Ribbon Communications Q3 Earnings Call Highlights

Key Points

• Third-quarter results improved significantly: Revenue rose 14% sequentially to $219 million, while adjusted EBITDA more than doubled to $27 million and non-GAAP EPS increased to $0.07.
• IP Optical Networks reached a record third-quarter performance, with revenue up 17% sequentially and 5% year over year, while Cloud and Edge recovered as Verizon-related activity increased.
• Ribbon expects further growth in the fourth quarter, forecasting revenue of $233 million to $247 million and adjusted EBITDA of $40 million to $47 million. However, supply constraints could defer $5 million to $10 million of customer demand into the following quarter.

Ribbon Communications NASDAQ: RBBN reported third-quarter 2026 results that improved sequentially as stronger IP Optical Networks sales and a rebound in Cloud and Edge activity lifted revenue and profitability. The company also forecast further sequential and year-over-year growth in the fourth quarter, although management said supply constraints could defer some customer shipments into 2027.

Revenue totaled $219 million in the third quarter, up 14% from the preceding quarter and 2% from a year earlier. Adjusted EBITDA more than doubled sequentially to $27 million, while non-GAAP diluted earnings per share reached $0.07, compared with a $0.03 sequential loss and $0.04 in the prior-year period.

“We had a solid third quarter with meaningful sequential increases in revenue and profitability in both of our operating segments,” Chief Executive Officer Bruce McClelland said during the company’s earnings call.

IP Optical Sales Reach Record Third-Quarter Level

Ribbon’s IP Optical Networks segment generated $96 million in revenue, up 17% sequentially and 5% year over year. The segment’s product revenue increased 13% from the prior-year period, partly offset by lower services revenue following the expiration of a legacy support contract in the fourth quarter of 2025.

McClelland said the business delivered its best third quarter ever and its second-highest quarterly U.S. revenue performance. U.S. IP Optical sales increased more than 150% from a year earlier, while segment sales were more than 50% higher than first-quarter 2026 levels.

IP routing shipments rose about 35% during the quarter and exceeded optical sales, according to McClelland. He said the performance highlighted the importance of Ribbon’s combined routing and optical portfolio, though optical-only projects remain an important opportunity.

The company cited new wins with two U.S. Tier 2 service providers, ongoing work with a major U.S. energy producer, and a new project with a Midwest regional power generation and transmission utility. Ribbon also recorded shipments to regional service providers supporting mobile backhaul, broadband internet and data-center interconnect services.

International activity also contributed. Asia-Pacific revenue increased 20% sequentially and 19% year over year, including a new IP and optical project in Vietnam expected to exceed $10 million during 2026. Ribbon reported increased activity across Southeast Asia, as well as continued momentum in India. EMEA revenue rose 14% sequentially, though it fell 11% from the prior-year period because of lower Middle East and Africa sales following a record quarter a year earlier.

For the first nine months of 2026, the IP Optical Networks business produced a 1.24x book-to-revenue ratio. Third-quarter bookings for the segment increased about 9% year over year, although the quarterly book-to-bill ratio was 0.82 because of the higher revenue conversion from backlog, McClelland said.

Cloud and Edge Recovers as Verizon Activity Improves

Cloud and Edge revenue was $123 million, up 11% from the second quarter and down 1% year over year. The segment’s non-GAAP gross margin improved 210 basis points sequentially to 61.9%, while adjusted EBITDA rose $10 million sequentially to $28 million, or 23% of segment revenue.

Service-provider revenue in the segment increased 15% sequentially, led in part by greater activity with Ribbon’s largest customers. Verizon remained a customer representing more than 10% of quarterly revenue, and sales to the carrier increased approximately 50% compared with the first-half quarterly run rate.

McClelland said Ribbon expects additional Verizon-related revenue in the fourth quarter and anticipates a higher switch-migration pace in 2027. The company is also in planning discussions involving Verizon’s Frontier footprint, though management said the approach and timing remain early.

Beyond large service providers, Ribbon highlighted a partnership with TNS designed to offer smaller and rural operators a managed, cloud-based option for replacing legacy voice switches. The company also cited a new voice modernization project with a large civilian federal agency, additional defense-agency shipments, and a Network in a Box win in a NATO country.

Management said its partnership with Salesforce for the Agentforce Contact Center platform and its relationship with AWS could support subscription revenue as enterprises deploy AI-powered voice applications. Ribbon also introduced capabilities intended to detect AI-generated voice impersonation, deep fakes and related voice-phishing threats through its session border controller platform.

Margins, Cash Flow and Fourth-Quarter Outlook

Consolidated non-GAAP gross margin was 50.3%, improving 100 basis points sequentially but declining 230 basis points year over year due primarily to product and customer mix. Non-GAAP operating expenses were $88 million, roughly flat sequentially and down $1 million from a year earlier.

Cash flow from operations was negative $14 million in the third quarter. Ribbon ended the period with $42 million in cash, including a $15 million revolver draw that Chief Financial Officer Rick Marmurek said was used to simplify cash management. Net debt leverage was 4.4x.

Marmurek said Ribbon expects EBITDA improvement to reduce leverage through the fourth quarter and into 2027. He also expects cash flow to improve in the fourth quarter and first quarter of 2027 after a slower first half affected cash usage and accounts receivable increased alongside third-quarter invoicing.

For the fourth quarter, Ribbon forecast:

• Revenue of $233 million to $247 million.
• Adjusted EBITDA of $40 million to $47 million.
• Approximately $2 million per quarter of additional product costs tied to higher component and logistics expenses.

Management said fourth-quarter growth should be led primarily by Cloud and Edge, supported by a greater mix of software and professional services. The company expects both business segments to grow sequentially.

McClelland said Ribbon expects to be supply constrained “to some extent” in the fourth quarter amid demand for memory, core silicon and optical technology. He estimated that $5 million to $10 million of customer demand could shift from the fourth quarter into the following quarter because of supply availability.

Total third-quarter bookings increased 8% year over year and backlog rose 9% from the prior-year period. McClelland said the company sees a healthy demand environment, a growing opportunity set in critical infrastructure, government and defense, and expanding international potential for IP routing and optical transport products.

About Ribbon Communications (NASDAQ:RBBN)

Ribbon Communications Inc NASDAQ: RBBN provides communications software, networking solutions and related services for service providers, enterprises and government organizations. The company helps customers build, operate and secure voice, data and unified communications networks across cloud, IP and optical environments.

Ribbon's offerings include session border controllers, voice and unified communications platforms, signaling and routing solutions, policy and analytics tools, and software designed to support cloud communications and 5G networks.

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