Conferencia de resultados del T3 de 2026 de Ribbon Communications (RBBN): los ingresos aumentan un 14%, se publican las previsiones para el T4

Puntos clave

• Ribbon Communications reportó unos ingresos en el T3 de 2026 de 219 millones de dólares, un 14% secuencialmente y un 2% interanual, ya que ambos segmentos operativos mejoraron respecto al segundo trimestre.
• El EBITDA ajustado alcanzó los 27 millones de dólares, aumentando en 15 millones de dólares secuencialmente, mientras que el BPA diluido no GAAP aumentó a 0,07 dólares.
• Los ingresos de IP Optical Networks aumentaron un 17% secuencialmente hasta los 96 millones de dólares, impulsados por los productos de enrutamiento, dos nuevos clientes proveedores de servicios de Nivel 2 de EE. UU. y la conversión de la cartera de pedidos.
• Los ingresos de Cloud & Edge subieron un 11% secuencialmente hasta 123 millones de dólares. Las ventas relacionadas con Verizon se situaron aproximadamente un 50% por encima del ritmo trimestral de la primera mitad del año.
• La dirección proyectó para el T4 de 2026 unos ingresos de 233 millones-247 millones de dólares y un EBITDA ajustado de 40 millones-47 millones de dólares, esperando que la mayor parte del crecimiento secuencial provenga de Cloud & Edge.
• Las restricciones de suministro podrían desplazar 5 millones-10 millones de dólares de la demanda de los clientes al trimestre siguiente, mientras que se prevé que el aumento de los costes de componentes y logística añada aproximadamente 2 millones de dólares por trimestre.

Principales resultados financieros

Rendimiento comercial y operativo

IP Optical Networks

IP Optical Networks generó 96 millones de dólares en ingresos, un 17% intertrimestral y un 5% interanual. Los ingresos por productos aumentaron un 13% con respecto al año anterior, compensados en parte por menores ingresos por servicios tras la finalización de un contrato de soporte heredado en el cuarto trimestre de 2025.

Los envíos de la cartera de enrutamiento crecieron aproximadamente un 35% y superaron las ventas ópticas totales. La dirección destacó dos nuevas adjudicaciones con proveedores de servicios de Nivel 2 en EE. UU., continuos despliegues con clientes de servicios públicos y energía, y un proyecto óptico e IP en Vietnam que se espera que supere los 10 millones de dólares en 2026.

El segmento registró una ratio de pedidos sobre ingresos de 1,24x durante los primeros nueve meses de 2026. Los pedidos del tercer trimestre aumentaron aproximadamente un 9% interanual, aunque la ratio book-to-bill fue de 0,82x debido a que los ingresos aumentaron marcadamente a medida que Ribbon convirtió los pedidos pendientes del primer semestre en envíos.

El margen bruto no GAAP del segmento fue del 35,5%, lo que supone un aumento de 30 puntos básicos intertrimestral, pero un descenso de 390 puntos básicos interanual, debido principalmente a los costes de los componentes y a la mezcla geográfica. El EBITDA ajustado registró una pérdida de 1 millón de dólares, mejorando en 5 millones de dólares intertrimestralmente.

Cloud & Edge

Los ingresos de Cloud & Edge fueron de 123 millones de dólares, un 11% intertrimestral y un descenso del 1% interanual. El margen bruto no GAAP mejoró 210 puntos básicos en términos intertrimestrales hasta el 61,9%. El EBITDA ajustado alcanzó 28 millones de dólares, o el 23% de los ingresos del segmento.

Los ingresos del segmento de proveedores de servicios aumentaron un 15% en comparación intertrimestral, impulsados por una mayor actividad con grandes clientes. Verizon se mantuvo como el mayor cliente de Ribbon, representando más del 10% de los ingresos trimestrales, con ventas aproximadamente un 50% por encima de la tasa de ejecución trimestral de la primera mitad del año.

Ribbon también citó un nuevo proyecto de modernización de voz con una gran agencia federal civil de EE. UU., despliegues relacionados con la defensa y un contrato adjudicado en Europa con un país de la OTAN. La dirección prevé que su relación con Salesforce Agentforce Contact Center genere ingresos por suscripción adicionales a medida que los despliegues empresariales pasen a producción.

Tendencias geográficas

Los ingresos en la región de las Américas aumentaron un 11% en comparación intertrimestral y un 2% interanual. Los ingresos en Asia-Pacífico aumentaron un 20% en comparación intertrimestral y un 19% interanual, impulsados por la demanda en el Sudeste Asiático y la continua actividad en la India. Los ingresos en la región EMEA aumentaron un 14% en comparación intertrimestral pero disminuyeron un 11% interanual debido a menores ventas en Oriente Medio y África tras un trimestre récord en el ejercicio anterior.

Previsiones de la dirección

Para el cuarto trimestre de 2026, la dirección prevé:

Ribbon prevé que ambos segmentos crezcan en términos intertrimestrales, procediendo la mayor parte del incremento de Cloud & Edge. La dirección atribuyó la mejora prevista de la rentabilidad a una mayor proporción de software y a un aumento de los ingresos por servicios profesionales sobre una base de costes relativamente fija.

Las previsiones incluyen aproximadamente 2 millones de dólares por trimestre en costes adicionales de componentes y logística. Ribbon podría intentar compensar parte de esa presión mediante incrementos selectivos de precios en 2027.

La dirección también espera un ritmo más rápido de migración de conmutadores de Verizon en 2027, mientras que los posibles trabajos relacionados con la presencia de Frontier continúan en fase de planificación.

Riesgos y puntos a vigilar

• Ribbon prevé algunas limitaciones de suministro en el T4 relacionadas con componentes de memoria, silicio principal y sistemas de líneas ópticas.
• La dirección estimó que 5-10 millones de dólares de demanda de clientes podría trasladarse del T4 al trimestre siguiente.
• Los resultados trimestrales pueden variar debido al momento de adjudicación de grandes contratos, los despliegues y los ingresos por servicios profesionales.
• El flujo de caja operativo del T3 fue negativo en 14 millones de dólares, mientras que el apalancamiento de la deuda neta se situó en 4,4x. La dirección espera que el flujo de caja mejore en el T4 y de cara al T1 de 2027.
• Los márgenes de Redes Ópticas e IP continúan expuestos a mayores costes de los componentes y a la composición geográfica.

Aspectos destacados del turno de preguntas y respuestas con analistas

La dirección señaló que las mayores oportunidades en redes ópticas e IP se centran principalmente en los operadores de telecomunicaciones tradicionales de primer nivel (Tier 1) que están ampliando sus redes de fibra, especialmente en mercados internacionales. La demanda de centros de datos está contribuyendo de forma indirecta, ya que los operadores proporcionan conectividad a nuevas instalaciones a través de infraestructuras que también se utilizan para el backhaul móvil y la banda ancha.

Ribbon considera a los operadores de segundo nivel (Tier 2) como un mercado atractivo porque estos clientes invierten decenas de millones de dólares al año en infraestructura de enrutamiento IP y fibra, y a menudo buscan un mayor soporte técnico y una mejor capacidad de respuesta por parte de los proveedores.

La dirección indicó que los márgenes de IP y ópticos son similares actualmente porque gran parte de los ingresos por IP de Ribbon proviene de routers de borde (edge) y agregación de menor coste. Con el tiempo, la empresa prevé que la cartera de IP desarrolle un perfil de margen bruto más sólido.

En cuanto a la contratación del cuarto trimestre (Q4), la dirección calificó las perspectivas como positivas y espera que algunos pedidos amplíen la cartera pendiente para 2027, ya que los clientes buscan una mayor garantía de suministro.

Transcripción completa de la conferencia de resultados

Transcripción completa de la conferencia de resultados

Comentarios de la dirección

Operator

Greetings, and welcome to the Ribbon Communications Third Quarter 2026 Financial Results Conference Call. [Operator Instructions] 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 2026 Financial Results Conference Call. I'm 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.

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

Bruce 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'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 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 & Edge segment, with sales increasing 11% quarter-over-quarter. Service provider revenue increased 15% sequentially with increased activity with our largest customers. And Cloud & 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 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 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 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 were 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. And 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're 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 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're 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're 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 & 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're targeting increased velocity in 2027 and in the planning stages for their Frontier footprint.

Beyond the large service providers, we're 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' hosted Cloud Connect platform, we're providing smaller operators with a more cost-effective path to modernization without requiring them to own and operate complex voice switching infrastructure.

There's 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're 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're 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. We were particularly excited about this win because it demonstrates the relevance of 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 begin interacting directly with customers. We're encouraged by the progress towards broader commercial adoption and anticipate several major enterprises will begin deploying 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're diversifying Cloud & Edge beyond our traditional service provider customers.

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

Eric 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 2026, 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 230 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'll provide a little more detail on the financial results of our two business segments. Starting with our IP Optical Networks 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 nine 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 & Edge business segment. Third quarter revenue was $123 million, up 11% sequentially and down 1% year-over-year. Non-GAAP Cloud & 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'll turn the call back to Bruce.

Bruce McClelland

Great. Thanks, Rick. Looking ahead to the fourth quarter and into 2027, we're encouraged by the continued improvement in our business and the opportunities we're 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 & Edge business to grow into new markets. We're 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've developed that leverage our widely deployed SBC platform to be able to detect AI-generated voice impersonation, deep fakes and other new security threats. There's 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, along 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're making in this market. We believe there's considerable room to expand our market share as customers continue investing in network modernization and capacity expansion.

So as we look ahead, we're expecting sequential and year-over-year growth in the fourth quarter, supported by improved backlog and pipeline. We believe the progress we've made in the third quarter represents an important step forward, and we're 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 2026, we 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 costs associated with higher component 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 to be 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're now ready to take a few questions.

Operator

[Operator Instructions] And our first question will come from Michael Genovese with Rosenblatt Securities.

Preguntas y respuestas

Michael Genovese

Yes, congratulations on sounding really good here. 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 nine months number, but one for the third quarter would be helpful. But how is that in terms of bookings versus new business? And what exactly drives the margin up in the fourth quarter, that would be helpful.

Bruce McClelland

Mike, so on the IP Optical bookings number, the bookings number in Q3 was up about 9% year-over-year. It was a book-to-bill of about 0.82, so a little lower from a book-to-bill perspective, but it's a reflection of the higher revenue, obviously, in the quarter.

So as we're looking into the fourth quarter here, a lot of the growth is certainly from the Cloud & 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 & Edge business. And the mix of software in the quarter and then higher professional service revenue, which on a somewhat fixed cost basis adds a fair amount of margin to the bottom line. So I think it's a combination of those two or three factors that are really driving the outlook for Q4 and feel good about where we are.

Michael Genovese

And is that the same big customer in -- 4Q that's going to 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 McClelland

Yes. So we do expect a little more revenue in the fourth quarter from those programs. It's not the majority of the increase in Q4, but they -- it helps contribute to the increase Q3 going into Q4. Obviously, it's still early on the 2027 planning as many of the customers finish their budget planning, et cetera. Having said that, we do anticipate a higher deployment rate or a migration rate in 2027.

Of course, in order for them to capture the savings, the faster we go to -- collectively go, the faster they capture the savings. So I think we're equally motivated here. And I think the planning around the new footprint is still early. So we'll see what approach they take in the Frontier footprint. There's a variety of different approaches here, all focused on how do you reduce the cost of running that legacy infrastructure. As an example, moving the transition from TDM to IP as close to the edge as you can, in some cases, right at the enterprise edge or at the school or the government facility allows them to basically deprecate the entire copper infrastructure.

And we're seeing a lot of interest in that approach. And we've 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's a number of different tools in the toolkit that we look to employ there.

Operator

[Operator Instructions] We'll go next to Tim Savageaux with Northland Capital Markets.

Timothy Savageaux

Trying to maybe integrate a couple of different comments from both the release and your prepared commentary. And I guess you referenced 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 two comments are related on the one hand. And can you give us any more color about this funnel/pipeline? When you talk about large opportunities, should we infer Tier 1s there, either in carrier or data center land or not? And if not, can you give us a little more color on what's composing that pipeline, that growing pipeline?

Bruce McClelland

Yes. Thanks, Tim. Appreciate the question. So first of all, I would say the biggest opportunities we're seeing are with more traditional Tier 1 telecom operators as they're investing in more fiber infrastructure, expanding their networks, et cetera. So it's less into the data center directly, and it's more with the basic customers, more traditional Ribbon customers that we're 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 large telecom operator there. They're not building dedicated data center interconnect infrastructure as much as they are building on the fiber infrastructure that they're using for mobile backhaul and for Internet and now more and more for connecting into data centers. So hopefully, that's helpful. That's where our sweet spot is, I think, is really focused on those customers and partners.

Timothy Savageaux

Okay. Well, I infer through all of that, that these big opportunities are principally on the IP Optical side, just the way you've been discussing them. But let me know if that's not right. And in that sense, if you're talking about large opportunities with traditional Ribbon customers, that leads you to believe that you feel like you might be able to attain some Tier 1 traction in IP Optical in '27. Is that fair to say?

Bruce McClelland

Yes, on both of those questions. I mean I'm sorry, I should have clarified, it's definitely focused on fiber build-out that could be Optical or IP. And in fact, you saw this quarter with the growth in IP, they're very complementary. It's a very highly efficient way of designing the network, building the pluggable optics directly into the routing platform. So that combined portfolio is really helpful for us.

And again, I'll add, think international. I think we have just a great opportunity internationally, maybe where parts of the market are less served today for us to really grow and gain share. So that's, I think, where a lot of the momentum is.

Timothy Savageaux

Got it. Appreciate that. And to follow up on the U.S. or North American front, you mentioned two Tier 2, I guess, ISP wins, I think -- I assume we're talking about the same thing as mentioned a couple of different times. And how significant are those opportunities as you look at the bigger ones in the funnel? And is it reasonable to think that amongst those Tier 2s, whether they be carriers or ISPs, that 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's it for me.

Bruce McClelland

Yes. No, great observation, Tim, and that's exactly what we're seeing in the market. That's a great spot for us in the Tier 2 operator space, and they all invest double-digit millions of dollars into their fiber infrastructure, their IP routing service layer every year. We continue to work with one that we talked about a number of years ago up in Canada, Rogers. So it's that type of scale of operator, which is really meaningful for us. And we do think it's somewhat underserved. I think customers are looking for responsiveness, deep technical support and a lot of attention, and that's what we can provide them. So yes, I really feel good about those opportunities.

Operator

We'll go next to Dave Kang with B. Riley Securities.

Dave Kang

First question is your -- regarding IP Optical bookings closed off a little bit in third quarter. Just what your expectations are for this current fourth quarter?

Bruce McClelland

Dave, Yes, so I think the bookings number for Q4 looks pretty positive. In fact, I think we will end up putting in backlog for next year to make sure customers again want to 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 -- it was really important we converted the 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 -- IP clearly outperformed Optical. Was it just a coincidence? Or should we expect that as more of a trend going forward?

Bruce McClelland

Yes, it's a good question. A lot of our projects -- a lot of our deployments are project-based. So you take one at a time and understand what they're trying to accomplish. We have seen, I think, a trend towards a combined solution where we have both IP and optical into a customer's network as they're refreshing and adding capacity into these 400-gig optical deployments. So having both, I think, is really, really important for us.

Having said that, we see, again, a pipeline of pure optical or fiber infrastructure as a growing area for us. So it's not just the combined portfolio, both can be deployed independently. So it's a little hard to tell. I mean every quarter, I would expect to be just a little bit -- a little different, Dave, just depending on the mix and the customer base. As an example, if we have a strong quarter in critical infrastructure, often we're selling the whole portfolio into those opportunities. If it's a fiber deployment, like I talked about in Africa, that tends to be pure optical in those cases.

Dave Kang

Got it. And can you remind me what the margin differential is between those two, IP and optical?

Bruce McClelland

Yes, they're actually pretty consistent right now. A lot of the IP technology that we're selling tends to be lower cost aggregation routers that then integrate into a larger scale router. So the revenue profile tends to favor the edge access aggregation platforms. So you're 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 with a stronger gross margin profile over time.

Operator

And we'll take a follow-up question from Michael Genovese with Rosenblatt Securities.

Michael Genovese

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 '27?

Bruce McClelland

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

And even optical, if it's line system, optical technology has pretty significant lead times that we've got to be able to plan for. So it's a variety of different areas, just depending on the mix inside the quarter. It's -- we'll see where we land up at the end of the year and how much more we can squeeze out. I do expect we'll probably push $5 million to $10 million that customers would want to get in the quarter, probably ends up in the next quarter or something like that.

Michael Genovese

And then just final one 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 Marmurek

Yes. 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 do expect it to pick up in Q4 and then into Q1.

Bruce McClelland

Rick, I think you saw the accounts receivable obviously increased quite a bit in Q3 as we're invoicing more and the collections on that takes whatever the normal DSOs are on that, right?

Michael Genovese

All right. Well, great. Thanks for taking the questions.

Operator

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

Bruce 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 the 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.