Ribbon Communications (RBBN) Q2 FY26 earnings call: guidance and Q&A

The IP Optical Networks segment achieved its strongest bookings quarter since the ECI acquisition in 2020, with a 1.6x book-to-bill ratio and over 60% backlog growth year-to-date. Demand was broad-based across customer segments and geographies, with significant growth in North America. Key drivers included data center interconnect projects (doubling new projects sequentially and contributing over 10% of segment revenue) and mission-critical infrastructure for utilities, transportation, and government agencies, with defense-related revenue up nearly 60% sequentially and year-over-year.

Ribbon announced a significant partnership with Salesforce, integrating its secure carrier-grade voice capabilities into Salesforce's new AgentForce Contact Center. This collaboration is seen as validating a new market segment for securely deploying AI-powered applications leveraging resilient communications infrastructure. Management anticipates a dramatic increase in total voice call sessions as AI agents augment or replace human agents, driving demand for Ribbon's cloud-native Session Border Controllers (SBCs) as voice firewalls for each AI agent.

The Cloud and Edge segment is strategically broadening its solutions beyond traditional voice modernization to a secure communications portfolio supporting cloud-native networking, AI-enabled communications, and mission-critical enterprise infrastructure. The company secured two significant voice communication infrastructure deals with Fortune 50 companies, including a global Microsoft Teams deployment with a major financial institution and a competitive replacement with a large US car manufacturer. Additionally, five new customer wins utilized AWS as the chosen deployment platform, highlighting the shift towards public cloud infrastructure.

Voice network modernization deployments with US Tier 1 service providers, particularly Verizon, have improved slower than initially expected, moderating the company's second-half growth rate for 2026. However, this delay is increasing the backlog and opportunity for higher deployment rates in 2027. Ribbon is also exploring new products to enable further cost savings by moving TDM to IP conversion to the subscriber edge, completely eliminating legacy copper infrastructure, and expects full commercial deployment of large voice modernization projects with US defense agencies this year.

Ribbon is focusing on several key growth areas: critical infrastructure and government markets (representing 10% of Q2 revenue), exponential growth in data traffic and fiber/wireless network infrastructure (especially with regional service providers and multi-purpose international deployments), and the emerging AI communications category. This diversification aims to expand the customer base and addressable market, creating a more balanced growth profile over time^⏳, offsetting timing delays in other areas, and reinforcing confidence in a stronger 2027.

The company anticipates approximately $2 million per quarter in increased product costs for the second half of 2026 due to higher components and logistics expenses. While targeted price increases may partially offset these costs, supply limitations are also expected in the second half due to increasing demand for key technologies. Management noted that full-year component cost inflation is now estimated closer to $5 million, up from a few million dollars at the start of the year.