Ribbon CommunicationsRBBN
 (RBBN) reported fantastic Q4 results last night, with revenue and adjusted earnings for the period of $233.6 million and 9 cents per share coming in well above the $229.2 million and loss of a penny analysts were expecting. Not only was this the company’s third consecutive sequential revenue increase and by far its strongest quarterly profit performance of 2022, it also marked a return to year-over-year top and bottom-line growth following five straight quarters of decline. Indeed, compared to Q4 of 2021, revenue increased 1.3% on particularly strong demand for its IP Optical solutions across all regions and adjusted earnings per share were up ninefold thanks to the additional benefit of RBBN’s ongoing efforts to increase efficiencies and contain operating expenses, as well as a much lower effective tax rate stemming from improvements in its global tax provision estimates.

What’s more, this improved operating performance also allowed the company to return to positive free cash flow production, with the $15.6 million it generated in Q4 nearly doubling its $8.4 million tally from last year and reversing a big chunk of the $52.2 million it had burned through in the first nine months of 2022.

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More importantly, underlying demand for RBBN’s solutions remains very solid, as evidenced by the healthy book-to-bill ratio of 1.1 it also achieved during the last quarter, and the company’s large funnel of opportunities. The latter includes a combination of both service provider and critical infrastructure IP Optical projects in Europe; the ongoing quick adoption of 5G in many countries; the recent extension of its multi-year agreement with the Israeli Defense Forces to provide critical support and products supporting their unique communication requirements; and heavy investments by major carriers like MTN, Airtel, Etisalat and Orange alongside key content providers such as Facebook, Google and MicrosoftMSFT
 to bring subsea and terrestrial fiber networks to developing markets like Africa.

When combined with RBBN’s expectation for the global supply chain constraints and their related elevated costs it has been dealing with to continue moderating and the additional $20 million it thinks it can lower its annual costs by through a series of organizational changes it recently implemented to increase collaboration and coordination and combine leadership of its business units, this has the company projecting revenue and adjusted EBITDA of $840-870 million and $95-110 million in 2023. At the midpoint, this implies revenue of $855 million and adjusted EBITDA of $102.5 million. While the former is slightly below the $856.7 million consensus, it nevertheless indicates a return to solid top-line growth of 4% from the $819.8 million it ended 2022 with. Moreover, the latter is 14% higher than the $89.9 million the Street was looking for and suggests an even bigger 60% jump in operating profits from the $64.0 million achieved last year. If this is accompanied by a similar improvement in earnings and free cash flow production in the year ahead as I expect, I think today’s bounce in the stock could be just the beginning of a much more significant and sustained move upwards.