Ribbon Communications Inc. Common Stock 2026 Q3 Earnings Call

Please go ahead. Good afternoon, and welcome to Ribbon's third quarter 2026 financial results conference call.

I am Fahad Najam, SVP, Corporate Strategy and Investor Relations at Ribbon Communications. Also on the call today are Bruce McClelland, Ribbon's Chief Executive Officer, Rick 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 2026 and beyond, are forward-looking statements. Such statements are subject to risks and 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. Now I would like to turn the call over to Bruce.

Bruce? 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'm 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 Networks bookings trend in the first half translated into a record third quarter of sales for the segment, growing by 17% sequentially. This was one of the strongest quarters ever in the U.S.

for the IP Optical Networks business, including two new tier 2 service provider customers. As compared to the first quarter of this year, IP optical 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. 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%+ 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 re-accelerate their voice network modernization program. When you exclude sales to our top U.S.

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 U.S. 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 and optical 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 with lower sales in the Middle East and Africa following a record quarter last year. Overall, we're encouraged by the increase in 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 U.S., where sales increased more than 150% compared to the prior year. As we've discussed previously, we had exceptionally strong bookings activity during the first half of the year, and 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 were 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're particularly excited about two new U.S.

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 one of the largest energy producers in the U.S., and we secured a project with a new major regional power generation 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're seeing as service providers and utilities invest in more resilient, higher capacity IP and optical networks. We're 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. As I mentioned earlier, we had very strong activity in 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 as 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, one 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 helps 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. This included the new voice modernization project I mentioned with a large new civilian federal agency.