurred in the second half of 2018. We reduced our accounts payable and accrued expenses substantially from fiscal year in 2017, which resulted in a use of cash of $29 million, which again related primarily to our merger activities as well as an intellectual property infringement lawsuit in which we are the plaintiff. DSO was 85 days in Q2 as compared with 83 days in Q1, this is calculated using non-GAAP revenue. We do anticipate that DSOs will modestly improve in the second half of 2018 as we're forecasting more favorable customer payment terms based on the current deal mix. Borrowings under our revolving line of credit remain $20 million, unchanged from year-end and our first quarter. Our undrawn availability remained unchanged as well at $80 million. Now I would like to move to our 2018 outlook. As previously communicated on our past earnings calls, we will be providing annual guidance on adjusted EBITDA. I would also like to note that the incremental second half 2018 impact of the proposed Edgewater Networks transaction will depend on the precise timing of closing of the transaction, which is currently anticipated to be at some point during the month of August 2018. Therefore, our views on 2018 do not yet include the addition of Edgewater financial results. For the full year 2018, while we have exceeded our internal expectations in both the first quarter and the second quarter from improved timing, we continue to remain cautious of overall market conditions in the service provider space. But as Fritz stated, our second half pipeline is solid, we are trialing Sonus SBCs at a number of former GENBAND accounts, and we are gaining traction on each of our strategic market initiatives. We expect our third quarter non-GAAP revenue to be slightly lower compared with second quarter, driven by our first half improvement in timing, but on balance, we remain fully confident that full year 2018 non-GAAP revenue will be at least $580 million, which excludes any impact from Edgewater financial results. Our outlook for full year 2018 adjusted EBITDA, excluding Edgewater, remains unchanged at $75 million. As Fritz previously stated, we have already operationalized over $75 million in annualized cost savings. Consistent with our previous statements, we believe we are fully on track to exit 2018 at an adjusted EBITDA run rate of at least $100 million. We do believe that Edgewater will be accretive when combined with Ribbon's financial results following consummation of the transaction in August. That concludes our formal remarks. I want to thank all of you for your continued support for Ribbon. With that, let me turn the call over to the operator for questions. Operator, we are ready for our first question.

(Operator Instructions) And we'll get to our first question. On the line, is from the line of Dmitry Netis with William Blair.

Just wanted to gauge your confidence, obviously, here on the second half of the year. There was some, obviously, pull forward that you mentioned and you do now expect the third quarter to be lower than Q2. So can you give us, sort of, the magnitude of how 3Q is shaping against Q2, is it couple of million dollars lower, is it single digits, double digits? And if it is a few million dollars lower, we are looking at just for you to hit that guidance of at least 12%, maybe 13%, kind of, sequential ramp up from Q3 to Q4. And just wanted to see how confident you are you're going to get there. And what are some of the tea leaves out there that gives you that confidence from some of the major deals you may be working through?

Good morning, Dmitry, it's nice to speak with you, thanks for joining the call. We don't -- Dmitry, we don't guide within the quarters. But we did just remark that the -- we do expect the third quarter to just be slightly lower in terms of revenue than the second quarter based on our improved timing in the first half of the year. We remain -- but we remain very confident in terms of the full year financial outlook for revenue of at least $580 million. Doing the math, that's about $300 million in the second half and we remain very confident in that. What gives us the confidence is, all things considered as we said, on balance with the service provider market and what we read and hear and what our sales team is saying versus our execution in our 4 strategic initiatives and how we're progressing we -- based on our pipeline. All things considered, we do believe that the remainder of the year is fully on track to provide an annual revenue of at least $580 million.

I appreciate that Daryl. Is there any specificity around maybe the -- strength in Asia. You had mentioned couple of big large service providers there, Softbank and then one other. You also mentioned the mobile provider, Web 2.0 provider. Are those exceeding your expectations right now? Or they're moving along with your expectations? Any color around those big transformational projects would be helpful.

Our improved time -- our improved timing was a result of strength in Asia.

I think we -- and we'd also say, Dmitry, that this is the result of a lot of work over the last couple of years. We really feel -- we feel good about our position in Asia and we're making some progress across a number of accounts. But what this is just -- I think a culmination of a lot of work that's gone on by the sales team and the product team over the last 2 or 3 years.

Right. And then maybe some color on this Web 2.0 mobile provider. Can you give us little bit of what they do? And what kind of products they're using?

That Web 2.0 mobile provider is a cloud-based mobile operator that looks very similar to, say, what Amazon would be providing in the United States. We're not able to use their name in the Japan market but it looks -- the business model is very similar. So if you think about the Amazon Web Services growing and how -- and what we have experienced, that particular market, we believe, is set for a similar occurrence.

And what is the product?

SBC.

Oh, it is SBC, okay. My last question, and I'll move off for the rest of the analysts on the call. Gross margins came in quite nicely. I would venture to say this is the result of strong SBC quarter. Just refute that if it's not the case, but if it is, what's the expectation for gross margin as you move through the year?

Well, we have a guided gross margin. We've given some commentary on what we believe full year revenue trends to be and specifically, a guide for adjusted EBITDA. So our view with -- our view for margin for the year that comprehends that adjusted EBITDA has not changed. Margin in the second quarter was improved, based on some software content and mix in terms of the products. And you mentioned SBCs, we expect the margin to be where we have originally viewed it from the beginning of the year that comprehends the adjusted EBITDA guide of $75 million.

You expect the software content to continue to step up in the second half from what you did in the first half?

I would say the second half will continue on, kind of, the multi-quarter trend of improving. I don't know -- but I really don't want to speak within the quarters. We don't address quarters.

We'll get to our next question on the line is from the line of Mike Latimore with Northland Capital Markets.

Just on the overall revenue, can you give us a pro forma organic growth rate year-over-year? Just want to make sure I got that accurate.

Let me -- I'm sorry, what was the question, a pro forma growth rate on non-GAAP revenue?

Non-GAAP revenue, yes.

Second quarter over second quarter, we really don't speak to -- we really haven't spoken to pro forma in terms of that. On a reported basis though, clearly it is quite a bit of growth. But we haven't spoken to the pro forma.

Okay. And then in terms of the -- you mentioned there's a lot of testing of SBCs in the GENBAND base. I guess, can you provide a little color on, I guess, how much revenue actually came from cross sales in the quarter? And then, are you expecting some sizable deals in the second half of the year from cross-selling?

Well, this is a full -- as we said at the beginning of the year, this is a full year process. We've taken some very thoughtful and deliberate actions to begin to streamline our product offerings and including in that is a trimming and streamlining of the former GENBAND SBC product line in favor of the Sonus product line. We're trailing a number of large service provider, former GENBAND customers with the Sonus product. We're encouraged by the process timing itself. It is quite a bit to provide the equipment to get it into the labs, to get it then trialed, to then get it certified, to then move it through procurement. We believe we are kind of on that full year process. We look more towards 2019 as being a year in which we would be able to recognize more revenue from that.

Got it. Then just last one, this city of Los Angeles deal 50,000 user UCaaS. I wasn't clear, is that fully deployed or is that still in the process of being deployed? And then, was the -- who was the main competition there? Was it, sort of, an on-premise system or was it another cloud provider?

It was replacement of an enterprise on-premise system. And it -- the 50,000 users are not fully deployed, they're deploying over time.

Was there another cloud provider there in the competition for that? Or was it pretty much on-prem versus you guys?

I don't -- not aware of another cloud provider that was in competition. One of the enabling features was our ability as a cloud provider to provide a seamless transition from the on-prem solution to the cloud, that did not disrupt any of the other network elements that surrounded the solution. We believe that that's one of our competitive strengths overall is we address our installed base. And that was potentially an important buying decision.

We'll get to our next question on the line is from the line of Mark Kelleher with D.A. Davidson.

Maybe we could keep going from that last question and talk a little bit more broadly about the opportunities for Kandy. What are your expectations there? Is it on track? Is it ahead of schedule? When do you think that can be a meaningful part of total revenue?

Good morning, Mark, it's nice to hear from you. In terms of Kandy, we are -- we do believe we're on track. We don't believe that it's going to be a material contributor to revenue this year. We do -- we are demonstrating and trialing and in discussions with a number of service providers that would be selling through our solution to -- into the enterprise. We look forward to 2019 and the market itself is growing. We see it as developing, but this year we're really not calling it as a material part of the revenue.

Got it. Maybe talk a little bit about your thoughts on additional acquisitions after Edgewater, particularly, with regards to your capital structure. Are you going to sort of work through these current acquisitions and then reload? Or do you think you have enough financial power to make additional acquisitions?

We think this -- we think we have opportunities in the acquisition arena and we think we have the capability of doing them. I mean, we think we have meaningful debt capacity given our pro forma as Daryl has described our year-end financial situation. And we think we've got a lot of flexibility here as far as opportunities. I mean, there are going to be a number of companies in the mid-market that are going to be facing, we think, over the next couple of years a real interesting dilemma of how do they have a sales force that can sell on a global basis. And we think this is a real strength of ours and it was one of the reasons that I think the Edgewater team felt comfortable with us that we really had the ability to take their products and broaden the distribution. We think there are another other -- a number of other companies in that position, whether we can actually come to agreement with them on -- we don't have a clue. But I -- we think there's a number of other opportunities. And further, there are some opportunities in our space where maybe we can find someone who -- we can take our meaningful costs and create more products for our sales force. As one of my top sales guy said, he said, "We'd just like a few more arrows in our quiver." So I think they're looking for more products. If we can add more products to our sales force on a global basis, we think there's some real upside on that. So we're constantly looking for opportunity in that regard.

Okay. And then, maybe just your thoughts on the growth opportunity of the service provider, SBC market versus the enterprise SBC market with the new acquisition? What are the -- what's your expectation in those 2 markets for growth?

The service -- well, the company right now has a mix of about 89 -- I think in the second quarter it was 89% or nearly 90% our of revenue from the service provider market and about 11% from the enterprise. We do view along with many market analysts, the enterprise space is outgrowing or outpacing the growth in the service provider space. And we are making investments and we think that Edgewater positions us very well there and will position us, when the transaction closes, a market leader, especially, in that small and medium enterprise space, which is actually set to outgrow, as a subsegment, the larger enterprise space. So we think that that's positioning us well. The service provider market is set to, just over the next several years based on market analyst reports, set to very modestly grow. Enterprise is set to outpace that. We think we're positioning the company with the Edgewater acquisition and with our enterprise capable SBC products to be able to take share within the enterprise market as it potentially outgrows the service provider space.

Another way of putting it is if you take our current enterprise, as Daryl just outlined it, and you take Edgewater's enterprise, we have a meaningful enterprise business. And now the question of how we integrate that and make that operate is obviously an operational challenge for us, but it's one that we're completely aware of and one where we will resolve over the next several months. But we think -- we look at that as giving us real size and heft in the enterprise market to be looking at that in a much more aggressive fashion than we might have in the past.

(Operator Instructions) We'll get to our next question on the line from Paul Silverstein with Cowen and Company.

First off, Daryl, can you remind me, what are the acquisition-related adjustments that contributed additional $4 million and 230 basis point to gross margin?

Amortization of inquired intangibles.

Okay. What was the headcount of the quarter?

The headcount on the -- at the end of the quarter was 2,189, which down from this time last year of 17%.

Okay. And Daryl, going back to the previous question I'm a little confused. I thought I saw the adjustments, there was a benefit to revenue, you added back revenue in the pro forma of $4.2 million between services and products, that's the particular item I'm trying to understand.

The adjustments between GAAP revenue and non-GAAP revenue represent essentially 2 items, the larger item is the approximate -- an add back of the approximate $40 million of deferred revenue that was written off in purchase accounting from the acquisition of GENBAND. And so -- because that revenue is no longer -- can no longer be earned under GAAP. But the activities were performed and so we make an adjustment for that. The second adjustment is a much smaller adjustment. The -- we removed about $12.5 million of deferred revenue as part of the adoption of ASC 606 and that's the recognition in non-GAAP of that loss deferred revenue from the adoption.

All right. On the first item, so you're adding back the deferred revenue you otherwise could not recognize under generally accepted accounting, you're adding that back in the pro forma?

That's correct, that -- in non-GAAP, not in pro forma. But yes, I understand what you mean, in non-GAAP we -- it is add back up. And it will be throughout the year, it was in the fourth quarter -- it was in the first quarter, it'll be throughout the remainder of the year of the approximate $40 million.

I'll revisit that offline, let me move on. Can you tell us what your service provider growth rate was? I heard you give the mix of 89% and 11%. But can you tell us what the growth rate was for service provider and for enterprise respectively?

I don't have -- let see, I'm looking for that.

And while you are looking for it, I will also ask … :p id="542198622" name="Daryl Raiford" type="E" />I don't have that broken out -- I'm sorry, Paul, I don't have that broken out. The mix, for example, was 86% service provider and 14% in Q1. So while revenue is higher over Q1 the mix did change. And then the mix is -- that was approximate Q4 mix as well of about 86% and 14%. But we don't break out, we don't break it out in the way, in the investor deck in the manner which you just...

All right. But if I heard the numbers correctly, it was 86% in Q4 and Q1, it was 89% in Q2?

That's correct.

Right.

All right. Let me move on. Can you -- if I missed these numbers I apologize, but I didn't see a break down by region, do you have that?

Yes. That's on page 7 of the investor deck. The domestic and -- well, domestic and international was broken down. I believe that the 10-Q that will be filed tomorrow will have the specific regional breakdown, EMEA and United States.

All right. A question for you and Fritz. Can you give us -- I appreciate their sensitivity on -- by particular customer, but can you give us any benchmarks in trying to size the opportunities presented by Kandy, for instance, that L.A. Kandy project, if I heard the numbers correctly, you've got 50,000 plus users that are going to come on board. How do we think about that, either on a per-user basis or whatever metrics you care to offer in terms of trying to gauge the opportunity. The same question for Ribbon Protect and the same question for SoftBank deployment or again, I respect, I appreciate sensitivity, but any metrics you can give us to think about the potential revenue contribution over time from these different opportunities?

So Paul, as you and I discussed before. Look, I think we're excited about the opportunities. But at this moment we really think that's the word to use, opportunities. We -- as Daryl said earlier, the revenue impact for us in 2018 is modest. We hope it's going to be more meaningful in '19, but even '19 it's not going to be determinative of your feeling about the value of this company. We think in the longer run, it'll be meaningfully determinative, but today we're at a lot of -- we're sort of at a tipping point with a lot of accounts here to see if we can translate the work that we've been doing, and it's a long sell, as you can imagine, that we can translate that into revenues. And so we're cautiously optimistic but the numbers themselves are relatively modest. However, they are repeatable numbers, as you well know it, when you start selling this sort of product so it starts transforming us more into it a SaaS mode than it is to a product sale mode. So we're encouraged, but I wouldn't say, it'll be anything that's going to meaningfully affect your view of our company in the near future.

I appreciate that Fritz. All right, let me ask you 2 last questions. Returning to the regional growth and mix, I appreciate we'll see it tomorrow, but when you look at the business over the longer term, I trust, well Japan is a big piece of the story given their mandate for 2025. Let me ask you 2 ways, right now, the growth in the quarter, was that all or primarily Japan? Or are you also seeing growth outside of Japan? And then I'm going to ask a longer-term question.

No, it was not limited to Japan.

Okay. And I assume the same would be true of your longer term view that you're looking for growth, not just -- Japan's going to be a key piece of it, but your growth outlook goes beyond Japan?

Exactly.

Yes, I mean, Paul, we're spending a lot of time on just your question on our core business, where should we be investing, spending time, money and resources on trying to establish, can we take share, is there growth? We think the federal space has similar interesting opportunities as we touched on in our comments. So we think there are 3 or 4 areas, Japan, Federal, SD-WAN, the Enterprise space that we discussed earlier. We really think there's opportunities for us to add to our current business.

Got it. Let me ask you one last question. And Fritz, I appreciate, it's all about the longer term, so that said, we -- how much of your guidance in the second half is you all being appropriately conservative? Or how much -- well, I'll leave it at that.

Well, Paul, you saw me, I'm a little old guy with white hair, I've seen too many movies. I'm trying to give -- we're trying to give you the best shot we have where we're sitting. We feel we're making progress on everything we told you about and I think it's up to us to prove it to you.

And we'll get to our next question on the line is from the line of Jeff Bernstein with Cowen and Company.

Just wanted to get a little updated on VoLTE, you guys had a good rip and replace win with a Tier 1 wireless carrier in the U.S. some time ago now. And just give us an update on how that's going and whether that's translating into any other opportunities?

We did -- you're right, we did. And we continue to market that solution. We haven't addressed any specific opportunity or -- within the pipeline, but there are opportunities that exist and we'll continue to market and actively sell that solution.

And Mr. Hobbs, we have no further questions at this time, I'll turn the call back to you.

Thank you all for your time. We really appreciate it and we'll get back to the drawing board and keep pushing. Thank you very much.

Thank you, everyone.

Thank you very much. And ladies and gentlemen, this concludes the conference call for today. We thank you for your participation, and ask that you disconnect your lines. Have a great day, everyone.