Reiterate BUY Rating and $6.50 Price Target.

Strong 2Q print. Revenue was $221M, compared to $193M for 2Q of 2024, and up 15% year-over-year. Our total revenue estimate was $214M. Non-GAAP EPS was $0.05 versus our $0.07 and the Street’s $0.05 estimate, mostly due to higher OpEx levels.

Robust demand across the board. Demand in the North American market was better than expected across both Service Provider and Enterprise market verticals. Overseas, Ribbon also saw accelerating momentum in its IP Optical business in India and North America, supporting fiber and mobile network expansion. Management indicated on the earnings call that visibility into 2H’25 and into next year is good, and that it is expecting a strong finish to 2025 in 4Q.

Deferred revenue up again. RBBN’s deferred revenue (some of which correlates to order backlog) was up significantly quarter-over-quarter at the end of 2Q, to $31.7M versus $23.5M at the end of 1Q, and $20.9M at YE’24. Although management stated that Book-to-Bill ratio at the end of 2Q was simply >1, we believe that the significant acceleration of deferred revenue in 2Q represents a foundation for an unusually strong finish to 2025 in 4Q.

Some margin pressure is likely in 2H’25. Non-GAAP gross margin was 52.1%, compared to 54.4% for 2Q of 2024. Our estimate was 51.8%. The decrease was a function of both a higher Service & Support revenue contribution, as well as a higher percentage of hardware sales in the quarter. But the silver lining here, we believe, is that higher hardware sales usually presage a shift to higher software sales later in the deployment cycle, pointing to a high likelihood of margin acceleration a couple of quarters out. This is a normal trajectory in the carrier network space, as the hardware installed base gets populated with plug-in modules or additional software, all of which tend to carry higher margins.

Guidance: A strong finish to the year. Management guided to a seasonally stronger second half with revenue increasing 15% to 20% as compared to first half results, similar to FY 2024. The Company continues to project revenue in line with full year guidance of $870M to $890M and stated that visibility to this target remains good. Focusing on 3Q, management expects the business to look very similar to the strong 2Q.

In the Cloud & Edge segment, Ribbon is projecting revenue consistent with last year and in a similar range to 2Q of this year. Management expects higher sales to a variety of enterprise and U.S. federal customers, offsetting lower shipments in 3Q to U.S. Tier 1 service providers. Verizon deployments are expected to continue at a very strong pace with strong professional service revenue, but lower equipment and software revenue in 3Q. The Company is sell early in the initial phase of that multiyear program, as well as another large potential opportunity as Verizon completes the acquisition of Frontier Communications. In the IP Optical segment, management is projecting 5% to 10% year-over-year growth in 3Q.

Ribbon is now a Verizon vassal, and that’s good for the company – in the beginning. In 2Q, Verizon Communications was not only Ribbon’s largest customer but accounted for close to 20% of Ribbon’s total revenue number of $221M. Telecom/service provider revenue grew a significant 28% year-over year in the Company’s Cloud & Edge segment, with Verizon dominating the customer list. (Overall, among other Tier 1 carriers, AT&T was a Top 5 customer, as was Lumen Technologies). Ribbon is now a key strategic supplier for Verizon’s multi-year voice transformation program, focused on replacing hundreds of legacy central office switches. The company is also working with Verizon to virtualize their existing wireline voice soft switch cores with its Virtual C20 Call Controller and the Neptune Router for IP traffic aggregation.

We view Ribbon’s growing dependence on Verizon as initially a positive, as the company finally enters the “big leagues” of optical transport and next-generation switching, traditionally dominated by the likes of Nokia and Ciena. With the competitive landscape of major carrier suppliers continuing to shrink (more recently with the exit of Huawei from the Western carrier markets), Ribbon is increasingly well positioned to fill those voids and continue to gain carrier market share, we believe. However, Verizon Communications is notorious for relentlessly driving its strategic vendors to provide more for less, often driving them towards reduced profitability and increased R&D spending. Over time, we hope that Ribbon does not fall victim to such tactics and continues to maintain a healthy customer balance between carrier, enterprise, and data center customers.

Changes to our model. We are making only minor adjustments to our estimates, primarily in 3Q. Our YE’25 es@mate is $879.9M/$0.25 (non-GAAP), and our YE’26 estimate is $928.6M/$0.37. We are modeling a slight dip in gross margin in 2H’25, followed by a gradual rebound in 2026 as the revenue mix shifts back towards higher software content and away from Service & Support.

RBBN shares are currently oversold, we believe. Shares sold off after the 2Q print and are attractively valued, we believe. They are currently trading at 10-11x our FY 2026 non-GAAP EPS es@mate of $0.37, versus the peer average of >20x. Our $6.50 price target assumes a full valuation P/E multiple of ~17-18x our FY 2026 es@mate, which is still below the current peer group average forward P/E multiple.