RBBN

• Overall Quarterly Performance

• Consolidated Q2 2026 revenue was $192 million, up 18% sequentially and down 13% year-over-year. Adjusted EBITDA was $12 million, a $20 million sequential improvement that landed above the midpoint of prior guidance.
• Excluding maintenance, product and service revenue grew 28% sequentially. Total enterprise sales rose 42% sequentially, while total service provider revenue increased 9% sequentially.

• Strategic Growth Highlights

• Announced a material strategic partnership with Salesforce to integrate Ribbon's secure carrier-grade voice capabilities into Salesforce's new AgentForce Contact Center agentic AI offering, opening a new high-growth market for secure AI-powered voice communications.
• Closed two major large enterprise wins: a global Microsoft Teams deployment for a top U.S. financial institution (one of Ribbon's largest Teams deployments to date) and a competitive replacement for a major U.S. automaker's global voice infrastructure upgrade.
• Data center interconnect (DCI) new projects doubled sequentially quarter-over-quarter, and DCI projects accounted for over 10% of IP optical segment revenue in Q2. Defense-related revenue increased nearly 60% both sequentially and year-over-year, and Ribbon launched its new Network in a Box ruggedized solution for defense and critical infrastructure use cases.
• The IP optical segment saw broad-based demand growth, with 70% sequential growth in core Apollo optical solutions, strong performance in India, and new wins across Southeast Asia, Africa, and the U.S. critical infrastructure market.

• Q3 2026 guidance: Revenue is expected in the range of $215 to $230 million, and adjusted EBITDA is expected in the range of $26 million to $31 million, representing continued sequential growth. • Full-year 2026 guidance was revised downward from initial levels, with revenue now expected in the range of $810 to $840 million and adjusted EBITDA expected in the range of $78 million to $88 million. The majority of the downward revision stems from slower-than-expected Verizon voice network modernization deployment in the first half of 2026, partially offset by stronger-than-projected IP optical performance. • Management expects IP optical gross margins in the second half of 2026 to remain largely consistent with Q2 2026 levels, while cloud and edge gross margins are expected to improve sequentially through the second half. • Guidance assumes approximately $2 million per quarter in incremental product cost from higher component and logistics expenses, which management plans to partially offset through targeted price increases. Supply limitations for key technologies are anticipated in the second half amid rising industry demand.

Ribbon Communications operates two product segments, with the following Q2 2026 performance: 1. IP Optical Networks: Q2 revenue was $82 million, representing 42.7% of total company revenue. This is a 30% sequential increase and a 2% year-over-year decrease. Non-GAAP gross margin came in at 35.2%, up 680 basis points sequentially and down 70 basis points year-over-year. Adjusted EBITDA was a loss of $6 million, an $11 million sequential improvement and a $1 million year-over-year decline. The segment achieved an all-time high product and service bookings quarter with a 1.6 book-to-bill ratio, and overall backlog is up more than 60% year-to-date 2026. 2. Cloud and Edge: Q2 revenue was $111 million, representing 57.3% of total company revenue. This is an 11% sequential increase and a 19% year-over-year decrease (driven by tough year-over-year comparisons from 2025's record Verizon voice transformation shipments). Non-GAAP gross margin was 59.8%, up 300 basis points sequentially and down 210 basis points year-over-year. Adjusted EBITDA was $18 million (16% of segment revenue), a $10 million sequential improvement and a $19 million year-over-year decline.

• Slower-than-expected deployment progress on U.S. Tier 1 voice network modernization projects (led by Verizon) has moderated 2026 second half growth, pushing some revenue into 2027. • Inflationary pressure on component, hardware, and logistics costs is expected to add ~$2 million per quarter to product costs in the second half of 2026. • Industry-wide supply constraints for key technologies (core silicon, memory, optical transceivers, and commercial off-the-shelf hardware) may limit revenue delivery in the second half even with strong existing demand and backlog. • BEAD funding for U.S. broadband infrastructure deployment has been slower to materialize than expected, with no meaningful BEAD-related revenue anticipated in the second half of 2026. • Foreign exchange headwinds from the stronger Israeli shekel continue to pressure operating costs, though targeted cost savings have offset most of this impact. • The IP optical segment is currently unprofitable on an adjusted EBITDA basis, requiring continued cost efficiency efforts to return to profitability.

Q: What areas of the supply chain are most sensitive to current cost inflation and constraints, and how is Ribbon managing these impacts?

A: Inflation and constraints impact multiple product categories: commercial off-the-shelf servers for cloud and edge products, core silicon and memory for IP routing platforms, and optical transceivers for optical products. Ribbon uses a surgical, product-specific approach: it passes through server cost changes directly to customers, manages long-term supplier agreements for core silicon, and works with customers to pass along a portion of incremental costs rather than applying a one-size-fits-all price increase.

Q: The full-year guidance midpoint is lower than initial guidance, despite stronger-than-expected IP optical performance. Is the downward revision almost entirely driven by slower Verizon deployments?

A: The majority of the full-year guidance reduction is tied to slower-than-expected deployments with U.S. Tier 1 (Verizon). Verizon revenue was down ~$25 million in the first half of 2026 compared to projections, which accounts for most of the guidance cut. IP optical performance is actually stronger in the second half than management initially projected, offsetting a portion of the Verizon shortfall.

Q: Do you expect IP optical backlog to continue growing in the second half of 2026, and can you provide color on the large pending IP optical opportunities you referenced?

A: Management does not expect backlog to grow at the same 60% year-to-date rate in Q3, as the priority shifts to converting existing backlog to revenue. However, if the large pending opportunities (totaling over $50 million in incremental new customer business over 12-18 months) close in Q4 as expected, they will drive another round of backlog growth. DCI projects doubled from 3 in Q1 to 6 in Q2, and DCI now makes up over 10% of IP optical segment revenue, most often as part of multi-purpose fiber networks supporting multiple revenue streams for carriers.

Q: Why was full-year gross margin guidance lowered from the prior 52.5%-53.5% range to 51%-52%?

A: The downward adjustment stems from three factors: first, a revenue mix shift toward lower-margin IP optical and away from higher-margin cloud and edge; second, lower professional service revenue in cloud and edge in the first half, which pressured segment margins; and third, incremental component and logistics cost inflation that has not been fully offset by price increases.