Ribbon Communications Inc. (RBBN) Q2 2020 Earnings Call Transcript

Ribbon Communications Inc. (RBBN 3.23%)
Q2 2020 Earnings Call
Aug 05, 2020, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Ribbon Communications second-quarter 2020 financial results conference call.[Operator instructions] It is now my pleasure to introduce your host, Monica Gould, investor relations. Thank you. You may begin.

Monica Gould -- Investor Relations

Good afternoon. And welcome to Ribbon second-quarter 2020 financial results conference call. I'm Monica Gould, investor relations of Ribbon Communications. Also on the call today will be Bruce McClelland, Ribbons chief executive officer, and Mick Lopez, Ribbons chief financial officer.

Today's call is being webcast live and will be archived on the Investor Relations section of our website at ribboncommunications.com, where both of our press release and our supplementary, supplemental data are currently available. Certain matters we will be discussing today including, the business outlook, financial projections for the third-quarter 2020, and the proposed sale of the Kandy Communications business. Our forward-looking statements, such statements are subject to the risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties are discussed in our documents filed with the SEC including our most recent Form 10-K and Form 10-Q.

I refer you to our Safe Harbor statement included on Slides 2 and 3 of the supplemental slides for this conference call. In addition, we will present non-GAAP financial information on this call. Reconciliations to the applicable GAAP measure are included in their earnings press release we issued this afternoon, as well as the supplemental slides for this conference call which again, are both available on the Investor Relations section of our website. Finally, as you will recall, we completed our acquisition of ECI Telecom on March 3, 2020, which impacts comparisons to prior periods.

Statements about Ribbon's organic business, Ribbon's stand-alone, Cloud & Edge, and organic revenue growth referred to the business and financial results of Ribbon Communications excluding the ECI business. References to packet optical network relates to the ECI business. Overall, Ribbon or total company results are consolidated results and include the results for ECI from the acquisition date. Ribbon operates as a single segment.

However, for the sake of clarity, we are including additional detail on the former ECI Telecom business performance. As they continue to integrate, we will transition to providing business unit performance rather than legal entity financials. And now, I would like to turn the call over to Bruce.

Bruce McClelland -- Chief Executive Officer

Thank you, Monica. And thank you, everyone, for joining us today. We're very pleased with our performance in the second quarter as we navigate this challenging time. Before we go through the details of our second-quarter performance and talk about our outlook for the second half of the year, I'd like to make a few comments on the announcement we made today relevant to our Kandy Advance Communications business.

As part of the portfolio assessment that I've been doing since joining earlier this year, it became clear that a different path would be beneficial to realize the full potential for Kandy. As announced, we have signed an agreement to sell the business to American Virtual Cloud Technologies or AVCtechnologies. AVCtechnologies is a publicly traded IT services company with a strong management team focused on assembling a world-class portfolio of unified cloud communications, managed services, and cybersecurity technologies and services. We believe the all-stock transaction will unlock the value of our Kandy Communications business, and allow Ribbon shareholders to benefit from the potential upside while reducing the ongoing investment that is needed to ensure the full potential is achieved.

In the first half of 2020, we estimate there would have been a $9 million improvement to Ribbon EBITDA had we excluded the Kandy operation. AVCtechnologies will be an important customer for Ribbon, and as a minority investor, we will be completely aligned and prioritizing the success of our mutual customers, and our most important asset, the employees. The deal is structured as an asset purchase with AVCtechnologies acquiring the ongoing Kandy business, including certain intellectual property, customer contracts, and ongoing operations. Key customers include AT&T, IBM, Etisalat, the City of Los Angeles, and many others.

Ribbon will receive 13 million shares of AVCtechnologies an approximate value of $50 million, based on the current AVCtechnologies share price. We expect the transaction which is contingent on financing AVCtechnologies' shareholder approval, consent from our lenders under our credit facility, and other customary closing conditions to close before the end of 2020. I'm very excited about this new direction for Kandy and the potential for this business. As well as the increased focus, this will give the Ribbon team on our core-service provider, an enterprise strategy.

Now on to other highlights. In the second quarter, we reported total sales of $210 million, a 45% increase from the same period last year. Reflecting the inclusion of a full quarter packet optical sales from the ECI acquisition. Excluding ECI sales, the traditional Ribbon business on a stand-alone basis remains very solid with sales increasing to $147 million from $145 million in the same quarter a year ago.

Sales from organic Ribbon's software-based products, increased 39% in the second quarter, compared to the same period last year which had a very positive effect on our profitability. We continue to make good progress on our strategic objective to diversify and grow our Enterprise business. Overall sales to enterprise customers accounted for 30% of our product revenue, up from 21% in the year-ago quarter. The stand-alone Ribbon Cloud & Edge Enterprise sales increased 42% year over year, and 38% quarter over quarter despite lower sales of our on-premise SBC solutions arising from the shift to working from home.

And we're starting to see the benefits from restructuring activities and other cost containment actions we took in the first half. With non-GAAP operating expenses declining approximately 11% quarter over quarter on a comparable basis. Combined with the higher sales and stronger gross margins, overall profitability grew by 31% year over year with an adjusted EBITDA of $30 million in the second quarter. For the first half, we've delivered $39 million of adjusted EBITDA almost double the $20 million achieved in the first half of 2019.

Like many companies, the majority of our employees continue to work very effectively from home, and we have started to slowly phase in back to the office with a small percentage of employees in certain locations. We've maintained extensive employee engagement and have great examples of initiatives by Ribbon employees to support the local community. Our customers continue to see elevated traffic levels related to work from home. Driving network capacity augmentation, and continued focus on transitioning legacy networks to IP.

Customers are prioritizing solutions certainty and speed of deployment over evaluating new technologies. In some regions such as India and Japan, they remain logistical challenges that have slowed down certain types of projects and delayed new product testing and certification. But overall our engagement level with customers has increased and is very similar to pre-COVID levels, and visibility in their business has improved, and we currently have no significant supply chain restrictions. Lower travel and marketing activities contributed to our lower operating expenses in 2020.

We have quite a few notable customer accomplishments in the second quarter. On the 5G front, we were very excited to announce the Bharti Airtel went live with a new IP MPLS network utilizing our Neptune platform with a specific focus on readying their network for 5G services. We have a great partnership with Airtel, and this deployment of thousands of network elements is a great affirmation of the differentiation designed into our packet optical portfolio. Airtel is also leveraging our mobile analytics platform to further manage the performance of their network.

A little closer to home but still on the 5G theme, we had an important win with a major US mobile carrier with a new VoLTE voice transcoding platform to support both 4G AMR wideband voice codecs, and NextGen 5G Enhanced Voice Services or (EVS) codecs. This was a $10 million initial deal with deployment in the third quarter and potential for future growth. While these two wins are obviously very different, they emphasize the importance that 5G will have in network modernization, and investment going forward. Our core SBC business had a very good quarter with both Enterprise and Service Providers customers.

We were very proud of the work we did with Bandwidth to rapidly increase system capacity, leveraging a cloud-based deployment on the AWS public cloud platform. As the stay at home order created significant traffic growth. And we went live with a new customer in Japan to support their 4G mobile launch as they pioneer commercialization of the open ramp standard. Despite the work from home operating model, we had a very busy quarter as we partnered with Microsoft to train hundreds of their global one commercial partners on the use and deployment of Direct Routing to support off-net calling within the Team's environment.

We continue to see momentum building with our Microsoft engagement and believe this will be a growth driver in the second half of the year and into 2021. Our Kandy business had several notable accomplishments in the second quarter. We launched a new IP Toll-Free click to connect capability with AT&T in their API marketplace that provides customers with the ability to simply add inbound voice over IP Toll-Free calling. This is particularly powerful for call center environments operating in multiple locations, or migrating from legacy TDM systems.

And together with one of our Tier 1 Carrier Partners, we were awarded the UCAS opportunity with a nationwide healthcare services company covering over 80,000 of end-users in over 100 locations. And during the quarter, we surpassed 200,000 seats on the Kandy business services platform. A big milestone. I'll now ask Mick to comment in more detail on our Q2 performance, and then I'll come back on and talk about the outlook for the business.

Mick, I want to welcome you to the team, and your first Ribbon earnings call. We're delighted to have you with us. Mick.

Mick Lopez -- Chief Financial Officer

Thank you, Bruce. I am honored to join the Ribbon Leadership team and especially grateful for the warm welcome. As Bruce mentioned, our second-quarter showed good performance considering our challenging economic environment. We have provided supplemental slides on our website with graphs and tables to assist our investors.

Total revenue of $210 million in the second quarter was comprised of $147 million for Cloud & Edge and $64 million for Packet Optical. To repeat again for the sake of clarity, Ribbon acquired ECI on March 3rd. So the first quarter of 2020 had one month of Packet Optical revenue of $30 million, while the second quarter has a full quarter included for $64 million. As previously mentioned, as we continue to integrate, we will transition to providing business unit performance rather than legal entity financials.

Given the recent ECI acquisition, all year on year comparisons are getting Ribbon stand-alone unless otherwise noted. The second quarter of 2020 GAAP financial results were as follows: Total company revenue was $210 million dollars. The gross margin was 53%. Operating expenses were $111million.

The loss per share was $0.06. Please note that last year, we had a $63 million gain from a litigation settlement including the company's GAAP financial results which added $0.57 to earnings per share. For Ribbon as a total company, our non-GAAP second-quarter performance was total revenue of $210 million, non-GAAP gross margin was 59%. Non-GAAP operating expenses were $99 million.

Non-GAAP adjusted EBITDA was $30 million, compared to $22 million last year. The improvement in adjusted EBITDA was driven by higher software mix in Cloud & Edge and continued cost containment efforts across the company. Non-GAAP diluted earnings per share were $0.06, compared to $0.14 last year which reflects the higher share count from the ECI acquisition. Our diluted share count for the second quarter was 151 million shares, compared to 111 million shares in prior-year primarily driven by the ECI acquisition.

The Packet Optical Network business reported Q2 revenue of $64 million which was down 26% versus the prior year due to challenging operating environments in regions such as India. From our profitability perspective, our ECI entity achieved gross margins of 39%, and by controlling expenses, we were able to minimize the EBITDA loss to $7 million. In the Cloud & Edge business, Q2 revenue was $147 million, reflecting growth of 1% from the previous year, driven by demand from our Enterprise customers. Strong growth in software revenue resulted in better gross margins for Cloud & Edge of 67% versus 63% in the previous year.

Our non-GAAP operating expenses of $64 million decreased 10% from the prior year, driven by restructuring savings, temporary employee salary reductions, and minimal travel and other discretionary expenses. Cloud & Edge, non-GAAP operating margin was23% which is 10-percentage points higher than last year. Non-GAAP adjusted EBITDA for Cloud & Edge was $37 million which is $15 million higher than last year and reflects reflecting an adjusted EBITDA margin of 26%. Now some additional perspective on Cloud & Edge.

There was $72 million of product revenue and $75 million of service revenue. In the second quarter of 2020, Cloud & Edge software product revenue increased by $12 million, compared to the same period last year. The software was 60% of total product revenue in the second quarter of 2020 compared to 43% in the second quarter of 2019. We would like to provide some of our key metrics for the second quarter.

book-to-bill ratio excluding maintenance was 1.12 times. Our solid pipeline is providing us with much better visibility into sales in the second half of the year. Software revenue was 39% of total product revenue across the total company. Maintenance was 33% of total revenues which is fairly consistent with the prior year.

Our top 10 customers accounted for 47% of total revenue which compares to 52% last year. Service Providers accounted for about 70% of our revenue in the quarter, and Enterprise customers represented 30%. This compares favorably to the second quarter of 2019 which had 79% of the revenue from Service Providers and 21% from Enterprise customers. While in last year's second quarter, international customers accounted for 42% of revenues.

As a result of the ECI acquisition, international customers represented 52% of revenue in the second quarter of 2020. Turning to the balance sheet. We ended the quarter with cash and cash equivalents of $94 million, including restricted cash of $13 million. We anticipate using approximately $8 million of restricted cash over the next year to pay certain real-estate taxes associated with the ECI merger.

The principal balance of the term loan was $397.5 million as of June 30, 2020, which is down $2.5 million reflectings a quarterly principal payment. Our revolver of $100 million remained undrawn. The effective interest rate on our term loan was 3.9% for the second quarter of 2020, and deleverage and fixed charge coverage ratio covenants for comfortably meant. From a cash perspective, the company used $3 million of cash in operations for the second quarter.

If we were to adjust for unusual items including payments of $25 million for acquisition-related costs from the first quarter, and positive $9 million in receipts from the Metaswitch settlement our cash from operations would have been a positive $13 million. We anticipate spending approximately $7 million in the second half of 2020 for restructuring and acquisition-related expenses. We received an accelerated payment of $16.7 million from Metaswitch in July that completed their payments to Ribbon. Capital expenditures were $9 million for the quarter which was $5 million higher than normal, [Inaudible] real estate leasehold improvements in our North Dallas, and Japan facilities.

In summary, we had a good quarter with a strong performance by Cloud & Edge and recovery in the Packet Optical Network business. Now, I'd like to turn the call back to you, Bruce.

Bruce McClelland -- Chief Executive Officer

Great. Thanks, Mick. Let me add a few more thoughts on each of our businesses and our outlook for the third quarter. Our Cloud & Edge portfolio is a broad set of voice-over-IP related products and services deployed with many of the major carriers and enterprises around the world.

Continued investment in these products is driven by the adoption of IP technologies to reduce costs and enable advanced collaboration services. The recent work from home transition continues to be a tailwind for the business. Given the increase in network utilization. A significant portion of the addressable market growth for Cloud & Edge is within the enterprise vertical particularly as unified communications solutions such as Microsoft Teams, Zoom, and Amazon Chime become commonplace.

As the use of these UC platforms expands beyond collaboration use cases and begins to replace, replace traditional network or PBX/ phone systems, secure scalable SIP trunking becomes a critical ingredient. This is an area where we are laser-focused. And we are expanding our solutions to support the growing UC market. This week, we launched Ribbon Connect, a portfolio of subscription-based as a service offering.

This Ribbon Connect offering supports Microsoft Teams Direct Routing and enables Carrier Grade Voice Calling Capabilities in Minutes. Microsoft Teams is one of the fastest-growing unified communication platforms in the world with more than 100 million daily active users. Ribbon Connect provides a seamless way for Service Providers, value-added resellers, and system integrators to quickly tap into this rapidly expanding market by easily adding voice-calling capabilities to Microsoft Teams. We're taking a partner first road-to-market with this offering supporting a best of breed approach to the solution.

Ribbon Connect for Microsoft Teams Direct Routing is the first of several subscription-based offerings designed to rapidly accelerate time to market for real-time communications. We also continue to have good traction in the financials vertical with nine global financial institutions increasing capacity on our session management solution in the last quarter. Illustrating the significant role, we play in these global enterprise networks that they continue to modernize and optimize their IP-based communications network with our software and premise-based solutions. With a broad array of public or private cloud and on-premise SBC solutions, we really have the market covered.

With security top of mind for many consumers, our leadership in defining and deploying Call Trust and identity management solutions continues to gain momentum with Service Providers. Our new Call Trust offering utilizes machine learning models to determine a caller's intent and reputation in real-time for every call, and enables the service provider to determine how each call should be handled. Greatly reducing the number of unwanted robocalls and fraud calls. In the second quarter, we secured two Tier 1 North American customer wins for this offering.

And of course, our Cloud & Edge business is underpinned by a strong recurring maintenance revenue stream, supporting many of the largest telephone networks around the world. In the second quarter, we had two satisfying win backs with customers that had discontinued support from us in favor of another third party only to return and renew coverage. Overall, we continue to expect year-over-year sales growth of 2% to 3% for the Cloud Managed business with improving earnings from a stronger software mix and lower operating expenses. Growth related to Enterprise communications will outpace other areas and pace the overall growth of the business.

Turning to our Packet Optical Network's business. We saw some recovery in sales as customers renewed projects paused during the early stages of COVID-19. In particular, we had a solid quarter in European and former Soviet Union countries. The business in India is still impacted by both COVID delays, as well as the ongoing adjusted gross revenue feed dispute between several wireless carriers and the Department of Telecommunications.

However, there is a significant Supreme Court hearing on the case planned for next week, and we're optimistic that clarity will be reached, and Service Providers can move forward with certainty in their business. From a general activity perspective, we have seen deployments recover in July to approximately 50% of the pre-COVID levels, and expect this trend to continue to improve. Engagements related to the 5G network. Planning is very robust and we expect this to be a significant driver for our business in 2021.

In addition to our Bharti Airtel announcement, our portfolio was ranked very strongly by our recent Global Data report that focuses specifically on 5G Transport solutions. In particular, we had market leadership ratings in areas such as timing and synchronization, network slicing and program ability, and power efficiency. This affirmation underlines the technology differentiation and competitiveness of the portfolio. Our timing is perfect.

Given the increased global pressure on Chinese competitors in certain markets, creating an opportunity for new wins and market share gains. Of course one of our highest priorities is to penetrate the North American market. Leveraging the strong Ribbon presence and relationships. During the quarter, we added additional sales executives with deep experience in the North American optical market to address the opportunities that we are seeing with current Ribbon customers.

While it will take time for the strategy to play out, we have a broad set of opportunities in the pipeline. Overall, we expect our Packet Optical business to continue to improve in the second half of the year and to be poised very well for growth in 2021. We expect to further benefit from the integration efficiencies, and increased scale of the combined company. As a result of the improving visibility and solid backlog, we are providing financial guidance for the third quarter.

We anticipate sales in the range of $210 million to $220 million with a slightly higher mix of hardware sales. Our outlook for adjusted EBITDA is in a range of $25 million to $29 million, and non-GAAP earnings per share of $0.05 to $0.07. This outlook excludes any potential effects of the sale of Kandy. While we still continue to face near-term challenges, we have a lot of opportunities, and I'm confident in our ability to adapt and position the company for profitable growth.

That concludes our formal remarks. I do want to personally thank the entire Ribbon Team around the globe for their hard work this past quarter, and the excellent progress we made on integration as well as cost containment. I want to give a special thanks to our Sales Team that had very solid results during the challenging pandemic. This time, I'd like to ask the operator to come back on the line and open up for questions.

Questions & Answers:

Operator

Thank you. We'll now be conducting a Q&A session. [Operator instructions] Our first question comes from the line of Paul Silverstein with Cowen. Please proceed with your question.

Paul, can you check please if your line is on mute.

Paul Silverstein -- Cowen and Company -- Analyst

I should learn how to use the cellphone. I apologize. [Inaudible] I appreciate your taking the questions. two big picture questions that I will make.

First with respect to these packet optical, I want to make sure I understood your comment Bruce. The 50% recovery site, was that specific to India or do that apply. I know and it was a big piece, the biggest piece from a geographic perspective at leas. Was that common specific to India was that relative to the overall Packet Optical remedy.

Bruce McClelland -- Chief Executive Officer

Yes, sorry. I wasn't clear, Paul. That was specifically around the deployments we're doing in India with the large carriers there, and we're deeply involved with them doing the service element of deploying the product. And so we get pretty good visibility into what's going on, and we're kind of more than halfway back to, to where we were earlier this year in deployment velocity.

Paul Silverstein -- Cowen and Company -- Analyst

Bruce, I'm trying to discern the opportunity or the risk for that matter. How big is India is a portion of your power. I assume India is Packet Optical today or virtually Packet Optical as opposed to the traditional business. How big is India as a portion of the optical revenue at present.

Bruce McClelland -- Chief Executive Officer

Yes. We do a little bit of Cloud & Edge there, but the larger portions back at optical and it's about, about a third of the business is something like that for the overall impact on packet optical sales.

Paul Silverstein -- Cowen and Company -- Analyst

And the bulk of the balance to be Russia, Eastern Europe, Israel, Middle East, Africa.

Bruce McClelland -- Chief Executive Officer

You've got it.

Paul Silverstein -- Cowen and Company -- Analyst

All right. It is a general proposition if we think beyond India. What are you saying in terms of recovery on the Packet Optical before asking about club.

Bruce McClelland -- Chief Executive Officer

Yes. On the European region and the countries we sell into in former Soviet Union, we saw a more significant recovery in the second quarter particularly as we got to the end of the quarter. So we had pretty, pretty solid results there. And again, as the deployment velocity continues to increase in India, and of course we get through solving the adjusted gross revenue feed dispute hopefully next week.

We're optimistic that India really starts to reaccelerate and, and gosh the announcement we did with Bharti here this week is a good indicator of how significant our presence we have over there.

Paul Silverstein -- Cowen and Company -- Analyst

All right. One more question we may have packed up. Well before I get to cloud in pauses by asking you this many days ago. But obviously, you could take advantage from an acquisition perspective whether the case on [Inaudible] it coherently as IP, but as a Timo proposition given a level of competitive intensity and obstacle.

And given the nature of the competitors where you have some very fine and much, much larger entities with [Inaudible] greater assets in you are somewhat resource-constrained. I'm just curious Bruce. I know it wasn't under your watch. I know you're coming, and you just made a strategic decision to spread to Kandy.

But from a long-term perspective, the challenge versus the opportunity of having sufficient resources especially given that cost of technology, and the technical complexity that technology hand-in-hand goes up dramatically with each line rate. And it is fine as u size has been historically extremely good supply of new technology product perspective. But how do you -- from a launch perspective beyond mentioning quarter to quarter. What's the likelihood from your perspective, the puts and takes being able to see that and be successful.

And I don't mean to be cynical, but again looking longer term and you give the new sheriff in town what are your thoughts on how you navigate that very challenging the factors like.

Bruce McClelland -- Chief Executive Officer

Well, I think Paul, it's a lot around the focus. We're trying to do everything for everyone. That's when you have a challenge and in fact, the decision we made around Kandy is a perfect example of really focusing on where we're going to invest, and we're going to be successful. This global data report, we just saw, just highlights the technology strength in the portfolio and the thought leadership we're gaining around particular around 5G networking and the evolution toward private networking.

So I understand the skepticism. But that's exactly our advantage. I mean where we're coming in is a bit of a disruptor with. I hope, I think a differentiated technology approach.

And we've proven we can be successful selling directly head to head against the major industry names. The strategy is fairly simple here right. As we've talked about is to take that technology advantage and then leverage the footprint in that, and the relationships and go head to head and win the business. And we're not afraid to go do that.

We need to prove it. We've got to show you. Obviously that the strategy is going to make sense. But No, I'm very confident in our ability to go do that and look I go back to my days at Earth when we're this little company competing against the big names that can, it can happen.

But you've got to have a good strategy and really focus on, and pick your spot somewhere you're going to succeed.

Paul Silverstein -- Cowen and Company -- Analyst

fair enough. Let me ask you about the business. And again, I appreciate your words there back when but the trends that you identified in terms of Enterprise, SIP trunking Teams, these are not new things being in the market for quite some time readily identifiable. If I look by way of an example audio code such as 70, 30 for longest taken split between Enterprise and Service Providers.

So they're focused on your price for a while for that matter. Back in the days, I think it was back in as soonest maybe it was already Ribbon when you're -- in your arrival by the private company. Should now don't matter to focus small, focused on the Microsoft Enterprise opportunity. So there's been a lot of talk over the years.

A lot of focus on price. What's different now. What's, what are the key things that need to change for you all too. I guess a better job executing against that prominent or potentially prominent enterprise opportunity presented by teams and by the general environment.

Bruce McClelland -- Chief Executive Officer

Yes. I think when you buy brocade or you break down the enterprise market, you'll find -- there's a variety of different addressable markets where we've done pretty well. If you look at the major enterprises. I think I talked about nine of the major financial institutions investing in our SBC product just in the last quarter.

And that's not necessarily for unified communications. It's for their own SIP trunking needs between their offices, interconnect to the network et. Cetera. You know these -- then look at the other part of the enterprise market there's obviously, a kind of small medium-sized business market and the unified communications market.

And there's a variety of different technical solutions you need to address the full, the full addressable market. So we've got the best in class appliance-based products. We've got cloud-native products. We now launched as a service product, and we have on-premise scalable solutions from small to medium to large.

We've been building up some of those additional capabilities, and playing catch up in a portion of the market. But the other portion as I mentioned, the larger enterprises I think we're leading the market in those areas. What's obviously gotten more attention recently is the significant growth around unified communications. And just to pause on that for a minute till you think about Microsoft Teams in the 100 million-plus daily users.

They now have on that platform only a fraction of those daily users are using it for telephony needs for PBX replacement you know for off-net calls. And so that's when you start to need secure SIP trunking SBC platforms. So what we think happens, the adoption rate now has gone from just collaboration toward using that as a platform for all your communication needs. And so we think it is different.

It's not just the -- well it's been around for a while. I think there's a change in how these products are going to get leveraged by enterprises. And as we've expanded the portfolio, we've added on that as a service capability. I feel like we're pretty well-positioned to take share is that business grows.

Paul Silverstein -- Cowen and Company -- Analyst

Bruce is that you could see this opportunity through the most excited about it or is there another particular opportunity that you are more excited about.

Bruce McClelland -- Chief Executive Officer

Yes. We mentioned teams a lot, but there are several additional outstanding [Inaudible] collaboration platforms out there that all do similar things, and all need this secure Off Netphone connection. So, it's Microsoft. It's Zoom.

There's a handful that is really leading the industry. And so we're really are focused on all of them, not just on Microsoft Teams. But as we've seen the momentum build there, we've put more and more effort around that and partner pretty closely now with their sales team to position ourselves better. So there's been a lot of work, Paul.

As we go in, in the last six to nine months to improve our position there. It's, it's not just doing the same thing. Hoping for a different outcome.

Paul Silverstein -- Cowen and Company -- Analyst

All right. Appreciate your responses. Thank you so much.

Bruce McClelland -- Chief Executive Officer

Thanks, Paul. Appreciate the call.

Operator

Thank you. Our next question comes from the line of Mike Latimore with Northland Capital Markets. Please, proceed with your question.

Mike Latimore -- Northland Capital Markets -- Analyst

Yes. Great. Thanks, thanks for the detailed presentation. They were helpful.

In terms of the Kandy sale, I just want to make sure I got the number right. Did you say that EBITDA would have been 9 million higher in the first half of the year, absent Kandy. Is that what you said.

Bruce McClelland -- Chief Executive Officer

That's right. That's right, Mike. Exactly.

Mike Latimore -- Northland Capital Markets -- Analyst

Any revenue color on that as well.

Bruce McClelland -- Chief Executive Officer

Yes. It goes up, down a little bit every quarter. But you could model it as between $3 million and $4 million a quarter and revenue costs in the first half of the year.

Mike Latimore -- Northland Capital Markets -- Analyst

Great. And then obviously, the kind of work from home trend came on strongly and rapidly. Did your -- your customers clearly needed you more to handle the traffic. But I'm wondering, did any of that lead to maybe pull forward of any capacity purchases that you might not see later in the year, or is this just a situation where traffic elevated and you're gonna need to invest cash throughout the year.

Bruce McClelland -- Chief Executive Officer

Yes. It's a little hard to put a finger on exactly, but it feels more incremental than pull forward. And then there's an ongoing nurturing of the business to keep up with capacity as well as this as I mentioned this transition to support more unified communication collaboration which we don't think is a short-term phenomenon. We think that's a long term growth engine or tailwind for the business.

Mike Latimore -- Northland Capital Markets -- Analyst

And then maybe in a detail somewhere. But in terms of SBC versus Gateway sales, has there been a notable shift recently because of these, these from work from home trends or is it a pretty consistent pattern there.

Bruce McClelland -- Chief Executive Officer

Yes. When you say Gateway, I think you're talking about the on-premise universal CPE type platforms right for enterprise. And we have seen a bit of a decline in deployment, is not a massive one but it hasn't been, hasn't been growing which we account to obviously the work from home. And if you're not forming new businesses and adding new locations, you're not adding a lot more on-premise equipment.

What we have seen is obviously, the traffic shift to the cloud and the additional capacity around networking for those -- for that use case.

Mike Latimore -- Northland Capital Markets -- Analyst

And with regard to the former Soviet Union, it sounds like that's coming back to a normal level. Is that the right interpretation there.

Bruce McClelland -- Chief Executive Officer

Yes. Particularly toward the end of the quarter, and even in the third quarter. The business has been pretty solid. I don't know if it's quite back to where it was, but it, it was pretty solid, Mike.

So we were pretty pleased to see that come back, probably a little stronger than I thought it would.

Mike Latimore -- Northland Capital Markets -- Analyst

And then just last one. Maybe just an update on how you're thinking about debt repayments, and the plans are on it.

Bruce McClelland -- Chief Executive Officer

So, I think obviously, we're really focused on the integration of cash generation. I'm not sure we're at a point where we're thinking about accelerated debt repayment and things like that. But we're, we're certainly thinking in the mid-term. There's gonna be a focus around use to cash to pay down debt.

Mike Latimore -- Northland Capital Markets -- Analyst

Ok. Thanks a lot.

Bruce McClelland -- Chief Executive Officer

All right. Appreciate it. Thank you.

Operator

Thank you. [Operator instructions] Our next question comes from the line of Fahad Najam with Cowen and Company. Please, proceed with your question.

Fahad Najam -- Cowen and Company -- Analyst

Thank you, for taking my question. I have a couple of them. First, on that Kandy, can you elaborate a little bit more. I would assume that Kandy that's one of the more promising portfolios in your product portfolio that had the most promising growth prospects.

Can you walk us through your rationale for the outlook in Kandy assets now.

Bruce McClelland -- Chief Executive Officer

So. Thanks, Fahad. I appreciate the question. I think we're still pretty excited about the potential for the business.

But a couple of factors I think come into play. I believe that continued significant investment around that business is needed to really realize the potential. Obviously, we're competing against a variety of larger players investing a lot around sales and marketing. And I felt like if we were really going to see the potential, we were going to have to double down more around that.

And really focus on investing there. Obviously, we have three or four other product lines in the company that need focus as well. And so I think some of the earlier discussion folk deciding where strategically, we're going to invest. How we're going to be a significant player in these markets is all critical to the strategy.

And I feel like we can really unlock the value of that asset, and still benefit in the potential upside longer term. With an equity investment in somebody that is focused on that market 100%. So it feels like we get the benefit of both in some ways. We get the potential upside of a business that we believe in.

They become an important customer for us. We continue to sell them products that enable the Kandy service, and we lower the short-term investment, and we increase focus. So it seems to check off a lot of important things for the company.

Fahad Najam -- Cowen and Company -- Analyst

Got it. Now like a bigger broader question on technology and demand trend especially given the extraordinary times of COVID-19. Don't you agree that Zoom becoming so prevalent that the need for traditional new cash may be somewhat limited. And I'll give you an example.

I mean in that communication is becoming a far more prominent way of communicating. You still adopt in communication have to communicate directly. So are you -- how do you think about long-term implications for the UCAS opportunity especially when you see these over the top players other than [Inaudible]players becoming more prevalent in this. And more from where remote work from home, remote working types of scenarios.

Do you think that that market is permanently impacted or maybe somewhat curtailed for traditional new customers.

Bruce McClelland -- Chief Executive Officer

It's certainly a big picture question. I do think there's room for multiple winners in this space. I'm not sure there's one size, fits all. Everything moves to a best-effort over the top service if you will.

I think there's plenty of room for premium solutions in the market still today. I think there's room for on-premise solutions. I think there's room for terminal devices on people's desks. I just think it's a big market, and I'm not sure picking one winner or two winners makes sense.

Obviously, we're trying to continue to expand the portfolio to meet the customer where they are in the market. If they want high-performance carrier grad, robust highly fault-tolerant platforms, we've got the best in the world. If they want to spin up an instance in AWS for sure we've got that. So, yes.

I guess that's the way I think of it, Fahad.

Fahad Najam -- Cowen and Company -- Analyst

I guess what I was trying to ask was in a different way. Was that prior to COVID-19 let's say the UCAS market was a billion-dollar account. But post COVID-19 with Zoom, and others in that based application kind of beating some of the opportunity. Would you read that you cast can have somewhat decreased or maybe shrunk as other modes of communication have become more prevalent.

Bruce McClelland -- Chief Executive Officer

Yes. So I guess maybe my definition that UCAS a little broader perhaps. I think I see what you're saying that the traditional enterprise in building primarily in office UCAS platforms that shifted permanently toward work from home over the top type solution. There's probably has been a shift.

From our perspective, we're trying to serve both those markets if you will. So to me, it's expanded our addressable market, but it's probably created some competitive shift for others.

Fahad Najam -- Cowen and Company -- Analyst

So can you elaborate more on how you're pivoting to this new over the top cloud-delivered applications. How do you see this market for you, and how are you or can you provide any anecdotal data points that support how your solutions are being leveraged or utilized.

Bruce McClelland -- Chief Executive Officer

Well with a Zoom collaboration platform, or Microsoft Teams or similar or other products. The moment that a connection moves off of the collaboration platform to a traditional PSTN connection, you need an interface and that's where we come in. We're providing that SIP trunking interface the security the robustness around that. And, if the world went to 100% everybody stays within a proprietary collaboration environment you wouldn't need that.

But I'm not sure that's a world anytime soon. So.

Fahad Najam -- Cowen and Company -- Analyst

Appreciate your answer. Well, I'll step back and stay on the line.

Bruce McClelland -- Chief Executive Officer

Ok. Thanks, Fahad.

Operator

Thank you. Our next question is a follow up from Paul Silverstein with Cowan. Please proceed with your question.

Paul Silverstein -- Cowen and Company -- Analyst

Great. I appreciate you guys. Just a follow-up. Based on your EBITDA particularly on Kandy, the 9 million first half.

What's the ballpark that from an opex perspective Kandy was costing you something on the order of 8 million a quarter. Well on my way off on that. Can you just give me the number.

Bruce McClelland -- Chief Executive Officer

Yes. That's, that's a little higher. It's probably closer to 5 million a quarter. Paul.

Paul Silverstein -- Cowen and Company -- Analyst

5 million close. So you'll do what 5 million. At least 5 million per quarter said just from Kandy. That is your perspective.

Bruce McClelland -- Chief Executive Officer

From an opex perspective. That's about it. Right. Yes.

Paul Silverstein -- Cowen and Company -- Analyst

That's all I need. Appreciate it.

Bruce McClelland -- Chief Executive Officer

Ok, Paul. Thank you.

Operator

Thank you. We have reached the end of our Q&A session. I've now will turn the call back over to Mr. McClelland, for any closing remarks.

Bruce McClelland -- Chief Executive Officer

Yes. Thank you, Michelle. That concludes our call. I look forward to updating everyone on our progress next quarter.

Hope to see many of you virtually in our upcoming Investor Conference over the next 30 days. Thanks very much, and have a good evening.

Operator

[Operator signoff]

Duration: 53 minutes

Call participants:

Monica Gould -- Investor Relations

Bruce McClelland -- Chief Executive Officer

Mick Lopez -- Chief Financial Officer

Paul Silverstein -- Cowen and Company -- Analyst

Mike Latimore -- Northland Capital Markets -- Analyst

Fahad Najam -- Cowen and Company -- Analyst

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