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John Townsend

Thanks, Bruce. Good afternoon, everyone. Let's begin with financial results at the consolidated level. In the first quarter of 2025, Ribbon generated revenues of $181 million, an increase of 1% from the prior year. First quarter non-GAAP gross margin was 48.6%, lower than expected due to higher sales in India and higher Cloud and Edge hardware shipments that Bruce mentioned.
Non-GAAP operating expenses were $86 million in the quarter, a $5 million reduction versus the first quarter of 2024 and down $8 million sequentially. This reflects the seasonality in expenses such as sales commissions and variable employee compensation as well as the benefit related to cost actions implemented in 2024. First quarter adjusted EBITDA was $6 million, a decrease of $6 million year over year . This was driven by the tighter margins we experienced across both segments due to the product mix and notably the regional mix in the IP Optical segment. Our non-GAAP tax rate for the quarter was 32%, and our interest expense was $11 million, including amortization of debt issuance costs.
Both of these were in line with our expectations. Quarterly non-GAAP net loss was $5 million compared to a $1 million loss in the prior year. This generated a non-GAAP diluted loss per share of $0.03, which compares to a $0.01 per share loss in the prior year. Our basic share count was 176 million shares, and our fully diluted share count was 180 million shares for the quarter. Now let's look at the results of our two business segments.
Our Cloud and Edge business had revenues in the first quarter of $108 million, an increase of 6% year over year , with product and Professional Services revenue increasing 17% year over year . Cloud and Edge non-GAAP gross margins were 62.5%, down 350 basis points from the prior year. The reduction is a result of higher Professional Services and hardware revenue and lower software sales compared to the prior year. Adjusted EBITDA was $20 million or 19% of revenue in the quarter, a 17% improvement year over year . Now on to our IP Optical Networks results.
We recorded first quarter revenue of $74 million, a 6% decrease versus the prior year. Excluding Eastern Europe, sales in the segment were actually up 25% year over year . First quarter non-GAAP gross margin for IP Optical was 28%, which is below our expectations. As Bruce noted, the higher sales in India impacted the overall gross margin for the segment and were further compounded by the unfavorable mix of products this quarter. IP Optical Networks adjusted EBITDA was a loss of $15 million versus a $6 million loss in the prior year, again, mostly driven by the regional mix of revenues.
As Bruce mentioned earlier, we expect significant improvement in the second quarter and continuing throughout the year with increased sales in North America and Europe and improved product mix. Moving on to cash and capital expenditure. Cash from operations was a usage of $4 million in the quarter with a closing cash balance of $74 million versus $90 million at the end of 2024. The reduction in cash was primarily a result of annual employee incentive compensation payments and the completion of the build-out of our new R&D facility in Israel, which drove the higher capital expenditure. Total CapEx in the quarter was $12 million.
Excluding the R&D facility, we expect our full year capital expenditures to be consistent with prior years in the $12 million to $13 million range. Our net debt leverage at the end of the quarter was 2.4x, up slightly sequentially. And now I'll turn the call back to Bruce.

Bruce McClelland

Great. Thanks, John. Following the last several quarters of strong bookings, our outlook and visibility for the second quarter is very good with substantially higher backlog than in previous years, even as we continue to optimize expenses. In our Cloud and Edge segment, we're projecting approximately 20% sales growth in the second quarter year over year . Key trends underpinning this increase included the following areas.
First, we expect another very good quarter with Verizon, similar to our record level in fourth quarter last year as the Voice Network modernization program continues to perform well and other network upgrades continue. We're in the first year of this three-year program with significant opportunity for multiple years beyond this as well as a large potential opportunity as Verizon completes their acquisition of Frontier.
Second, in addition to the deals delayed from Q1, we have a very good funnel of US federal network modernization opportunities with several sizable deals expected to close this quarter that include both expansion of current projects and new project wins. Despite some delays in decision-making, these programs look very solid for the quarter.
Third, we're projecting several new enterprise wins in the quarter, including the Fortune 500 customer I mentioned that's at the forefront of leveraging AI to enhance contact center effectiveness. Another obvious area of focus for us is related to Metaswitch Replacement opportunities with a primary focus around the top 25% larger installed base. In the first quarter, we closed new replacement deals in the UK and in the US, serving both residential and commercial customers. Similarly, we also had a very nice win and award with a Tier 1 provider in Central America to replace a high-profile Cisco BroadSoft government services deployment.
So I'm pleased with the progress we're making to grow our share in multiple markets. In the IP Optical segment, we're projecting 5% to 10% sequential growth in the second quarter, which would result in revenue similar to the second quarter last year, which still included a partial quarter of sales to Eastern Europe. The key trends in this business include the following areas.
We expect continued momentum in Asia with strong sales in India and Southeast Asia, similar to the last several quarters, but with a better mix from a margin perspective. Hardy, Vodafone Idea, Tata and others continue to expand network capacity, and we see additional opportunities related to expansion of rural Internet access and Data Center Interconnect.
We have a lot of activity in Europe and in the Middle East with both Critical Infrastructure and defense agency projects expanding secure command and control networks. We also have very good momentum with customers like MTN in Africa, where there's a lack of fiber infrastructure and significant projects underway to improve connectivity across the continent.
And finally, we expect a stronger quarter in North America with both Critical Infrastructure and regional service providers. Longer term, innovation and new product development is the key to our future growth. We have several important areas in focus for this year, including enhancements to our routing platforms to support an expanding set of TDM elimination use cases.
This has become a great entry point for us in the US market and an area where we're proving to be very differentiated and highly synergistic with our Cloud and Edge voice portfolio. We're also investing in additional routing platforms and features to support the growing trend of IP directly over optical networks. We have a great example of this with a significant new IP over DWDM win in Africa to support data center expansion. We recently launched our latest new routing platform at Mobile World Congress, the NPT 2714, that is a metro core router supporting up to 14 terabit per second traffic levels.
At the OFC Optical Show last month, we received the Lightwave Innovation Award for the platform and are seeing increased customer interest. And finally, automation has become table stakes for managing complex networks and for improving the delivery of new capabilities. For the Cloud and Edge portfolio, this means adoption of cloud-native technologies and processes, which is the key focus behind the project I mentioned last quarter with a Tier 1 service provider in Europe. As we indicated earlier, we're expecting improved margins for both segments in the second quarter. The first quarter was unusually low given the customer and product mix, and the mix for the second quarter is expected to be much better.
There remains a lot of uncertainty on where US tariffs will settle and any reciprocal trade barriers that may be implemented. At the current time, we're not expecting a material impact on our business, but it's a dynamic situation. We have some agility to change the manufacturing location for our IP optical products, and we benefit from the USMCA free trade agreement for the Cloud and Edge products we currently manufacture in Mexico. We're working closely with our manufacturing partners to anticipate multiple scenarios and react quickly and hope to minimize the cost impact passed on to our customers.
Also, given the substantial amount of revenue that is tied to software and services, we believe we are relatively immune at a more macro level. Now on to guidance. As already mentioned, we expect a strong second quarter with sales growing more than 10% year over year as we complete enterprise deals delayed from Q1 and the continued momentum in our Cloud and Edge business. Based on the assumptions I've outlined, we're projecting revenue in a range of $110 million to $220 million, a year over year increase of approximately 12% at the midpoint, and adjusted EBITDA in a range of $28 million to $32 million, a year over year increase of 38% at the midpoint. We remain positive on our outlook for the remainder of the year and continue to maintain our full-year outlook.
Operator, that concludes our prepared remarks, and we can now take a few questions.

Question and Answer Session

Operator

(Operator Instructions) Dave Kang, B. Riley Securities.

Dave Kang

My first question is regarding your book-to-bill of 1.2, fairly strong. Just wondering if there were any pull-ins because of tariff uncertainty?

John Townsend

Dave, no, I don't think we saw any strong evidence of that. Bookings were pretty consistent across the quarter and really spread pretty evenly between the businesses and geographies. So nothing that I would flag directly associated with trying to pull in equipment early or anything like that.

Dave Kang

Okay. And regarding the tariff situation, just wondering what your customers are telling you regarding assuming third quarter, if reciprocal tariffs are back on again, what the plans are as far as your customers versus you picking up that extra cost as well as your suppliers, too?

Bruce McClelland

Yes. I guess a few thoughts kind of expanding on my comments earlier. So far, we haven't seen customers indicate changes in their strategy or their plans for the year at this point in time. And I think you've seen a lot of the public commentary through the earnings calls that most of the service providers are not expecting a significant impact on their business from this. In the case of our business, of course, we're in a couple of different areas of their operation.
A lot of what we're selling is software and services in many cases, which don't have an impact really at all from a tariff perspective kind of immediately associated with it. And then the products that we are manufacturing internationally, some of them coming out of Mexico that are subject to the US free trade agreement and really exempt at this point. Others coming out of Asia, where we've been working with our manufacturers to mitigate the cost, share some of the expense and expect that anything that we have to pass on to customers is relatively modest at this stage given the current situation, at least anyway.

Dave Kang

Got it. And my last question is just wondering if you can provide an update on AT&T's Neptune ramp. I guess, it's still early. Also, I'm wondering if you got any wins or should we expect any wins this year.

John Townsend

Yes. So again, I apologize, I can't comment too much on AT&T's plans, particularly around their Voice Network. As you know, they've indicated a strategy that they're implementing. And I'll just say we remain a really strategic partner to them and involved in their network deployments. I do think we're going to grow this year in IP Optical in North America.
As I mentioned, the progress around Rural Broadband has been strong. Our first quarter was up considerably year over year . And some of the new products we've launched are getting a lot of looks. So I'm pretty -- bullish on the progress we'll make this year.

Operator

Christian Schwab, Craig-Hallum.

Christian Schwab

Bruce, can you explain quickly how you benefit as people retire copper in their phone networks here in the United States and that may get more aggressive?

Bruce McClelland

Christian, so I think there's kind of two different methodologies, if you will, around copper replacement. One is obviously to move lines or services completely onto a fiber or an IP backbone and eliminate the copper completely. In those cases, we might be involved in the network from a call server perspective or an application server. But on the access side, obviously, we are not -- as they remove the copper completely, we wouldn't be involved in that. That's kind of the natural attrition of legacy lines, but there's a large installed base that are not migrating.
And so there's really a couple of different methods to eliminate the copper, but still maintain the service. And so in one case, the media gateway or the transition from copper to IP would happen at the central office, and we provide a lot of gateways and then the software that enables that to happen. That's kind of a, I'll call it, a Verizon strategy around eliminating a lot of the complexity in the core of the network, but maintaining some of the copper local loop. The second approach is to put the media gateways basically right at the edge and preserve basically all of the legacy services that might be implemented at the enterprise and yet be able to eliminate all of the copper, all of the legacy SONET infrastructure, et cetera, and really simplify the operation of the network. So we're involved in both of those use cases, providing both the software that goes in the core as well as the media gateways that sit at the edge.

Christian Schwab

Great. And then I kind of missed it. I apologize. Your Cloud and Edge products business, I think you said what you expected your growth rates in '24 –in '25 versus '24 for both Cloud and Edge and IP Optical. Could you repeat that for me, please?

Bruce McClelland

Yes, sure. So as I was kind of going through the guidance section, as we think about the second quarter, at least anyway, we're expecting the Cloud and Edge portion to be up approximately 20% year over year . Obviously, a pretty strong growth number in the second quarter and continuing that momentum throughout the rest of the year. In the IP Optical segment, we're projecting 5% to 10% growth in the second quarter year over year . Again, we are adjusting or having to make up for any of the shipments in Eastern Europe in the second quarter a year ago.
So that, I'll call it, the organic growth rate is higher than that. And just to give you one last stat, as I mentioned, in the first quarter, if you excluded the Eastern Europe revenue, we actually grew 25% year over year in the first quarter for IP Optical.

Operator

Tim Savageaux, Northland Capital Markets.

Timothy Savageaux

Sorry about that. Can you hear me?

John Townsend

We got you, Tim.

Timothy Savageaux

Okay. Great. My first question is about Verizon. And just to clarify although there won't be-- you expect Verizon to move back toward Q4 levels on an absolute dollar basis. Is that correct?
I just want to clarify that.

Bruce McClelland

Yes.

Timothy Savageaux

Well, and I think you've said a couple of times maybe last quarter and maybe just on this call that you're sort of still in the process of scaling here with Verizon, and I don't know whether that Q2 guide represents that scaling, it may well. But I guess the overall question is, do you think you can -- continue to increase revenue with Verizon from that Q2 level in Q3 and Q4?

Bruce McClelland

Yes. I think that's a fairly good planning level for the second half of the year, I'll say, Tim, there are kind of two pieces or two phases to the migrations. The first is getting the equipment procured, installed, commissioned, powered up, kind of ready to go. And then the second piece is actually the migration or the conversion of lines, et cetera. The first part, we can move pretty quickly on.
The second part is a more complex operation. And so what we're really scaling is that second part. The first part moves pretty quickly. The second part, more manual labor involved. You got to be careful as you migrate these lines, coordinate with customers, et cetera.
And what -- from a revenue perspective, we're able to recognize most of the product revenue kind of upfront as it gets deployed. And then there's a lot of service revenue involved with the actual migration efforts. And so the timing of revenue on that is a little different. So I think we're scaling up the service portion of the revenue, but the product portion will be a little lumpy depending on which quarter we're shipping in and those sorts of things. So it's a long answer to your question, but I think the velocity from a revenue perspective, we're at in the second quarter is a nice planning level for the rest of the year.
The actual migration rate is going to speed up. And as we look into next year, we're expected to do more next year. So the volume needs to increase as we exit the year and go into next year. It will be a bigger year. That's without adding in the potential for similar programs at Frontier as that business starts to be operated by Verizon.

Timothy Savageaux

Great. And I think you might have given us some metrics about the pace of installation or I don't know if it was a switch a week or something like that or the total that you've done so far. But I would love it if you might update that, is that a pace you expect to return to or exceed in Q2 or the second half of the year? Are there other metrics to gauge kind of where we are with Verizon, which still seems fairly early days, but any comment on that as well?

Bruce McClelland

Yes. No, we definitely have a long pipeline ahead of us here for sure. The metric I mentioned last quarter was basically doing which migration per week. All of that prep work I talked about that leads up to the migration and then final completion of the switchover when you start to see the cost savings, that's why that's an important milestone is when the cost savings start to benefit the customer. We were at one per week as we went through Q4.
That velocity came down in the first quarter, kind of a natural pause during the holiday season, et cetera. And then we're back at that rate again at this point. And we basically want to try and double that migration rate as the year progresses. That's where we'd like to be.

Timothy Savageaux

Okay. Great. And then another question over on the optical side. And it looks like we've seen from some of your larger competitors that -- and even similar sized that by and large, inventories at carriers have sort of burned off, and we're starting to see growth again in optical transport in the broader service provider universe. I wonder if you -- and I know you've got some one-offs here on the compares, but I wonder if you have any observations on that front on the one hand.
And then anything incremental on what you're seeing out of opportunities stemming from Nokia and Infinera or any overall commentary on Tier 1 carrier pipeline in IP optical? That's it for me.

Bruce McClelland

Yes. Great. Thanks, Tim. So from I'll call it, from a geographical perspective or regional perspective, we've seen good growth and continue to see that here in the second quarter in several regions. India, I called out, obviously, that's a strong market for us and continues to be a good growth area.
Part of that's with Vodafone Idea coming back and investing in the network. But as I mentioned, I think we had our best quarter ever since acquiring ACI 5 years ago here in the first quarter in India. So that was very strong. The second region that continues to be a strong contributor is the rest of Asia Pac or Southeast Asia. In fact, I was just in the Philippines and in Taiwan back a few weeks ago.
We had a nice announcement in the Philippines with Converge, one of our key customers there, building out a nationwide fiber backbone that's serving both their internal needs as well as data center interconnectivity as well as the launch of Starlink in the region and supporting their downlink stations. So that's a great example of growth for us with a major operator in that region. That region also tends to be the area we're seeing the most opportunities, I think, from a Nokia Infinera integration perspective. We're a great, I'll call it, Western alternative in the region, and they're looking for alternatives as that integration happens. And so good momentum, in particular, competitively there.
The third region I'll mention that we had good growth in the first quarter, again, was in the US domestic market here. year over year growth that was very strong. And that today is with, I'll call it, the regional or rural operators building out broadband infrastructure. It's also with the interconnect carriers that are basically replacing legacy TDM networks.
It could be copper, it could be SONET networks, IP networks and then using our routing platform as that circuit emulation capability. And so we've been growing pretty nicely in that mid-market, if you will, in the US around our IP routing platforms.

Operator

Rustam Kanga, Citizens.

Rustam Kanga

Just touching on the recent launch of the NPT-2714 and broader -- enhancements to the IP optical portfolio. Could you help qualify the early customer reception there? And do you expect that to be a meaningful contributor in the back half of the year?

Bruce McClelland

Yes. Great question. So we launched the product at Mobile World Congress in February and then also highlighted it at the OFC conference here recently where we won an award with it. It's pretty strategic for us. It basically is the metro core router.
It's the highest capacity, densest platform that we've got in the portfolio. And it allows us to expand from just the access layer aggregation layer where we have a lot of business today into the more of the core of the network. So one, it allows us to provide a complete end-to-end solution with customers that are building out a metro IT network. And two, it allows us more strategically to be further in the network, so not just at the access layer, but really in the core. So it's a pretty important element of being able to provide a fulsome kind of complete solution to customers.
It's committed already with a variety of customers that are building out the access layer and then want to insert the core router next step of their network upgrades. So good pipeline, good opportunities. I think it's a next class product for us that really moves us beyond the access layer. So yes, pretty important.

Rustam Kanga

That's fantastic. Just one more from me regarding the Converge expansion. Could you talk a bit about what that does for the performance and optimization of that regional network and maybe how that deployment impacts kind of your share within APAC and perhaps touching on the vendor consolidation and elimination of the Chinese parts that you mentioned in your prepared remarks?

Bruce McClelland

Yes, great question. Thank you. So the Philippines region is pretty strategic for us. In fact, we service a lot of Southeast Asia out of the Philippines. It's our -- kind of our central headquarters in the region for technical support and sales.
In the country itself, we're doing business with really, I think, four of the top five service providers and so we have built a really good reputation in the region. This new network is being built as basically an overlay to the current network, and it's being built completely with Western providers to make it as they provide services to large hyperscalers or regional cloud providers, there's no concern over having Chinese equipment in that network. And so it's a deliberate decision to build a new network with a partner and expand their reach in the region. So it's a great reference point for us. Other countries we're pretty active with as well.
We mentioned a win with Mortel in the region. In that case, we're putting a new subsea cable in 20 terabits of additional capacity into the island. So that was a very nice win. And then other countries such as Taiwan, Vietnam, we're all active in today with new wins in the last three months. So getting a lot of focus from us is the reason I did a trip over to spend time with customers and really grow our presence in the region.
The last country I'll mention that's strategic for us in the region is Japan. We've had a long history and kind of presence there with our Cloud and Edge portfolio. And then we've been able to cross-sell and build into some of these networks from an IP and optical perspective into names like Sony and SoftBank and those sorts of names. So it's a strategic area for us to grow in the Asia Pac region as well.

Operator

This concludes the question-and-answer session. I would like to turn the call back to Bruce McClelland for closing remarks.

Bruce McClelland

Okay. Great. Well, thanks very much. Thanks for being on the call and the interest in Ribbon. We really look forward to meeting with many of you in the upcoming investor conferences over the next few months and keeping you updated on our progress.
Operator, thanks to you as well, and that concludes our call.

Operator

Thank you. This concludes today's conference. You may now disconnect your lines at this time. Enjoy the rest of your day.