Ribbon (RBBN) Q3 2026 Earnings Call Transcript

DATE

Tuesday, Oct. 27, 2026

CALL PARTICIPANTS

• SVP, corporate strategy and investor relations - Fahad Najam
• chief executive officer - Bruce W. McClelland
• chief financial officer - Eric S. Marmurek

TAKEAWAYS

• Revenue -- $219 million, representing a 14% sequential increase and 2% year-over-year growth driven by both operating segments.
• Adjusted EBITDA -- $27 million, more than doubling from $12 million in the second quarter.
• Cloud and Edge Revenue -- $123 million, growing 11% sequentially supported by increased activity with large service providers.
• IP Optical Networks Revenue -- $96 million, a 17% sequential increase and the segment's best third-quarter performance ever.
• Non-GAAP Gross Margin -- 50.3%, improving 100 basis points sequentially due to higher revenue and improved operating leverage.
• Verizon Sales Growth -- approximately 50% compared to the first-half quarterly run rate as the carrier reaccelerated its voice network modernization program.
• IP Routing Portfolio Shipments -- grew approximately 35% in the quarter, exceeding total optical sales.
• IP Optical Book-to-Revenue Ratio -- 1.24x for the first nine months of the year, providing visibility for fourth-quarter momentum.
• Total Bookings -- increased 8% year over year and were evenly distributed across both business segments.
• Backlog -- $219 million, representing a 9% increase from the same period last year.
• Non-GAAP Diluted EPS -- $0.07, up $0.10 sequentially from a loss in the second quarter.
• Cash Balance -- $42 million, which included a $15 million draw on the company's revolver to manage working capital.
• Net Debt Leverage Ratio -- 4.4x at quarter end, with management expecting a reduction through the fourth quarter.
• Asia Pacific Revenue -- increased 20% sequentially and 19% year over year, driven by multiple projects in Southeast Asia.
• Southeast Asia Sales -- included a new IP project in Vietnam valued at more than $10 million this year.
• Q4 Revenue Guidance -- $233 million to $247 million, reflecting expected sequential growth and increased profitability.
• Q4 Adjusted EBITDA Guidance -- $40 million to $47 million, primarily led by the Cloud and Edge segment.
• Q4 Non-GAAP Gross Margin Guidance -- 53.5% to 54.5%, supported by software mix and professional services revenue.
• Estimated Supply Impact -- approximately $5 million to $10 million in revenue potentially shifted into future periods due to industry-wide component lead times.
• Estimated Cost Increases -- approximately $2 million per quarter in higher component and logistics expenses incorporated into forward guidance.
• Capital Expenditures -- $1 million, lower than the typical quarterly expected range of $3 million to $4 million.

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RISKS

• McClelland stated, "Consistent with the broader industry trend, we do anticipate being supply limited to some extent in the fourth quarter given the increasing demand environment for key technologies," noting memory and optical line systems as specific areas of concern.
• McClelland stated, "Our guidance assumes approximately $2 million per quarter in increased product cost associated with higher components and logistics expenses," which the company may seek to offset with price increases in 2027.

SUMMARY

Ribbon Communications Inc. (NASDAQ:RBBN) reported sequential revenue growth of 14% for the third quarter, reflecting improvements in both its IP Optical Networks and Cloud and Edge operating segments. Management indicated that the results reflect a reacceleration of modernization initiatives with major U.S. tier-1 carriers and strong demand from regional service providers and utilities. The company reported its highest third-quarter sales ever for the IP Optical Networks business, driven by routing portfolio shipments and critical infrastructure projects. Ribbon is also targeting new growth opportunities in enterprise AI and cybersecurity through strategic partnerships and platform enhancements.

• CEO McClelland noted that the company is targeting increased velocity for voice network upgrades in 2027 and is currently in the planning stages for the modernization of the Frontier footprint.
• The company reported a new voice modernization win with a large civilian federal agency, complementing ongoing shipments to several defense agencies and a new "network in a box" project with a NATO country.
• McClelland stated, "as service providers retire legacy switching equipment, they are freeing up valuable space, power, and cooling capacity in central offices... that can be used for AI inference processing closer to the edge of the network."
• Ribbon is expanding its role in the enterprise AI market through a partnership with Salesforce to support the Agentforce Contact Center platform, which is expected to drive subscription revenue as major enterprises begin deployments.
• Management identified a potential multiyear revenue opportunity in vishing protection, leveraging the company's Session Border Controller platform to detect AI-generated voice impersonations and deep fakes.

INDUSTRY GLOSSARY

• Session Border Controller (SBC): A network element used to protect and regulate IP communications flows, such as voice and video calls.
• VoIP (Voice over Internet Protocol): A technology that enables voice communication and multimedia sessions over Internet Protocol networks.
• TDM (Time Division Multiplexing): A method of transmitting multiple signals over a single path, used in legacy telecommunications infrastructure.
• AIOps (Artificial Intelligence for IT Operations): The application of machine learning and data science to IT operations to automate network management.
• Vishing (Voice Phishing): A form of criminal phone fraud that uses social engineering and voice impersonation to gain access to private data.
• Data Center Interconnect (DCI): Networking solutions that connect multiple data centers to enable the sharing of resources and data.

Full Conference Call Transcript

Operator: Greetings, and welcome to the Ribbon Communications Third Quarter 26 Financial Results Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I would now like to turn the conference over to your host, Fahad Najam. Please go ahead.

Fahad Najam: Good afternoon, and welcome to Ribbon's Third Quarter 26. Financial Results Conference Call. I am Fahad Najam, SVP, corporate strategy and investor relations at Ribbon Communications. Also on the call today are Bruce W. McClelland, Ribbon's chief executive officer. Eric S. Marmurek, Ribbon's chief financial officer Today's call is being webcast live and will be archived on the Investor Relations section of our website at rbbn.com, where both our press release and supplemental slides are currently available. Certain matters we will be discussing today, including the business outlook and financial projections for fourth quarter of 26 and beyond, are forward looking statements.

Such statements are subject to risks, uncertainties that could cause actual results to differ materially from those contained in these forward looking statements. These risks and uncertainties are discussed in our documents filed with the SEC, including our most recent Form 10 k. I refer you to our safe harbor statement included in the supplemental financial information posted on our website. In addition, we will present non GAAP financial information on this call. Reconciliations to the applicable GAAP measures are included in the earnings press release. We issued earlier today as well as in the supplemental financial information we prepared for this conference call, which again are both available on the Investor Relations section of our website.

And now I would like to turn the call over to Bruce?

Bruce W. McClelland: Great. Thanks, Fahad. Good afternoon, everyone, and thanks for joining us today to discuss our third quarter results and outlook for the rest of the year. As we highlighted on our last earnings call, we expected a much stronger second half of the year with significant sequential improvement in both revenue and earnings starting in the third quarter. And I am pleased to report that we delivered on those goals. We had a solid third quarter with meaningful sequential increases in revenue and profitability in both of our operating segments.

Revenue increased 14% sequentially to $219 million while adjusted EBITDA more than doubled to $27 million The strong IP optical bookings trend in the first half translated into a record third quarter of sales for the segment. Growing by 17% sequentially. This was 1 of the strongest quarters ever in The US for the IP optical networks business including 2 new tier-2 service provider customers. As compared to the first quarter of this year, IP sales increased more than 50% in the third quarter. We also had a much stronger performance in our cloud and edge segment with sales increasing 11% quarter over quarter. Service provider revenue increased 15% sequentially. With increased activity with our largest customers.

And Cloud and Edge sales in the enterprise and government market segment remained solid including a prominent new win with a large civilian federal agency. Importantly, Verizon continued as our largest 10%-plus customer in the quarter, with increased activity resulting in sales growth of approximately 50% compared to the first half quarterly run rate. This represents meaningful progress as we work with Verizon to reaccelerate their voice network modernization program. When you exclude sales to our top US tier 1 service provider customers, the rest of our business grew approximately 5% year over year. From a geographic perspective, sales increased sequentially and year over year across almost all regions.

In The Americas, revenue increased 11% sequentially and 2% year over year, largely reflecting improving activity with our US tier 1 service provider customers and higher enterprise sales. Asia Pacific revenue increased 20% sequentially and 19% year-over-year with growing demand across multiple countries in Southeast Asia. This included a significant new IP project in Vietnam that exceeds $10 million this year. EMEA revenue increased 14% sequentially with higher sales in Europe but declined 11% year-over-year lower sales in The Middle East and Africa following a record quarter last year. Overall, we are encouraged by the increasing contribution from international markets and the diversification of our customer base. Now a few more highlights from each of our operating segments.

Starting with our IP optical networks business this was our best third quarter ever. And the second highest quarterly revenue performance in The US. Where sales increased more than 150% compared to the prior year. As we have discussed previously, we had exceptionally strong bookings activity during the first half of the year, our focus in the third quarter was on executing against that backlog and converting orders into revenue. Shipments of our IP routing portfolio was a strength this quarter growing approximately 35% and was higher than total optical sales. Highlighting the importance of our combined IP and optical portfolio.

In North America, we had an exceptionally strong quarter supported by several important new customer wins and continued deployments across both service provider and critical infrastructure markets. We are particularly excited about 2 new US tier-2 service provider customers where we are awarded new projects for the first time and anticipate ongoing programs and investments including data center connectivity. We also continue to execute on a large expansion project with 1 of the largest energy producers in the U.S. And we secured a project with a new major regional power and transmission utility in the Midwest serving a network of electric co ops, and approximately 3 million consumers.

We had sizable shipments this quarter to a number of regional service providers providing mobile backhaul broadband Internet, and data center interconnect services. These projects are all good examples of the opportunities we are seeing as service providers and utilities invest in more resilient, higher capacity IP and optical networks. We are encouraged by the momentum in North America and believe our expanding customer base positions us well for continued growth. In the EMEA region, we saw a significant sequential improvement in our business in Europe, supported by stronger activity across both critical infrastructure and service provider markets.

Several of these projects include replacement of Chinese equipment, and expansion to meet growth requirements with more modern flexible IP and optical solutions. In Asia Pacific, we had another very good quarter in India, with revenue increasing modestly from the second quarter. India continues to be an important market for Ribbon where we are selling the entire portfolio of IP and optical solutions. And we expect significant investment in fiber infrastructure in the coming years to meet both mobile and data center growth. And as I mentioned earlier, we had a very strong activity in the Southeast Asia including new and expanding opportunities in The Philippines, Vietnam, Indonesia, Japan, and Taiwan.

The common thread across all these markets is the increasing importance of enterprise data centers, a driver for investment in new fiber networks, adding to the capacity growth and demand from mobile and Internet broadband. A great example is our continued activity in Africa where we are supporting the deployment of optical fiber backbone networks spanning several countries. These networks are designed to provide high capacity connectivity, supporting data centers, and a broad range of communication services. We believe these types of projects highlight the expanding opportunity for Ribbon as investment in digital infrastructure extends beyond traditional hyperscale data center markets.

Overall, we are pleased with the progress in IP optical networks and believe the broadening mix of customers and applications positions the business well for future growth. Turning to our cloud and edge business. As I mentioned earlier, 1 of the most encouraging developments in the quarter was the improvement in our business with Verizon. We continue to have a broad engagement that includes network upgrades to significantly reduce operational costs and transitioning traditional telecom network functions to cloud native technologies. Together, we are targeting increased velocity in 2027 and in the planning stages for their frontier footprint. Beyond the large service providers, we are also focused on expanding the addressable market for our voice network modernization solutions.

In September, we announced a new partnership with TNS to provide independent and rural service providers with a fully managed cloud based approach to replacing legacy voice switches. By incorporating Ribbon's carrier grade voice technology, into TNS's hosted cloud connect platform, We are providing smaller operators with a more cost effective path to modernization without requiring them to own and operate complex voice switching infrastructure. there is also an interesting longer term dimension to these modernization programs in the context of the significant investment underway in AI infrastructure. As service providers retire legacy switching equipment, they are freeing up valuable space, power, and cooling capacity in central offices.

And other network facilities that can be used for AI inference processing closer to the edge of the network. So the work we are doing to modernize these networks not only help our customers lower cost and simplify their operations, it can also help unlock infrastructure that could support the next generation of edge AI applications. In the enterprise market vertical, the growth in cloud and edge this quarter was underpinned by multiple projects in the government and defense space. Included the new voice modernization project I mentioned with a large new civilian federal agency. We were particularly excited about this win because it demonstrates the relevance our technology in highly secure mission critical communications environments.

And creates an opportunity to expand our presence across multiple civilian agencies. This complements additional shipments this quarter to several other defense agencies and a new win in Europe with a NATO country using our network in a box solution. The other key area of opportunity in enterprise that we highlighted last quarter is the growing adoption of enterprise AI applications. And the integration with traditional telecom services. Our partnership with Salesforce to support its Agentforce Contact Center platform positions Ribbon to provide the secure voice connectivity required as AI agents be begin interacting directly with customers.

We are encouraged by the progress towards broader commercial adoption and anticipate several major enterprises will begin deploying the Agentforce Contact Center over the coming months. Driving additional subscription revenue for Ribbon as these applications move into production. Combined with our AWS relationship, and cloud native communications portfolio, We believe this gives Ribbon an important position in an emerging market for AI powered voice communications. Overall, the continued strength in enterprise, growth in government, and expansion into enterprise AI are great examples of how we are diversifying cloud and edge beyond our traditional service provider customers.

With that, I will turn it over to Rick to provide additional financial details on our results and I will come back on to discuss our outlook for the fourth quarter. Rick?

Eric S. Marmurek: Thanks, Bruce. Good afternoon, everyone. Let's begin with our consolidated results. Third quarter performance improved significantly from the second quarter with strong revenue growth, higher profitability and meaningful improvement in earnings reflecting continued momentum across the business. In the third quarter of 26, Ribbon generated revenue of $219 million up 14% sequentially and up 2% year over year. Consolidated non GAAP gross margin was 50.3%. Improving 100 basis points sequentially on higher revenue and improved operating leverage while declining 32 basis points year over year primarily due to product and customer mix. Non GAAP operating expenses were $88 million, $1 million lower year over year and similar to the prior quarter.

Adjusted EBITDA was $27 million up $15 million sequentially and down $2 million from the prior year. Net interest expense was $11 million in the quarter. Non GAAP net income was $12 million, a $5 million improvement year over year and a $17 million improvement sequentially. This resulted in non GAAP diluted earnings per share of $0.07, up $0.03 compared to the prior year and up $0.10 sequentially. Now I will provide a little more detail on the financial results of our 2 business segments. Starting with our IP Optical Network segment, third quarter revenue was $96 million, increasing 17% sequentially with significant growth in product revenue from our routing portfolio.

Year over year, sales were up 5% primarily due to a 13% increase in product revenue offset by lower services revenue due to a legacy support contract that ended during Q4 of 25. Through the first 9 months of the year, IP optical networks delivered a strong 1.24x book to revenue ratio. Providing good visibility for continued momentum into the fourth quarter. Third quarter non GAAP gross margin was 35.5%, up 30 basis points sequentially and down 390 basis points year over year. The year over year decline primarily reflects higher component costs and unfavorable geographic mix. IP Optical Networks adjusted EBITDA was a loss of $1 million in the quarter.

Improving $5 million sequentially and down $2 million versus the prior year. Now turning to our cloud and edge business segment. Third quarter revenue was $123 million, up 11% sequentially and down 1% year-over-year. Non GAAP cloud and edge gross margin was 61.9%, improving 210 basis points sequentially driven by improved margins in both product and services. Gross margin remained relatively consistent with the prior year. As we discussed on previous calls, the timing of professional services revenue can have a meaningful impact on quarterly margins. And we continue to focus on aligning our cost structure with the pace of our customer activity.

Adjusted EBITDA for the segment was $28 million or 23% of revenue, improving $10 million sequentially and flat year over year. For the combined business, cash flow from operations was a use of $14 million in the quarter. We ended the quarter with $42 million in cash. This included a $15 million draw on our revolver to simplify cash management. Our net debt leverage ratio was 4.4x. We expect continued EBITDA improvement that will reduce our leverage ratio as we move through the fourth quarter and into 2027. Capital expenditures totaled $1 million in the quarter, slightly lower than our expected quarterly spend of $3 million to $4 million.

In conclusion, as expected, our third quarter results improved substantially from the second quarter. We expect continued sequential growth and increased profitability in the fourth quarter led primarily from our Cloud and Edge segment. With that, I will turn the call back to Bruce.

Bruce W. McClelland: Great. Thanks, Rick. Looking ahead to the fourth quarter and into 2027, we are encouraged by the continued improvement in our business. The opportunities we are seeing across several of our key markets. We have a number of relatively large opportunities in our funnel And while the timing of individual awards and deployments can create some variability in quarterly results, we believe the overall demand environment remains healthy. Total bookings in the quarter increased by 8% year-over-year and were evenly distributed across both of our businesses. Backlog increased 9% from the same point last year. As I mentioned earlier, revenue from Verizon increased meaningfully in the third quarter following a slower than anticipated first half.

We anticipate further improvement in the fourth quarter and a solid 2027 with the pace of switch migrations continuing to increase and potential for incremental business from their Frontier operation. Also, as I outlined earlier, we have several new initiatives that leverage the technology within the cloud and edge business to grow into new markets. We are increasingly excited about the new emerging opportunities tied to the wide scale use of AI. Our work with Salesforce and AWS is positioning Ribbon as a technology leader in supporting AI powered voice applications. Another developing potentially significant market opportunity is related to the proliferation of voice phishing or vishing attacks.

We recently announced new capabilities that we have developed that leverages our widely deployed SBC platform to be able to detect AI generated voice impersonation deep fakes, and other new security threats. there is significant customer interest in a number of use cases to be able to quickly detect and prevent this new cyber vulnerability. I believe this could develop into a significant revenue opportunity over the next several years. We also recently announced a new leader for our Acumen AIOps autonomous networking platform as we look to build our presence in this exciting new area and develop a stronger recurring revenue stream.

From an end market perspective, we continue to see results from our efforts to diversify outside traditional telecom with growing opportunities across critical infrastructure, government, and defense. Our recent win with a new civilian federal agency with continued activity across utilities and defense markets reinforces our confidence in the growth potential of these businesses. These are attractive markets where the security, reliability and resiliency of our solutions provide important competitive differentiation. Finally, our focus over the last several years to develop a robust IP routing and optical transport portfolio is translating into growth in key markets such as North America and Europe.

Our strong third quarter performance combined with new customer wins and a growing presence among regional service providers and utilities demonstrates the progress we are making in this market. We believe there is considerable room to expand our market share as customers continue to investing in network modernization and capacity expansion. So as we look ahead, we are expecting sequential and year over year growth in the fourth quarter supported by improved backlog and pipeline. We believe the progress we have made in the third quarter represents an important step forward and we are confident in our ability to build on that progress and create sustainable value for our shareholders.

As we move into 2027, we believe Ribbon has a more diversified set of growth opportunities, improving momentum with key customers and an expanding presence in several attractive markets to support our growth objectives. With that backdrop, for the fourth quarter of 26, expect revenue to be in a range of $233 million to $247 million and adjusted EBITDA to be in a range of $40 million to $47 million Our guidance assumes approximately $2 million per quarter in increased product cost associated with higher components and logistics expenses with the potential to partially offset that through targeted price increases in 2027.

Consistent with the broader industry trend, we do anticipate being supply limited to some extent in the fourth quarter given the increasing demand environment for key technologies. Operator, that concludes our prepared remarks and we are now ready to take a few questions.

Operator: Thank you. We will now be conducting a question and answer session. You may press 2 if you would like to remove your question from the queue. Before pressing the star keys. And our first question will come from Michael Genovese with Rosenblatt Securities.

Michael Genovese: Great. Thanks very much. Yeah. We should talk congratulations on sounding really good here. But the fourth quarter guidance calls for up, I think, about 10% revenue and about 400 basis points of gross margin. So can you just talk about the bookings And by the way, if you have a specific IP Optical booking number for the third quarter, you just gave us a 9 month number, but 1 for the third quarter would be helpful. But how is that, you know, in terms of bookings versus new business? And what exactly drives the margin up in the fourth quarter, that would be helpful. Thank you.

Eric S. Marmurek: Yes. Hey, Mike. So on the on the IP optical bookings number, you know, the bookings number in Q3 was up about 9% year-over-year. It was a book to bill of about 0.82x, so a little lower from a book to bill perspective. But it is a reflection of the higher revenue, obviously, in the quarter. So you know, as we are looking into the fourth quarter here, a lot of the growth is certainly from the cloud and edge business in the quarter and thus the uplift in the margin We do expect both businesses to increase in the fourth quarter, but I think the majority of the growth is likely out of the cloud and edge business.

And, you know, the mix of software in the quarter and then higher professional service revenue which on a somewhat fixed cost basis you know, adds a fair amount of margin to the bottom line. So think it is a combination of, you know, those 2 or 3 factors that are really driving the outlook for Q4 and you know, feel good about where we are.

Michael Genovese: So And is that the same big customer in 4 in 4 q that is gonna drive a lot of that strength? And then as you think about that customer next year, should we think about both sort of an organic growth and then Frontier coming in as well? Like, how should we think about that?

Bruce W. McClelland: Yes. So we do expect a little more revenue in the fourth quarter from those programs. it is not the majority of the increase in Q4, but they. You know, it helps contribute to the to the increase Q3 going into Q4. You know, the. Obviously, it is still early on the 2027 planning. As many of the customers finish their budget planning, etcetera. Having said that, you know, we do anticipate a higher deployment rate or a migration rate in 2027. Of course, in order for them to capture the savings, know, the faster we go to collect. Collectively go, the faster they capture the savings.

So I think we are we are equally motivated here and you know, I think the planning around the new footprint is still early. So, you know, we will see know, what approach they take in, in the frontier footprint. A variety of different approaches here.

All focused on how do you reduce the cost of, you know, running that legacy infrastructure You know, as an example, moving the transition from TDM to IT as close to the edge as you can in some cases, right at the enterprise edge or at the, you know, the school or the government facility allows them to basically deprecate the entire copper infrastructure And we are seeing a lot of interest in that approach, and we have got a great portfolio of gateways that can go right at the edge of the network.

Can also do circuit emulation of the existing TDM infrastructure So I think there is a, you know, a number of different tools in the toolkit that we look to employ there. Great. Awesome. Great. Thank you. Thanks for the questions. Sure.

Operator: Go next to Timothy Savageaux with Northland Capital Markets.

Timothy Savageaux: Hey. Hey. Good afternoon. Trying to maybe integrate a couple of different comments from both the release and your prepared commentary. And I guess your reference a growing pipeline of data center and other AI opportunities. And, Bruce, I think you talked about a number of large opportunities in the funnel. I assume those 2 comments are related, on the 1 hand. And can you give us any more color about this funnel slash pipeline When you talk about large opportunities, should we infer tier ones there? Either in carrier or data center lands? Or not. And if not, you give us a little more color on you know, what is, what is what is composing that pipeline?

That growing pipeline. Thanks.

Bruce W. McClelland: Yeah. Yeah. Thanks, Timothy. Appreciate the question. So I. First of all, I would say know, the biggest opportunities we are seeing are with more traditional tier 1 telecom operators as they are investing in more fiber infrastructure, expanding, you know, their networks, etcetera. So it is it is less know, into the data center directly and it is more with the, you know, the basic customer customers, more traditional Ribbon customers that we are working with today.

And we definitely see demand internationally in these larger markets where data center deployments are beginning to accelerate and the existing telecom operators are playing a critical role in providing the interconnect into these data centers similar to the program I talked about in Africa with the with the large telecom operator there. You know, they are not building dedicated data center interconnect infrastructure as much as they are you know, building on the on the fiber infrastructure that they are using for mobile backhaul and Internet and now, you know, more and more for connecting into data centers.

So hopefully, that is that is that is helpful. that is where our kind of sweet spot is, I think, is really focused on those customers and partners.

Timothy Savageaux: Okay. Well, I of inferred through all of that these big opportunities are principally on the IP optical side. Just the way you have kind of been discussing them. But let me know if that is that is not right. And in that sense, if you are talking about large opportunities with traditional ribbon customers, that kinda leads me to believe that you feel like you might be able to attain some TER 1 traction in IP optical in 2027. Is that fair to say?

Bruce W. McClelland: Yes. On both of those questions, and they. I am sorry. I should have clarified it. it is definitely focused on, you know, fiber build out. That could be optical or IP. And in fact, you saw this quarter with the know, the growth in IP. They are very complementary. You know, it is a very highly efficient way of designing the network, you know, building the pluggable optics directly into the routing platform. So that combined portfolio is really, really helpful for us. And you know, and, again, I will I will add, Think International.

You know, I think we have just a great opportunity internationally You know, maybe we are parts of the market are less served today for us to really grow and gain share. So that is that is, you know, I think where a lot of the momentum is. Got it. Appreciate that.

Timothy Savageaux: And to follow-up, on The U. S. Or North American front, you mentioned 2 tier 2, I guess, ISP wins. I think kinda. I assume we are talking about the same thing as mentioned a couple of different times. And you know, how significant are those opportunities as you look at you know, the bigger ones in the funnel? And you know, is it reasonable to think that amongst those tier twos, whether they be carriers or ISPs, you know, that you. With your larger competitors focusing pretty heavily on the very large hyperscalers. Does that open up some opportunities for a supplier like Ribbon to, maybe pay a little more attention to these guys and do better with them?

And that is it for me.

Bruce W. McClelland: Yeah. No. Great observation, Timothy, and that is what we are seeing in the market. that is you know, a great spot for us in the in the tier 2 operator space, and, you know, they all invest you know, double digit millions of dollars into their fiber infrastructure, their IP routing service layer every year. You know, we continue to work with 1 that we talked about a number of years ago up in Canada, Rogers. So it. it is that type of you know, scale of operator, which is, you know, really meaningful for us. And we do think it is it is somewhat underserved.

I think customers are looking for responsiveness deep technical support, and a lot of attention and that is what we can provide them. So yeah, I really feel good about those opportunities. Okay. Thanks very much. Yeah. Appreciate it, Timothy. Thank you.

Operator: We will go next to Dave Kang with B.

Dave Kang: Riley Securities. Thank you. Good afternoon. First question is regarding IP optical. Bookings kind of pulled off a little bit in third quarter. Just so what your expectations are for this current fourth quarter?

Bruce W. McClelland: Yeah. Hey, David. Yeah. So I think you know, the bookings number for Q4 looks pretty positive. In fact, I think we, you know, we will end up know, putting in backlog for next year to make sure, you know, customers again want wanna make sure they have supply assurance and visibility and those sorts of things. The lower Q3 book to bill number, as I said, is a little misleading. I mean, the revenue number came up a lot. And, obviously, we. You know, it was really important we converted backlog we were building in the first half into shipments and revenue. And the bookings number in Q3 was up year over year.

So no concerns there really, I think, on the demand picture.

Dave Kang: Okay. And then you said that optic. IP clearly outperformed optical Was it just a coincidence, or should we expect that as a more of a trend going forward?

Bruce W. McClelland: Yeah. it is a good question. You know, a lot of our projects. Or a lot of our deployments are project based. So you kinda take 1 at a time and understand what they are trying to accomplish. You know, we have we have seen, I think, a trend towards a combined solution where we have both IP and optical into, you know, into a custom network as they are refreshing and adding capacity into, you know, into these 400G optical deployments. So having both, I think, is really, really important for us. Having said that, you know, we see, like, again, a pipeline of kinda pure optical or, know, fiber infrastructure as a as a growing area for us.

So it is not just, you know, kind of the combined the combined portfolio. Both can be deployed independently. So it is a little hard to tell. I mean, every quarter, I would expect to be just a little bit little different, David, just depending on the mix and the customer base. You know, as an example, if we have a strong quarter in critical infrastructure, often we are selling the whole portfolio into those opportunities. If it is, you know, a fiber deployment like I talked about in Africa, that tends to be, you know, pure optical in those cases.

Dave Kang: Got it. And can you remind me what the margin differential is between those 2? IP and optical?

Bruce W. McClelland: Yeah. They are actually pretty consistent right now. You know, a lot of the IP technology that we are selling tends to be, you know, kinda lower cost aggregation routers that then integrate into a larger scale router. So the, you know, the revenue profile tends to kinda favor the edge access aggregation platforms, you know, so you are not driving the same level of margins that you would a core router as an example. We do think that shifts over time and the IP portion ends up, you know, with a stronger gross margin profile over time. Got it. Thank you. Thanks, Steve.

Operator: And we will take a follow-up question from Michael Genovese with Rosenblatt Securities.

Michael Genovese: Great, thanks. Bruce, you mentioned being supply limited to some extent in the quarter this quarter. So which components and segment are most affected? And how much revenue could that push into 2027?

Bruce W. McClelland: Yeah. You know, it is a chase on everything as you can imagine. You know, you get 90% of it covered and you are chasing the last whatever And you know, the longer lead time we have from customers, obviously, the more predictable our supply chain can be. But we are. You know, we are trying to be responsive and really differentiating in the market with kind of faster time to market. So, certainly, you know, like everyone else memory is an issue. If you are trying to step up within a lead time around kinda core silicon, that is a problem.

And even, you know, optical, if it is line system, optical technology, you know, has pretty significant lead times that we have gotta be able to plan for. So it is a it is a variety of different areas just depending on the mix inside the quarter. You know, it is. We will we will see where we land up at the end of the year and how much more we can, you know, we can squeeze out I do expect we will probably push know, $5 million to $10 million that customers would wanna get in the quarter, probably ends up in the next quarter or something like that.

Michael Genovese: And then and then just final 1 for me. Rick, the operating cash flow, do you think it will turn positive in the fourth quarter? And how should we think about working capital as revenue ramps?

Eric S. Marmurek: Yeah. You know, I do expect it to improve a little bit into the fourth quarter and certainly as we move into Q1 of 27. With the slower start to the first half, it did have an impact on the use of cash But you know, do expect it to pick up in Q4 and then into Q1. Rick, I think you saw the, you know, accounts receivable, obviously, increased quite a bit in Q3.

Bruce W. McClelland: As we are invoicing more and the collections on that takes, you know, whatever the normal DSOs are on that. Right? Yep. Alright. Well, great. Thanks for taking the questions. Alright. Thanks, Mike.

Operator: And this now concludes our question and answer session. I would like to turn the floor back over to Bruce W. McClelland for closing comments.

Bruce W. McClelland: Great. Well, thanks again for everyone joining us on the call and the interest in Ribbon. We look forward to speaking with many of you in the upcoming investor conferences over next couple of months and speaking with you again in the New Year. So thanks very much, everyone.

Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.

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