Ribbon Communications Inc.
10/28/2026 | Press release | Distributed by Public on 10/28/2026 10:06
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of the financial condition and results of operations of Ribbon Communications Inc. should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2025, which was filed with the U.S. Securities and Exchange Commission on February 26, 2026.
Overview
We are a leading global provider of communications technology to service providers and enterprises. We provide a broad range of software and high-performance hardware products, network solutions, and services that enable the secure delivery of data and voice communications, and high-bandwidth networking and connectivity for residential consumers and for small, medium, and large enterprises and industry verticals such as finance, education, government, utilities, and transportation. Our mission is to create a recognized global technology leader providing cloud-centric solutions that enable the secure exchange of information, with unparalleled scale, performance and elasticity. We are at the intersection of the adoption of Artificial Intelligence ("AI") by service providers and enterprises addressing the rapid growth in fiber connectivity and integration of voice capabilities into agentic AI platforms. We are headquartered in Plano, Texas, and have a global presence with research and development or sales and support locations in over thirty countries around the world.
Key Trends and Economic Factors Affecting Ribbon
Tariffs. The global trade landscape continues to be highly volatile. In 2025, the U.S. government implemented a series of trade tariffs on goods imported into the U.S. from various countries. In many cases, these tariffs resulted in reciprocal tariffs and other actions on goods being exported from the U.S. These associated tariffs are complex and continue to evolve as negotiations occur. In February 2026, the U.S. Supreme Court ruled that the International Emergency Economic Powers Act ("IEEPA"), which the U.S. government relied on to impose certain tariffs, does not authorize the administration to impose tariffs. Following the ruling, the U.S. Court of International Trade ordered the U.S. Customs and Border Protection ("CBP") to refund the IEEPA tariffs, and CBP has since established a phased process for importers to request refunds, which began accepting claims in April 2026 and was expanded in October 2026 to include certain finally liquidated entries. In October 2026, the U.S. Court of International Trade also certified a class of importers seeking IEEPA refunds; that decision may be appealed, and the IEEPA tariffs and refunds remain subject to ongoing litigation. In response to the U.S. Supreme Court ruling, the administration imposed a temporary 10% tariff on most imports under Section 122 of the Trade Act of 1974, which expired on July 24, 2026, and has since imposed or proposed additional tariffs under Section 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962, some of which are also being challenged in court. In addition, at the July 2026 joint review of the U.S.-Mexico-Canada Agreement ("USMCA"), on which we rely for the importation of many of our products from our contract manufacturer in Mexico, the United States declined to renew the USMCA in its current form. Although the USMCA remains in effect and is scheduled to expire in 2036 unless extended, the United States may seek to modify the agreement or impose tariffs on goods from Mexico or Canada, including goods that currently qualify for USMCA treatment. The full impact of these developments, including the timing and extent of any refunds, the impact of new tariffs and the future of the USMCA, remains uncertain. While the announced tariffs have not had a material impact on our business to date, new or proposed tariffs, including the loss of exemptions under existing trade agreements or otherwise, could result in additional expenses for products we import into the United States. In addition, the economic uncertainty caused by the tariffs may result in customers delaying planned purchases of products and services.
Supplier Disruptions. Ongoing uncertainty in the global economy due to tariffs, inflation, global military conflicts, including in the Middle East and Ukraine, rising fuel prices, national security concerns and other factors, continue to disrupt various manufacturing, commodity and financial markets, increase volatility, and impede global supply chains. Our ability to deliver our solutions as agreed upon with our customers depends in part on the ability of our global contract manufacturers, vendors, licensors and other business partners to deliver products or perform services we have procured from them.
Continued uncertain global economic conditions may cause our customers to restrict spending or delay purchases for an indeterminate period of time and consequently cause our revenues to decline. Further, such factors may negatively impact our operating costs resulting in a reduction in net income. The degree to which the ongoing wars in the Middle East and Ukraine, and the high interest rate environment impacts our future business, financial position and results of operations will depend on developments beyond our control.
The Ongoing War in Ukraine and the Middle East. The uncertainty resulting from the recent war in the Middle East and ongoing war in Ukraine, and the threat for expansion of one or both of these wars, could result in some of our customers delaying purchases from us. The conflict in the Middle East has significantly reduced the export of oil and natural gas from the Persian Gulf, creating upward pressure on oil and natural gas prices, and has also disrupted and increased the costs of certain other supplies. Further, a number of our employees in Israel are members of the military reserves and subject to immediate call-up in response to the war in the Middle East. Following the terrorist attacks in Israel in October 2023, a number of our employees have been activated for military duty and we expect that additional employees will also be activated if the war in Israel continues. While we have business continuity plans in place to address the military call-ups, it could affect the timing of projects in the short-term as the work is shifted to other team members both inside and outside of Israel.
The United States and European countries have imposed sanctions and trade restrictions against Russia in connection with the war in Ukraine. These sanctions and restrictions currently prohibit our ability to sell hardware products in Russia or provide any replacement parts in Russia. The sanctions continue to evolve and further changes in the current sanctions or trade restrictions could further limit our ability to sell products and services to customers in Russia, our ability to collect on outstanding accounts receivable from such customers, and our ability to repatriate funds. If we are further limited in our ability to sell products and services to Russia and other countries for an extended period, it could have a material impact on our financial results.
Inflation and Interest Rates. We continue to see near-term impacts on our business due to inflation, including ongoing global price pressures resulting in higher energy prices, component costs, freight premiums, and other operating costs above normal rates. Although headline inflation in the United States and Europe appears to be easing, core inflation (excluding food and energy prices) remains elevated and is a source of continued cost pressure on businesses and households. Interest rates remain high as central banks in developed countries attempt to subdue inflation while government deficits and debt remain at high levels in many global markets. Recently, the Federal Reserve increased the federal funds rate to its current target range of 3.75% to 4.00% as a result of indicators that inflation was increasing. The economic outlook remains uncertain, and the implications of current and future tariffs, higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital for our business.
Foreign currency. As a portion of our business is conducted outside the United States, we face exposure to adverse movements in foreign currency exchange rates. A weakened U.S. dollar could increase the cost of local operating expenses and procurement of raw materials from sources outside the United States. Therefore, changes in the value of the U.S. dollar against other currencies would affect our revenue, income from operations, net income and the value of balance sheet items originally denominated in other currencies. There is no guarantee that our financial results will not be adversely affected by currency exchange rate fluctuations.
Presentation
Unless otherwise noted, all financial amounts, excluding tabular information, in this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") are rounded to the nearest million dollar amount, and all percentages, excluding tabular information, are rounded to the nearest percentage point.
Operating Segments
Our Chief Operating Decision Maker ("CODM") assesses our performance based on the performance of two separate organizations within Ribbon: the Cloud and Edge operating segment ("Cloud and Edge") and the IP Optical
Networks operating segment ("IP Optical Networks"). For additional details regarding our operating segments, see Note 13 - Operating Segment Information to our condensed consolidated financial statements.
Financial Overview
Financial Results
We reported income from operations of $5.6 million and $2.8 million for the three months ended September 30, 2026 and 2025, respectively. We reported a loss from operations of $38.3 million and $12.6 million for the nine months ended September 30, 2026 and 2025, respectively.
Our revenue was $218.7 million and $215.4 million in the three months ended September 30, 2026 and 2025, respectively. Our gross profit and gross margin were $105.5 million and 48.2%, respectively, in the three months ended September 30, 2026, and $108.0 million and 50.1%, respectively, in the three months ended September 30, 2025. The higher revenue in the three months ended September 30, 2026 compared to 2025 is due to $4.9 million higher IP Optical Networks revenue offset by $1.6 million lower Cloud and Edge revenue. IP Optical Networks revenue was higher primarily due to $8.5 million of higher product sales and $3.6 million of lower services revenue. The lower Cloud and Edge revenue was attributable to $4.4 million of lower services revenue offset by $2.8 million of higher product sales. Our revenue was $573.7 million and $617.2 million in the nine months ended September 30, 2026 and 2025, respectively. Our gross profit and gross margin were $265.6 million and 46.3%, respectively, in the nine months ended September 30, 2026, and $299.6 million and 48.5%, respectively, in the nine months ended September 30, 2025. The lower revenue in the nine months ended September 30, 2026 compared to 2025 is due to $36.2 million of lower Cloud and Edge revenue, and $7.4 million of lower IP Optical Networks revenue. The lower Cloud and Edge revenue was attributable to $21.2 million of lower product sales and $15.0 million of lower services revenue. The lower IP Optical Networks revenue was due to $6.6 million of lower services revenue plus $0.8 million of lower product sales.
Revenue from our Cloud and Edge segment was $122.9 million and $124.5 million in the three months ended September 30, 2026 and 2025, respectively. Gross profit and gross margin for this segment were $75.8 million and 61.7%, respectively, in the three months ended September 30, 2026, and $76.5 million and 61.5%, respectively, in the three months ended September 30, 2025. Revenue from our Cloud and Edge segment was $332.9 million and $369.1 million in the nine months ended September 30, 2026 and 2025, respectively. Gross profit and gross margin for this segment were $197.7 million and 59.4%, respectively, in the nine months ended September 30, 2026, and $226.3 million and 61.3%, respectively, in the nine months ended September 30, 2025.
Revenue from our IP Optical Networks segment was $95.8 million and $90.9 million in the three months ended September 30, 2026 and 2025, respectively. Gross profit and gross margin for this segment were $29.7 million and 31.1%, respectively, in the three months ended September 30, 2026, and $31.5 million and 34.6%, respectively, in the three months ended September 30, 2025. Revenue from our IP Optical Networks segment was $240.7 million and $248.1 million in the nine months ended September 30, 2026 and 2025, respectively. Gross profit and gross margin for this segment were $67.9 million and 28.2%, respectively, in the nine months ended September 30, 2026, and $73.3 million and 29.5%, respectively, in the nine months ended September 30, 2025.
Our operating expenses were $99.9 million and $105.2 million in the three months ended September 30, 2026 and 2025, respectively, and $303.9 million and $312.3 million in the nine months ended September 30, 2026 and 2025, respectively. The decreased operating expenses in the three months ended September 30, 2026 as compared to the three months ended September 30, 2025, were primarily attributable to $2.1 million lower restructuring and related expense, $1.5 million lower research and development expense and $1.1 million lower general and administrative expense. The decreased operating expenses in the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025, were primarily attributable to $4.3 million lower acquisition-, disposal- and integration-related expense, $2.3 million lower restructuring and related expense, $1.5 million lower amortization of acquired intangible assets and $1.3 million lower general and administrative expense partially offset by $1.4 million higher sales and marketing expense. Operating expenses for the three months ended September 30, 2026 included $5.5 million of amortization of acquired intangible assets and $1.4 million of restructuring and related expense. Operating expenses for the three months ended September 30, 2025 included $5.9 million of amortization of acquired intangible assets and $3.5
million of restructuring and related expense. Operating expenses for the nine months ended September 30, 2026 included $16.6 million of amortization of acquired intangible assets and $7.9 million of restructuring and related expense. Operating expenses for the nine months ended September 30, 2025 included $18.1 million of amortization of acquired intangible assets, $4.3 million of acquisition-, disposal- and integration-related expense and $10.2 million of restructuring and related expense.
We recorded stock-based compensation expense of $5.7 million and $5.8 million in the three months ended September 30, 2026 and 2025, respectively and $16.5 million and $14.6 million in the nine months ended September 30, 2026 and 2025, respectively. These amounts are included as components of both Cost of revenue and Operating expenses in our condensed consolidated statements of operations.
See "Results of Operations" in this MD&A for a discussion of the changes in our revenue and expenses for three and nine months ended September 30, 2026 compared to three and nine months ended September 30, 2025.
Restructuring and Cost Reduction Initiatives
During the fourth quarter of 2025, our President and CEO approved a strategic restructuring program (the "2026 Restructuring Plan") that consists of workforce reductions in certain of the Company's operating locations to correspond with current sales levels in those areas. Any potential positions eliminated in countries outside the United States are subject to local law and consultation requirements. In connection with the 2026 Restructuring Plan, we recorded restructuring and related expense of $0.9 million and $6.0 million in the three and nine months ended September 30, 2026, respectively. We anticipate that we will record additional expense of approximately $1 million in 2026 related to the 2026 Restructuring Plan.
During the first quarter of 2025, our President and CEO approved a strategic restructuring program (as subsequently amended, the "2025 Restructuring Plan") that consists of workforce reductions in certain of our operating locations to correspond with current sales levels in those areas. The 2025 Restructuring Plan was amended in the third quarter of 2025 to reflect an increase in the scope of the proposed reductions. Any potential positions eliminated in countries outside the United States are subject to local law and consultation requirements. In connection with the 2025 Restructuring Plan, the Company incurred nominal restructuring and related expense in the three and nine months ended September 30, 2026. We recorded restructuring and related expense of $2.5 million and $5.1 million in the three and nine months ended September 30, 2025, respectively. We anticipate that we will record nominal additional expense in 2026 for workforce reductions related to the 2025 Restructuring Plan.
In February 2022, our Board of Directors approved a strategic restructuring program (the "2022 Restructuring Plan") to streamline our operations in order to support our investment in critical growth areas. The 2022 Restructuring Plan includes, among other things, charges related to a consolidation of facilities and a workforce reduction. Any positions eliminated in countries outside the United States are subject to local law and consultation requirements. In connection with the 2022 Restructuring Plan, we recorded restructuring and related expense of $0.6 million and $0.9 million in the three months ended September 30, 2026 and 2025, respectively and $1.9 million and $5.2 million in the nine months ended September 30, 2026 and 2025, respectively, for variable and other facilities-related costs. We anticipate that we will record additional expense of approximately $1 million in 2026 related to the 2022 Restructuring Plan.
For facilities that are part of a restructuring plan, for which we have no intent or ability to enter into a sublease, we recognize accelerated rent amortization over the period from the date that we commence the plan to fully or partially vacate a facility through the final vacate date. We did not record accelerated rent amortization in the three and nine months ended September 30, 2026 or 2025. We continue to evaluate our properties included in our restructuring plans for accelerated amortization and/or right-of-use asset impairment. We may incur additional expense in the future if we are unable to sublease other locations included in these initiatives.
Critical Accounting Policies and Estimates
This MD&A is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience, knowledge of current conditions and beliefs of what could occur in the future given available information. We consider certain accounting policies to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment. The significant accounting policies that we believe are the most critical include revenue recognition, the valuation of inventory, warranty accruals, loss contingencies and reserves, stock-based compensation, the warrants, business combinations, goodwill and intangible assets, accounting for leases, and accounting for income taxes. If actual results differ significantly from management's estimates and projections, there could be a material effect on our condensed consolidated financial statements. There were no significant changes to our critical accounting policies from January 1, 2026 through September 30, 2026. For a further discussion of our critical accounting policies and estimates, please refer to our Annual Report on Form 10-K for the year ended December 31, 2025.
Results of Operations
Three and nine months ended September 30, 2026 and 2025
Revenue. Revenue for the three and nine months ended September 30, 2026 and 2025 was as follows (in thousands, except percentages):
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Increase/(decrease) |
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Three months ended |
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from prior year |
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September 30, |
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September 30, |
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|
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||
|
|
|
2026 |
|
2025 |
|
$ |
|
% |
||||
|
Product |
|
$ |
121,322 |
|
$ |
109,979 |
|
$ |
11,343 |
|
10.3 |
% |
|
Service |
|
97,388 |
|
105,392 |
|
(8,004) |
|
(7.6) |
% |
|||
|
Total revenue |
|
$ |
218,710 |
|
$ |
215,371 |
|
$ |
3,339 |
|
1.6 |
% |
|
|
|
|
|
|
|
|
|
|
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Decrease |
||||||
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Nine months ended |
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from prior year |
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|||||||
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|
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September 30, |
|
September 30, |
|
|
|
|
|
|
||
|
|
|
2026 |
|
2025 |
|
$ |
|
% |
||||
|
Product |
|
$ |
284,996 |
|
$ |
307,027 |
|
$ |
(22,031) |
|
(7.2) |
% |
|
Service |
|
288,660 |
|
310,206 |
|
(21,546) |
|
(6.9) |
% |
|||
|
Total revenue |
|
$ |
573,656 |
|
$ |
617,233 |
|
$ |
(43,577) |
|
(7.1) |
% |
Segment revenue for the three and nine months ended September 30, 2026 and 2025 was as follows (in thousands):
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Three months ended September 30, 2026 |
|
Three months ended September 30, 2025 |
||||||||||||||
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Cloud and |
|
IP Optical |
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|
|
|
Cloud and |
|
IP Optical |
|
|
|
||||
|
|
|
Edge |
|
Networks |
|
Total |
|
Edge |
|
Networks |
|
Total |
||||||
|
Product |
|
$ |
48,902 |
|
$ |
72,420 |
|
$ |
121,322 |
|
$ |
46,097 |
|
$ |
63,882 |
|
$ |
109,979 |
|
Service |
|
74,007 |
|
23,381 |
|
97,388 |
|
78,341 |
|
27,051 |
|
105,392 |
||||||
|
Total revenue |
|
$ |
122,909 |
|
$ |
95,801 |
|
$ |
218,710 |
|
$ |
124,438 |
|
$ |
90,933 |
|
$ |
215,371 |
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|
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Nine months ended September 30, 2026 |
|
Nine months ended September 30, 2025 |
||||||||||||||
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|
|
Cloud and |
|
IP Optical |
|
|
|
|
Cloud and |
|
IP Optical |
|
|
|
||||
|
|
|
Edge |
|
Networks |
|
Total |
|
Edge |
|
Networks |
|
Total |
||||||
|
Product |
|
$ |
112,883 |
|
$ |
172,113 |
|
$ |
284,996 |
|
$ |
134,070 |
|
$ |
172,957 |
|
$ |
307,027 |
|
Service |
|
220,043 |
|
68,617 |
|
288,660 |
|
235,007 |
|
75,199 |
|
310,206 |
||||||
|
Total revenue |
|
$ |
332,926 |
|
$ |
240,730 |
|
$ |
573,656 |
|
$ |
369,077 |
|
$ |
248,156 |
|
$ |
617,233 |
The higher product revenue in the three months ended September 30, 2026 compared to the three months ended September 30, 2025 was the result of $8.5 million of higher sales of IP Optical Networks products and $2.8 million of higher sales of our Cloud and Edge products, primarily due to sales to our enterprise customers. The lower product revenue in the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 was primarily the result of $21.2 million of lower sales of our Cloud and Edge products. The decrease in revenue from the sale of Cloud and Edge products was primarily attributable to sales to a Tier 1 service provider due to lower customer demand and delayed purchasing.
Revenue from sales to enterprise customers was 31% and 29% of our total revenue in the three months ended September 30, 2026 and 2025, respectively. These sales were made through both our direct sales team and indirect sales channel partners. The increase in enterprise sales in the three months ended September 30, 2026 primarily reflects higher sales to Cloud and Edge enterprise customers. Revenue from sales to enterprise customers was 31% and 28% of our total revenue in the nine months ended September 30, 2026 and 2025, respectively. The increase in enterprise sales primarily reflects higher IP Optical Networks revenue to the governmental, banking, financial and insurance industries, and other enterprise customers.
Revenue from indirect sales through our channel partner program was 30% and 26% of our product revenue in the three months ended September 30, 2026 and 2025, and 31% and 29% of our product revenue in the nine months ended September 30, 2026 and 2025, respectively. Channel sales as a percentage of product revenue increased in the nine months ended September 30, 2026 reflecting higher sales of products to enterprise customers.
The timing of the completion of customer projects and revenue recognition criteria satisfaction may cause our product revenue to fluctuate from one period to the next.
Service revenue is primarily comprised of software and hardware maintenance and support ("maintenance revenue") and network design, installation and other professional services ("professional services revenue").
Service revenue for the three and nine months ended September 30, 2026 and 2025 was comprised of the following (in thousands, except percentages):
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|
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|
|
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|
Decrease |
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|||
|
|
|
Three months ended |
|
from prior year |
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|||||||
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|
|
September 30, |
|
September 30, |
|
|
|
|
|
|||
|
|
|
2026 |
|
2025 |
|
$ |
|
% |
||||
|
Maintenance |
|
$ |
65,758 |
|
$ |
69,515 |
|
$ |
(3,757) |
|
(5.4) |
% |
|
Professional services |
|
31,630 |
|
35,877 |
|
(4,247) |
|
(11.8) |
% |
|||
|
Total service revenue |
|
$ |
97,388 |
|
$ |
105,392 |
|
$ |
(8,004) |
|
(7.6) |
% |
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|
Decrease |
||||
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|
Nine months ended |
|
from prior year |
||||||||
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|
|
September 30, |
|
September 30, |
|
|
|
|
|
|||
|
|
|
2026 |
|
2025 |
|
$ |
|
% |
||||
|
Maintenance |
|
$ |
195,447 |
|
$ |
204,234 |
|
$ |
(8,787) |
|
(4.3) |
% |
|
Professional services |
|
93,213 |
|
105,972 |
|
(12,759) |
|
(12.0) |
% |
|||
|
Total service revenue |
|
$ |
288,660 |
|
$ |
310,206 |
|
$ |
(21,546) |
|
(6.9) |
% |
Segment service revenue for the three and nine months ended September 30, 2026 and 2025 was comprised of the following (in thousands):
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|
Three months ended September 30, 2026 |
|
Three months ended September 30, 2025 |
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|
|
Cloud and |
|
IP Optical |
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|
|
|
Cloud and |
|
IP Optical |
|
|
|
||||
|
|
|
Edge |
|
Networks |
|
Total |
|
Edge |
|
Networks |
|
Total |
||||||
|
Maintenance |
|
$ |
51,784 |
|
$ |
13,974 |
|
$ |
65,758 |
|
$ |
52,315 |
|
$ |
17,200 |
|
$ |
69,515 |
|
Professional services |
|
22,223 |
|
9,407 |
|
31,630 |
|
26,026 |
|
9,851 |
|
35,877 |
||||||
|
Total service revenue |
|
$ |
74,007 |
|
$ |
23,381 |
|
$ |
97,388 |
|
$ |
78,341 |
|
$ |
27,051 |
|
$ |
105,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2026 |
|
Nine months ended September 30, 2025 |
||||||||||||||
|
|
|
Cloud and |
|
IP Optical |
|
|
|
|
Cloud and |
|
IP Optical |
|
|
|
||||
|
|
|
Edge |
|
Networks |
|
Total |
|
Edge |
|
Networks |
|
Total |
||||||
|
Maintenance |
|
$ |
153,894 |
|
$ |
41,553 |
|
$ |
195,447 |
|
$ |
154,899 |
|
$ |
49,335 |
|
$ |
204,234 |
|
Professional services |
|
66,149 |
|
27,064 |
|
93,213 |
|
80,108 |
|
25,864 |
|
105,972 |
||||||
|
Total service revenue |
|
$ |
220,043 |
|
$ |
68,617 |
|
$ |
288,660 |
|
$ |
235,007 |
|
$ |
75,199 |
|
$ |
310,206 |
Total service revenue was lower by $8.0 million and $21.5 million in the three and nine months ended September 30, 2026 compared to the three and nine months ended September 30, 2025 due to lower maintenance revenue and lower professional services revenue.
Maintenance revenue decreased $3.8 million and $8.8 million in the three and nine months ended September 30, 2026 compared to the three and nine months ended September 30, 2025 due to lower revenue in our IP Optical Networks segment and relatively flat revenue in our Cloud and Edge segment. The decrease in our IP Optical Networks maintenance revenue is due to the completion of a legacy access maintenance contract with a European customer that completed in the fourth quarter of 2025.
Professional services revenue decreased $4.2 million and $12.8 million in the three and nine months ended September 30, 2026 compared to the three and nine months ended September 30, 2025 primarily driven from our Cloud and Edge segment. Our Cloud and Edge segment decrease was due to lower deployment services associated with a voice modernization project with one of our U.S. service providers, which we expect to increase in the upcoming quarters.
The following customers contributed 10% or more of our revenue in the three and nine months ended September 30, 2026 and 2025:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
Nine months ended |
||||||
|
|
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
|
|
Customer |
|
2026 |
|
2025 |
2026 |
|
2025 |
||
|
Verizon Communications Inc. |
|
17 |
% |
18 |
% |
15 |
% |
18 |
% |
|
Bharti Telecom Limited |
|
* |
|
10 |
% |
11 |
% |
* |
|
|
* Less than 10% of total revenue. |
|
|
|
|
|
|
|
|
|
Revenue earned from customers domiciled outside the United States was 54% and 55% in the three months ended September 30, 2026 and 2025, respectively, and 54% and 52% in the nine months ended September 30, 2026 and 2025, respectively. Due to the timing of project completions, we expect that the domestic and international components as a percentage of our revenue may fluctuate from quarter to quarter and year to year.
Our deferred product revenue was $6 million and $7 million at September 30, 2026 and December 31, 2025, respectively. Our deferred service revenue was $143 million and $149 million at September 30, 2026 and December 31, 2025, respectively. Our deferred revenue balance may fluctuate as a result of the timing of revenue recognition, customer payments, maintenance contract renewals, contractual billing rights and maintenance revenue deferrals included in multiple element arrangements.
We expect total revenue in 2026 to decline slightly compared to 2025.
Cost of Revenue/Gross Margin. Our cost of revenue consists primarily of amounts paid to third-party manufacturers for purchased materials and services, royalties, amortization of acquired technology, inventory valuation adjustments, warranty costs, and manufacturing and services personnel and related costs. Our cost of revenue, gross profit and gross margin for the three and nine months ended September 30, 2026 and 2025 were as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease) |
||||
|
|
|
Three months ended |
|
from prior year |
|
|||||||
|
|
|
September 30, |
|
September 30, |
|
|
|
|
|
|||
|
|
|
2026 |
|
2025 |
|
$ |
|
% |
|
|||
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
$ |
70,166 |
|
$ |
62,037 |
|
|
8,129 |
|
13.1 |
% |
|
Service |
|
38,665 |
|
40,311 |
|
(1,646) |
|
(4.1) |
% |
|||
|
Amortization of acquired technology |
|
4,353 |
|
5,057 |
|
(704) |
|
(13.9) |
% |
|||
|
Total cost of revenue |
|
$ |
113,184 |
|
$ |
107,405 |
|
5,779 |
|
5.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
105,526 |
|
$ |
107,966 |
|
$ |
(2,440) |
|
(2.3) |
% |
|
Gross margin |
|
|
48.2 |
% |
|
50.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease) |
||||
|
|
|
Nine months ended |
|
from prior year |
|
|||||||
|
|
|
September 30, |
|
September 30, |
|
|
|
|
|
|
||
|
|
|
2026 |
|
2025 |
|
$ |
|
% |
||||
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
$ |
178,468 |
|
$ |
186,676 |
|
|
(8,208) |
|
(4.4) |
% |
|
Service |
|
|
116,359 |
|
|
115,192 |
|
|
1,167 |
|
1.0 |
% |
|
Amortization of acquired technology |
|
13,269 |
|
15,722 |
|
(2,453) |
(15.6) |
% |
||||
|
Total cost of revenue |
|
$ |
308,096 |
|
$ |
317,590 |
|
(9,494) |
(3.0) |
% |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
265,560 |
|
$ |
299,643 |
|
$ |
(34,083) |
(11.4) |
% |
|
|
Gross margin |
|
|
46.3 |
% |
|
48.5 |
% |
|
|
|
|
|
Our segment cost of revenue, gross profit and gross margin for the three and nine months ended September 30, 2026 and 2025 were as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2026 |
|
Three months ended September 30, 2025 |
|||||||||||||||
|
|
|
Cloud and |
|
IP Optical |
|
|
|
|
Cloud and |
|
IP Optical |
|
|
|
|
||||
|
|
|
Edge |
|
Networks |
|
Total |
|
Edge |
|
Networks |
|
Total |
|||||||
|
Product |
|
$ |
19,891 |
|
$ |
50,275 |
|
$ |
70,166 |
|
$ |
19,252 |
|
$ |
42,785 |
|
$ |
62,037 |
|
|
Service |
|
27,086 |
|
11,579 |
|
38,665 |
|
27,948 |
|
12,363 |
|
40,311 |
|
||||||
|
Amortization of acquired technology |
|
153 |
|
4,200 |
|
4,353 |
|
729 |
|
4,328 |
|
5,057 |
|
||||||
|
Total cost of revenue |
|
$ |
47,130 |
|
$ |
66,054 |
|
$ |
113,184 |
|
$ |
47,929 |
|
$ |
59,476 |
|
$ |
107,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
75,779 |
|
$ |
29,747 |
|
$ |
105,526 |
|
$ |
76,509 |
|
$ |
31,457 |
|
$ |
107,966 |
|
|
Gross margin |
|
61.7 |
% |
31.1 |
% |
48.2 |
% |
61.5 |
% |
34.6 |
% |
50.1 |
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2026 |
|
Nine months ended September 30, 2025 |
|||||||||||||||
|
|
|
Cloud and |
|
IP Optical |
|
|
|
|
Cloud and |
|
IP Optical |
|
|
|
|
||||
|
|
|
Edge |
|
Networks |
|
Total |
|
Edge |
|
Networks |
|
Total |
|||||||
|
Product |
|
$ |
52,318 |
|
$ |
126,150 |
|
$ |
178,468 |
|
$ |
59,628 |
|
$ |
127,048 |
|
$ |
186,676 |
|
|
Service |
|
82,405 |
|
33,954 |
|
116,359 |
|
80,481 |
|
34,711 |
|
115,192 |
|
||||||
|
Amortization of acquired technology |
|
528 |
|
12,741 |
|
13,269 |
|
2,626 |
|
13,096 |
|
15,722 |
|
||||||
|
Total cost of revenue |
|
$ |
135,251 |
|
$ |
172,845 |
|
$ |
308,096 |
|
$ |
142,735 |
|
$ |
174,855 |
|
$ |
317,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
197,675 |
|
$ |
67,885 |
|
$ |
265,560 |
|
$ |
226,342 |
|
$ |
73,301 |
|
$ |
299,643 |
|
|
Gross margin |
|
59.4 |
% |
28.2 |
% |
46.3 |
% |
61.3 |
% |
29.5 |
% |
48.5 |
% |
||||||
Our overall gross margin decreased by 1.9 percentage points in the three months ended September 30, 2026 as compared to the three months ended September 30, 2025 and by 2.2 percentage points in the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025.
Gross margin for our Cloud and Edge segment was higher in the three months ended September 30, 2026 as compared to the three months ended September 30, 2025 by 20 basis points and was attributable to higher margins on product sales from higher software sales offset by lower professional services sales. Gross margin for our Cloud and Edge segment was lower in the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025 by 190 basis points due to lower product software sales. We expect Cloud and Edge gross margin to rebound as the deployment of services associated with a voice modernization project with one of our U.S. service providers returns to higher activity levels in the upcoming quarters. Gross margin for IP Optical Networks was lower in the three and nine months ended September 30, 2026, compared to the three and nine months ended September 30, 2025, primarily due to geographic and product mix.
We expect gross margin in 2026 to be slightly lower compared to 2025.
Research and Development. R&D expenses consist primarily of salaries and related personnel expenses and prototype costs for the design, development, testing, and enhancement of our products. R&D expenses for the three and nine months ended September 30, 2026 and 2025 were as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease |
||||
|
|
|
September 30, |
|
September 30, |
|
from prior year |
||||||
|
|
|
2026 |
|
2025 |
|
$ |
|
% |
||||
|
Three months ended |
|
$ |
44,424 |
|
$ |
45,894 |
|
$ |
(1,470) |
|
(3.2) |
% |
|
Nine months ended |
|
$ |
133,727 |
|
$ |
134,158 |
|
$ |
(431) |
|
(0.3) |
% |
Our R&D expenses remained flat in the three and nine months ended September 30, 2026 compared to the three and nine months ended September 30, 2025, due to lower employee-related costs offset by the impact of increased non-U.S. expenses associated with a weakening dollar.
Our IP Optical Networks R&D investment is focused on expanding our portfolio of IP Routing solutions, adding additional features and capabilities to our Optical Transport portfolio, and supporting features in our next generation SDN management and orchestration platform. Our Cloud and Edge R&D investment is focused on advancing our cloud-native communications solutions, enhancing our analytics, automation and security capabilities, and supporting our next-generation cloud operations platform.
Some aspects of our R&D efforts require significant short-term expenditures, the timing of which may cause significant variability in our expenses. We believe that rapid technological innovation is critical to our long-term success, and we are tailoring our investments to meet the requirements of our customers and market.
We expect that our R&D expenses will remain moderately flat in 2026 as compared to 2025, primarily due to continued cost efficiencies offsetting the weakening dollar.
Sales and Marketing Expenses. Sales and marketing expenses consist primarily of salaries and related personnel costs, commissions, travel and entertainment expenses, promotions, customer trial and evaluations inventory and other marketing and sales support expenses. Sales and marketing expenses for the three and nine months ended September 30, 2026 and 2025 were as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
||||
|
|
|
September 30, |
|
September 30, |
|
from prior year |
||||||
|
|
|
2026 |
|
2025 |
|
$ |
|
% |
||||
|
Three months ended |
|
$ |
33,376 |
|
$ |
33,063 |
|
$ |
313 |
|
0.9 |
% |
|
Nine months ended |
|
$ |
98,769 |
|
$ |
97,387 |
|
$ |
1,382 |
|
1.4 |
% |
Sales and marketing expenses in the three and nine months ended September 30, 2026 were relatively flat as compared to the three and nine months ended September 30, 2025.
We expect sales and marketing expenses will increase slightly in 2026 compared to 2025, primarily due to higher employee-related compensation.
General and Administrative Expenses. General and administrative expenses consist primarily of salaries and related personnel costs for executive and administrative personnel, and audit, legal and other professional fees. General and administrative expenses for the three and nine months ended September 30, 2026 and 2025 were as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease |
||||||
|
|
|
September 30, |
|
September 30, |
|
from prior year |
|
|||||
|
|
|
2026 |
|
2025 |
|
$ |
|
% |
|
|||
|
Three months ended |
|
$ |
15,233 |
|
$ |
16,368 |
|
$ |
(1,135) |
|
(6.9) |
% |
|
Nine months ended |
|
$ |
46,854 |
|
$ |
48,126 |
|
$ |
(1,272) |
|
(2.6) |
% |
The decrease in general and administrative expenses in the three and nine months ended September 30, 2026 compared to the three and nine months ended September 30, 2025 was primarily attributable to lower litigation expense offset by higher stock compensation expense.
We expect that our general and administrative expenses will remain moderately flat in 2026 as compared to 2025, primarily due to higher employee-related variable compensation associated with stock-based compensation expenses, offset by continued cost efficiencies.
Amortization of Acquired Intangible Assets included in Operating expenses. Amortization of acquired intangible assets included in Operating expenses ("Opex Amortization") for the three and nine months ended September 30, 2026 and 2025 was as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease |
||||||
|
|
|
September 30, |
|
September 30, |
|
from prior year |
|
|||||
|
|
|
2026 |
|
2025 |
|
$ |
|
% |
||||
|
Three months ended |
|
$ |
5,461 |
|
$ |
5,933 |
|
$ |
(472) |
|
(8.0) |
% |
|
Nine months ended |
|
$ |
16,612 |
|
$ |
18,063 |
|
$ |
(1,451) |
|
(8.0) |
% |
Opex Amortization was lower for the three and nine months ended September 30, 2026 compared to the three and nine months ended September 30, 2025. We record our amortization in relation to expected future cash flows rather than on a straight-line basis. Accordingly, such expense may vary from one period to the next.
Restructuring and Related. We have been committed to streamlining our operations and reducing operating costs by closing and consolidating certain facilities and reducing our worldwide workforce. Please see the additional discussion of our restructuring initiatives in the "Restructuring and Cost Reduction Initiatives" section of the Overview of this MD&A.
We recorded restructuring and related expense of $1.4 million and $3.5 million in the three months ended September 30, 2026 and 2025, respectively and $7.9 million and $10.2 million in the nine months ended September 30, 2026 and 2025, respectively. Although we have eliminated positions as part of our restructuring initiatives, we continue to hire in certain areas that we believe are important to our future growth.
Interest Expense, Net. Interest expense and interest income for the three and nine months ended September 30, 2026 and 2025 were as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease |
||||
|
|
|
Three months ended |
|
from prior year |
|
|||||||
|
|
|
September 30, 2026 |
|
September 30, 2025 |
|
$ |
|
% |
||||
|
Interest income |
|
$ |
126 |
|
$ |
190 |
|
$ |
(64) |
|
(33.7) |
% |
|
Interest expense |
|
(11,399) |
|
(11,796) |
|
$ |
(397) |
|
(3.4) |
% |
||
|
Interest expense, net |
|
$ |
(11,273) |
|
$ |
(11,606) |
|
$ |
(333) |
|
(2.9) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease |
||||
|
|
|
Nine months ended |
|
from prior year |
|
|||||||
|
|
|
September 30, 2026 |
|
September 30, 2025 |
|
$ |
|
% |
||||
|
Interest income |
|
$ |
630 |
|
$ |
770 |
|
$ |
(140) |
|
(18.2) |
% |
|
Interest expense |
|
(32,344) |
|
(33,853) |
|
$ |
(1,509) |
|
(4.5) |
% |
||
|
Interest expense, net |
|
$ |
(31,714) |
|
$ |
(33,083) |
|
$ |
(1,369) |
|
(4.1) |
% |
Our interest expense in three and nine months ended September 30, 2026 and 2025 primarily represents term debt interest, amortization of debt issuance costs and original issue discount and interest associated with factoring arrangements. Interest expense in the three and nine months ended September 30, 2026 was lower than the same period in 2025 primarily due to lower applicable interest margins and a reduction in the outstanding term debt balance.
Other Income (Expense), Net. We recorded other income, net of $1.1 million and other expense, net of $0.1 million in the three months ended September 30, 2026 and 2025, respectively. We recorded other expense, net of $0.6 million, and other income, net, of $0.8 million in the nine months ended September 30, 2026 and 2025, respectively. Other income, net in the three months ended September 30, 2026 was primarily comprised of approximately $0.9 million of fair value adjustments of our warrants offset by foreign currency exchange losses of $0.1 million. Other expense, net in the three months ended September 30, 2025 was primarily comprised of $1.2 million of fair value adjustments of our warrants, partially offset by foreign currency exchange losses of $1.1 million. Other expense, net in the nine months ended September 30, 2026, was primarily comprised of $2.9 million of foreign currency exchange losses offset by $1.8 million of fair value adjustments of our warrants. Other income, net in the nine months ended September 30, 2025 was
primarily comprised of $2.8 million of fair value adjustments of our warrants, partially offset by foreign currency exchange losses of $1.7 million.
Income Taxes. We recorded income tax provisions of $4.6 million and $3.1 million in the three months ended September 30, 2026 and 2025, respectively, and an income tax benefit of $0.2 million and an income tax provision of $4.6 million in the nine months ended September 30, 2026 and 2025, respectively. These amounts reflect our estimates of the effective rates expected to be applicable for the respective full fiscal years, adjusted for any discrete events, which are recorded in the period that they occur. These estimates are reevaluated each quarter based on our estimated tax rate for the full year. The estimated effective tax rate includes the impact of valuation allowances in various jurisdictions. We intend to continue to maintain a valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of the respective allowances.
In October 2021, the Organization for Economic Co-operation and Development (the "OECD") announced the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, which agreed to a two-pillar solution to address tax challenges arising from digitalization of the economy. In December 2021, the OECD released Pillar Two Model Rules defining the global minimum tax rules, which contemplate a minimum tax rate of 15% ("Pillar Two"). In addition, the OECD issued administrative guidance providing transition and safe harbor rules that could delay the impact of the minimum tax directive. Certain countries in which we operate have enacted legislation consistent with the OECD model rules effective beginning in 2024. We considered the applicable tax laws in relevant jurisdictions and concluded there was no material effect on our tax provision for the nine months ended September 30, 2026 and 2025. We will continue to evaluate the potential effect of Pillar Two rules on our future reporting periods, but we do not expect Pillar Two to have a significant impact on our results of operations, financial position, or cash flows.
The One Big Beautiful Bill Act (the "Act") was signed into law on July 4, 2025. The Act reinstated bonus depreciation, allowed for full expensing of R&D expenses, and increased the limitation of interest deductibility for 2025, amongst many other provisions that are effective January 1, 2026. The tax effects of the Act were reflected in our income tax provision for the year ended December 31, 2025 and the nine months ended September 30, 2026.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial position, changes in financial position, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Liquidity and Capital Resources
Our condensed consolidated statements of cash flows are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
||||
|
|
|
September 30, |
|
September 30, |
|
|
|
||
|
|
|
2026 |
|
2025 |
|
Change |
|||
|
Net loss |
|
$ |
(70,477) |
|
$ |
(49,429) |
|
$ |
(21,048) |
|
Adjustments to reconcile net loss to cash flows (used in) provided by operating activities |
|
57,049 |
|
61,627 |
|
(4,578) |
|||
|
Changes in operating assets and liabilities |
|
(34,487) |
|
9,961 |
|
(44,448) |
|||
|
Net cash (used in) provided by operating activities |
|
$ |
(47,915) |
|
$ |
22,159 |
|
$ |
(70,074) |
|
Net cash used in investing activities |
|
$ |
(9,017) |
|
$ |
(23,368) |
|
$ |
14,351 |
|
Net cash provided by (used in) financing activities |
|
$ |
1,547 |
|
$ |
(13,490) |
|
$ |
15,037 |
We had cash, cash equivalents, and restricted cash aggregating $42 million and $98 million at September 30, 2026 and December 31, 2025, respectively. We had cash held by our non-U.S. subsidiaries aggregating $31 million and $50 million at September 30, 2026 and December 31, 2025, respectively. If we elect to repatriate all of the funds held by our non-U.S. subsidiaries as of September 30, 2026, we do not believe that the amounts of potential withholding taxes that would arise from the repatriation would have a material effect on our liquidity.
As of September 30, 2026, we had an outstanding balance under the Credit Facility of $350.6 million, which included $335.6 million outstanding under the term loan and $15.0 million outstanding under the revolving credit facility. The term loan and revolving credit facility bore average interest rates of 10.0% and 10.2%, respectively. We had an available borrowing capacity under the revolving credit facility of $20.0 million and no letters of credit outstanding. We were in compliance with all covenants of the Credit Facility at both September 30, 2026 and December 31, 2025.
On May 5, 2026, we entered into the First Amendment, which (1) waives compliance with the maximum consolidated net leverage ratio financial covenant as of and for the period ending June 30, 2026, (2) increases the Maximum Consolidated Net Leverage Ratio (as defined in the Credit Facility) to 4.50:1.00 as of and for the period ending September 30, 2026, and sets the ratio for all subsequent quarters to 4.00:1.00, and (3) modifies the applicable interest rate margins for any quarter in which the Consolidated Net Leverage Ratio exceeds 3.75:1.00 to 7.00%. Management believes that, together with expected operating cash flows, the First Amendment provides sufficient liquidity to enable the Company to meet its anticipated operating and capital requirements for at least the next twelve months.
In the course of our business, we use letters of credit, bank guarantees, and surety bonds (collectively, "Guarantees"). We had $10.9 million and $11.1 million of Guarantees under various uncommitted facilities as of September 30, 2026 and December 31, 2025, respectively. We had no letters of credit outstanding under the Credit Facility as of September 30, 2026 or December 31, 2025. At September 30, 2026 and December 31, 2025, we had cash collateral of $2.0 million and $1.7 million supporting the Guarantees, respectively, which are reported as Restricted cash in our condensed consolidated balance sheets.
We are exposed to financial market risk related to foreign currency fluctuations and changes in interest rates. These exposures are actively monitored by management. To manage the volatility related to the exposure to changes in interest rates, we may enter into a derivative financial instrument. Management's objective has been to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in interest rates. Our policies and practices are to use derivative financial instruments only to the extent necessary to manage exposures. We do not hold or issue derivative financial instruments for trading or speculative purposes.
As a result of exposure to foreign currency fluctuations, we entered into foreign exchange forward activity in January 2026 which effectively hedges a portion of the Company's foreign currency exposure arising from international transactions.
Our objectives in using foreign exchange derivatives have been to add stability to operating expenses and to manage our exposure to foreign currency movements. To accomplish these objectives, we have used foreign exchange forward contracts as part of our foreign currency risk management strategy. Foreign exchange forwards designated as cash flow hedges involve the exchange of fixed U.S. dollar payments for fixed Israeli shekel receipts at predetermined exchange rates, thereby reducing the variability of forecasted shekel-denominated expenditures.
The effective portion of changes in the fair value of designated derivatives that qualify as cash flow hedges is recorded in Accumulated other comprehensive income in the condensed consolidated balance sheet and is subsequently reclassified into earnings in the period that the hedged forecasted transactions affect earnings. Any ineffective portion of the change in the fair value of the derivative would be recognized directly in earnings. We had no derivative assets or liabilities at December 31, 2025.
In the second quarter of 2025, our Board approved a share repurchase program (the "2025 Repurchase Program" or the "Repurchase Program") pursuant to which we are authorized to repurchase up to $50 million of our common stock prior to December 31, 2027. We repurchased 0.4 million shares in the nine months ended September 30, 2026, using $0.8 million. Since the start of the Repurchase Program, the Company has repurchased 2.9 million shares using $9.8 million.
Cash Flows from Operating Activities
Our primary source of cash from operating activities has been from cash collections from our customers. We expect cash flows from operating activities to be affected by increases and decreases in sales volumes and timing of collections, and by purchases and shipments of inventory. Our primary uses of cash for operating activities have been for personnel costs and investment in our research and development and in our sales and marketing, and general and administrative departments.
Our operating activities used $47.9 million of cash in the nine months ended September 30, 2026, primarily reflecting the payment of variable employee compensation, higher accounts receivable and inventory balances, lower accrued expenses and other long-term liabilities due to the timing of vendor and other operating payments, and our net loss, adjusted for non-cash items. Significant non-cash adjustments included amortization of intangible assets, stock-based compensation, changes in the fair value of the warrant liability, and deferred income tax expense. These uses of cash were partially offset by an increase in accounts payable and changes in other operating assets.
Our operating activities provided cash of $22.2 million in the nine months ended September 30, 2025, driven by lower accounts receivable, partially offset by lower accrued expenses and other long-term liabilities, accounts payable and deferred revenue. Our net loss was offset by adjustments for non-cash expenses such as amortization of intangible assets, and stock-based compensation.
Cash Flows from Investing Activities
Our investing activities used $9.0 million and $23.4 million of cash to purchase property and equipment and software licenses in the nine months ended September 30, 2026 and 2025, respectively. The decrease in capital expenditures compared to the prior-year period was primarily attributable to the completion of the build-out of our new facility in Israel during 2025.
Cash Flows from Financing Activities
Our financing activities provided $1.5 million of cash in the nine months ended September 30, 2026, primarily due to $15.0 million of net borrowings under the revolving credit facility. These cash inflows were partially offset by $6.6 million in principal payments on our term debt, $5.1 million of tax withholding obligations related to the vesting of stock awards and units, $1.0 million payment of debt issuance costs, and $0.8 million for the repurchase and retirement of our common stock under the 2025 Repurchase Program.
Our financing activities used $13.5 million of cash in the nine months ended September 30, 2025. We paid $3.9 million in principal payments on our term debt, $3.8 million of tax obligations related to the vesting of stock awards and units and $5.7 million for the repurchase and retirement of our common stock under the 2025 Repurchase Program.
The rate at which we consume cash is dependent upon the cash needs of our future operations, including our contractual obligations at September 30, 2026, primarily consisting of debt principal and interest obligations, outstanding borrowings under the revolving credit facility as described above, and our operating lease and purchase obligations. Our operating lease obligations totaled $92.6 million at September 30, 2026, with payments to be made aggregating $4.4 million in the remainder of 2026, $16.7 million in 2027, $14.9 million in 2028 and $56.6 million thereafter. Estimated payments for purchase obligations for the full year 2026 total approximately $102 million. We anticipate devoting substantial capital resources to continue our R&D efforts, to maintain our sales, support and marketing, and for other general corporate activities. We believe that our financial resources, along with managing discretionary expenses, will allow us to manage the ongoing impact of inflation on our business operations. Looking ahead, we have developed contingency plans to reduce costs further if the situation deteriorates.
Based on our current expectations, we believe that our current cash balances and available borrowings under the Credit Facility will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least twelve months from the date of issuance of these financial statements.
Recent Accounting Pronouncements
In December 2025, the Financial Accounting Standards Board (the "FASB") issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements ("ASU 2025-11"), to improve the navigability of the required interim disclosures, to clarify when that guidance is applicable and to enhance disclosure requirements. The amendments add to Topic 270 a principle that requires entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. ASU 2025-11 will be effective for the Company beginning with its 2028 interim and annual financial statements, with early adoption permitted. The Company believes this ASU will have no material impact on its condensed consolidated financial statements.
In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities ("ASU 2025-10"), to clarify the appropriate accounting, reduce diversity in practice, and increase consistency across business entities. ASU 2025-10 will be effective for us beginning with our 2029 interim and annual financial statements, with early adoption permitted. The Company believes this ASU will have no material impact on its condensed consolidated financial statements.
In November 2025, the FASB issued ASU 2025-09, Derivatives and Hedging (Topic 815): Hedge Accounting Improvements ("ASU 2025-09"), to enhance hedge accounting guidance and better align it with entities' risk management activities. The amendments expand eligibility for hedge accounting, simplify certain requirements, and address issues related to reference rate reform. Key changes include allowing cash flow hedge accounting for "choose-your-rate" debt instruments, introducing a principles-based "similar risk exposure" criterion for grouping forecasted transactions, permitting component hedging for nonfinancial forecasted transactions, and clarifying the treatment of certain derivative structures. ASU 2025-09 will be effective for the Company beginning with its 2027 interim and annual financial statements, with early adoption permitted. The Company is currently evaluating the impact of this accounting standard on its condensed consolidated financial statements and related disclosures.
In September 2025, the Financial Accounting Standards Board (the "FASB") issued ASU 2025-06, Intangibles- Goodwill and Other- Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software ("ASU 2025-06"). To clarify how the accounting guidance applies to both linear and nonlinear software development, this standard removes all references to "development stages" from ASC 350-40. ASU 2025-06 will be effective for us beginning with our 2028 interim and annual financial statements, with early adoption permitted as of the beginning of an annual reporting period. We are currently evaluating the impact of this accounting standard on our condensed consolidated financial statements and related disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement, Reporting Comprehensive Income: Expense Disaggregation Disclosures (Subtopic 220-40) ("ASU 2024-03"), which requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. The objective of this standard is to provide investors with information to better understand a public entity's performance and prospects for future cash flows, and to compare its performance over time with that of other entities. ASU 2024-03 will be effective for us beginning with our 2027 annual financial statements and interim financial statements thereafter, with early adoption permitted. The adoption of ASU 2024-03 will require us to provide new footnote disclosure about the types of expenses that are included in certain captions on our Statements of Operations, such as Cost of revenue, Research and development, Sales and marketing, and General and administrative.
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