August 2, 2011

Sonus Networks Reports 2011 Second Quarter Results

WESTFORD, Mass.--(BUSINESS WIRE)-- Sonus Networks, Inc. (Nasdaq: SONS), a market leader in next-generation IP-based network solutions, today announced results for the quarter ended June 30, 2011.

Second Quarter Highlights

  • Revenue from session border controller (SBC) products was $7.7 million in the second quarter of fiscal 2011, compared to $2.3 million in the first quarter of fiscal 2011 and $9.4 million in the second quarter of fiscal 2010.
  • Customer bookings for the NBS5200 session border controller represented over 50% of total SBC bookings in the quarter for the first time since launching this product.
  • Sonus is reiterating full year revenue guidance: for fiscal year 2011, the Company expects revenue of $265 million to $285 million, representing revenue growth of 6% to 14%.
  • The Company's previous full year guidance for non-GAAP gross margin, non-GAAP operating expenses and year-end cash also remains unchanged.

Revenue for the second quarter of fiscal 2011 was $51.8 million, compared to $67.3 million in the first quarter of fiscal 2011 and $61.2 million in the second quarter of fiscal 2010. The Company's net loss for the second quarter of fiscal 2011 was $5.9 million, or $0.02 per share, compared to a net loss of $12.4 million, or $0.04 per share, for the first quarter of fiscal 2011 and net income of $0.3 million, or $0.00 per diluted share, for the second quarter of fiscal 2010.

"The team and I remain enthusiastic about our opportunity to grow our business, building on our solid history of technical excellence, strong customer relationships and a healthy balance sheet," said Ray Dolan, President and Chief Executive Officer of Sonus Networks. "Reiterating our full year guidance underscores our confidence in our growth strategy and our ability to execute for the remainder of the year. The NBS5200, our innovative carrier and enterprise-class Session Border Controller, was recently recognized by TMC as a 2010 Communications Solutions Product of the Year. This product, launched roughly one year ago, is experiencing solid momentum and represents an attractive area of growth for the Company."

Forward-looking Fiscal 2011 Guidance:

  • Revenue of $265 million to $285 million, up between 6% and 14% from the prior year
  • SBC revenue of $40 million, up 64% from the prior year
  • Non-GAAP gross margins of 59% to 63%
  • Non-GAAP operating expenses of $143 million to $147 million, down 2% to 4% from the prior year
  • Year-end cash between $400 million and $410 million

The Company's GAAP financials for the three months ended June 30, 2011, March 31, 2011 and June 30, 2010 and the six months ended June 30, 2011 and 2010, as well as GAAP to non-GAAP reconciliations, are attached to this press release. Additional reconciliations of GAAP to non-GAAP financial information will also be available on the Sonus Investor Relations website at http://www.sonusnet.com, About Us, Investor Relations, Financial Information.

Earnings Conference Call Details:

Sonus Networks will host a conference call for analysts and investors to discuss its second quarter 2011 results as well as certain forward-looking information today at 4:45 p.m. ET.

To listen live via telephone:

Dial-in number: 800-954-0592

International Callers: +1 212-231-2925

To listen via internet:

Sonus Networks will host a live webcast of the conference call. To access the webcast, visit www.sonusnet.com, About Us, Investor Relations.

About Sonus Networks

Sonus Networks, Inc. is a leader in IP networking with proven expertise in delivering secure, reliable and scalable next generation infrastructure and subscriber solutions. With customers in over 50 countries across the globe and over a decade of experience in transforming networks to IP, Sonus has enabled service providers and enterprises to capture and retain users and generate significant ROI. Sonus products include media and signaling gateways, policy/routing servers, session border controllers and subscriber feature servers. Sonus products are supported by a global services team with experience in design, deployment and maintenance of some of the world's largest and most complex IP networks. For more information, visit www.sonusnet.com.

Important Information Regarding Forward-Looking Statements

This release may contain forward-looking statements (within the meaning of the Private Securities Litigation Reform Act) regarding future events that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results. Readers are referred to Item 1A "Risk Factors" included in Sonus' Annual Report on Form 10-K for the year ended December 31, 2010 and Quarterly Reports on Forms 10-Q for the quarters ended March 31, 2011 and June 30, 2011, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. Any forward-looking statements represent Sonus' views only as of today and should not be relied upon as representing Sonus' views as of any subsequent date. While Sonus may elect to update forward-looking statements at some point, Sonus specifically disclaims any obligation to do so, except as required by law.

Sonus is a registered trademark of Sonus Networks, Inc. All other company and product names may be trademarks of the respective companies with which they are associated.

 
SONUS NETWORKS, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
         
         
Three months ended
June 30, March 31, June 30,
  2011     2011     2010  
Revenue:
Product $ 29,446 $ 35,953 $ 36,796
Service   22,326     31,346     24,385  
Total revenue   51,772     67,299     61,181  
 
Cost of revenue:
Product 9,618 23,161 10,826
Service   12,218     17,513     11,842  
Total cost of revenue   21,836     40,674     22,668  
 
Gross profit   29,936     26,625     38,513  
 
Gross profit %
Product 67.3 % 35.6 % 70.6 %
Service 45.3 % 44.1 % 51.4 %
Total gross profit % 57.8 % 39.6 % 62.9 %
 
Operating expenses:
Research and development 15,187 15,608 15,106
Sales and marketing 13,298 14,297 12,392
General and administrative   8,197     8,196     10,971  
Total operating expenses   36,682     38,101     38,469  
 
Income (loss) from operations (6,746 ) (11,476 ) 44
Interest income, net 332 435 436
Other income, net   -     -     1  
 
Income (loss) before income taxes (6,414 ) (11,041 ) 481
Income tax benefit (provision)   480     (1,367 )   (170 )
 
Net income (loss) $ (5,934 ) $ (12,408 ) $ 311  
 
Earnings (loss) per share:
Basic $ (0.02 ) $ (0.04 ) $ -
Diluted $ (0.02 ) $ (0.04 ) $ -
 
Shares used to compute earnings (loss) per share:
Basic 278,400 277,712 275,051
Diluted 278,400 277,712 276,314
 
 
SONUS NETWORKS, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
       
     
Six months ended
June 30, June 30,
  2011     2010  
Revenue:
Product $ 65,399 $ 73,074
Service   53,672     50,515  
Total revenue   119,071     123,589  
 
Cost of revenue:
Product 32,779 23,127
Service   29,731     23,771  
Total cost of revenue   62,510     46,898  
 
Gross profit   56,561     76,691  
 
Gross profit %
Product 49.9 % 68.4 %
Service 44.6 % 52.9 %
Total gross profit % 47.5 % 62.1 %
 
Operating expenses:
Research and development 30,795 30,046
Sales and marketing 27,595 25,986
General and administrative   16,393     21,115  
Total operating expenses   74,783     77,147  
 
Loss from operations (18,222 ) (456 )
Interest income, net 767 938
Other income, net   -     11  
 
Income (loss) before income taxes (17,455 ) 493
Income tax provision   (887 )   (316 )
 
Net income (loss) $ (18,342 ) $ 177  
 
Earnings (loss) per share:
Basic $ (0.07 ) $ -
Diluted $ (0.07 ) $ -
 
Shares used to compute earnings (loss) per share:
Basic 278,080 274,877
Diluted 278,080 276,038
 
 
SONUS NETWORKS, INC.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
         
 
June 30, December 31,
  2011     2010  
Assets
Current assets:
Cash and cash equivalents $ 73,401 $ 62,501
Marketable securities 244,988 258,831
Accounts receivable, net 35,706 52,813
Inventory 26,747 22,499
Deferred income taxes 408 408
Other current assets   15,709     16,474  
Total current assets 396,959 413,526
 
Property and equipment, net 22,923 21,284
Intangible assets, net 1,400 1,600
Goodwill 5,062 5,062
Investments 70,226 87,087
Deferred income taxes 1,417 1,271
Other assets   4,974     26,124  
$ 502,961   $ 555,954  
 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 15,160 $ 16,936
Accrued expenses 17,364 29,999
Current portion of deferred revenue 48,903 42,776
Current portion of long-term liabilities   485     338  
Total current liabilities 81,912 90,049
 
Deferred revenue 11,085 42,811
Long-term liabilities   4,287     4,138  
Total liabilities   97,284     136,998  
 
Commitments and contingencies
 
Stockholders equity:
Common stock 278 277
Additional paid-in capital 1,306,136 1,301,285
Accumulated deficit (907,843 ) (889,501 )
Accumulated other comprehensive income   7,106     6,895  
Total stockholders' equity   405,677     418,956  
$ 502,961   $ 555,954  
 
 
SONUS NETWORKS, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
           
     
Six months ended
June 30, June 30,
  2011     2010  
Cash flows from operating activities:
Net income (loss) $ (18,342 ) $ 177
Adjustments to reconcile net loss to cash flows provided by (used in) operating activities:
Depreciation and amortization of property and equipment 5,644 4,804
Amortization of intangible assets 200 276
Stock-based compensation 4,241 5,698
Loss on disposal of property and equipment 6 59
Changes in operating assets and liabilities:
Accounts receivable 17,243 7,778
Inventory 12,799 (5,201 )
Other operating assets 6,565 261
Accounts payable (1,926 ) 12,989
Accrued expenses (12,375 ) (1,828 )
Deferred revenue   (25,336 )   (11,181 )
Net cash provided by (used in) operating activities   (11,281 )   13,832  
 
Cash flows from investing activities:
Purchases of property and equipment (7,319 ) (4,276 )
Purchase of intangible assets - (2,000 )
Purchases of marketable securities (101,584 ) (168,953 )
Sale/maturities of marketable securities   130,194     139,620  
Net cash provided by (used in) investing activities   21,291     (35,609 )
 
Cash flows from financing activities:
Proceeds from sale of common stock in connection with employee stock purchase plan 754 609
Proceeds from exercise of stock options 777 61
Payment of tax withholding obligations related to net share settlements of restricted stock awards (902 ) (257 )
Principal payments of capital lease obligations   (48 )   (110 )
Net cash provided by financing activities   581     303  
 
Effect of exchange rate changes on cash and cash equivalents   309     (61 )
 
Net increase (decrease) in cash and cash equivalents 10,900 (21,535 )
Cash and cash equivalents, beginning of year   62,501     125,323  
Cash and cash equivalents, end of period $ 73,401   $ 103,788  
 
 
SONUS NETWORKS, INC.
Supplemental Information
(In thousands)
(unaudited)
           
 

The following tables provide the details of stock-based compensation and amortization of intangible assets included in the Company's Condensed Consolidated Statements of Operations and the line items in which these amounts are reported. Additional information regarding these items is available in the Investor Relations section of our website at http://www.sonusnet.com. The information contained on our website or that can be accessed through our website should not be considered to be part of, or incorporated into, this press release.

         
Three months ended

June 30,

March 31, June 30,
  2011   2011   2010
Stock-based compensation
Cost of revenue - product $ 109 $ 108 $ 89
Cost of revenue - service   389   385   404
Cost of revenue   498   493   493
 
Research and development expense 527 533 665
Sales and marketing expense 563 497 688
General and administrative expense   627   503   1,366
Operating expense   1,717   1,533   2,719
 
Total stock-based compensation $ 2,215 $ 2,026 $ 3,212
 
 
Amortization of intangible assets
Cost of revenue - product $ - $ - $ 38
Research and development   100   100   100
Total amortization of intangible assets $ 100 $ 100 $ 138
 
     
Six months ended
June 30, June 30,
  2011   2010
Stock-based compensation
Cost of revenue - product $ 217 $ 160
Cost of revenue - service   774   823
Cost of revenue   991   983
 
Research and development expense 1,060 1,271
Sales and marketing expense 1,060 1,417
General and administrative expense   1,130   2,027
Operating expense   3,250   4,715
 
Total stock-based compensation $ 4,241 $ 5,698
 
 
Amortization of intangible assets
Cost of revenue - product $ - $ 76
Research and development   200   200
Total amortization of intangible assets $ 200 $ 276
 
 
SONUS NETWORKS, INC.
Reconciliation of GAAP to Non-GAAP 2011 Guidance
(In millions, except percentages)
(unaudited)
       
 
The following tables include non-GAAP measures provided as guidance for 2011 derived from our GAAP (generally accepted accounting principles in the United States) 2011 expected results. This non-GAAP guidance for gross margin and operating expenses is not presented in accordance with, nor is it intended to be a substitute for, GAAP. In addition, our presentations of these measures may not be comparable to similarly titled measures used by other companies. The non-GAAP measures provided as guidance should not be considered alternatives for, or in isolation from, the financial information prepared and presented in accordance with GAAP.
 
Range
Low   to   High
 
Revenue $ 265   $ 285  
 
Reconciliation of GAAP to Non-GAAP 2011 Guidance - Gross Margin
GAAP expected results 58 % 62 %
Stock-based compensation   1 %   1 %
Non-GAAP guidance   59 %   63 %
 
 
Reconciliation of GAAP to Non-GAAP 2011 Guidance - Operating Expenses
GAAP expected results $ 151 $ 155
Stock-based compensation (8 ) (8 )
Amortization of intangible assets (A)   -     -  
Non-GAAP guidance $ 143   $ 147  
 
 
 
 
 
(A) The impact of expense for amortization of intangible assets on non-GAAP operating expenses is expected to approximate $100,000 per quarter.
 
 
SONUS NETWORKS, INC.
Reconciliation of Non-GAAP and GAAP Financial Information
(In thousands, except per share data)
(unaudited)
       
 
The tables below include non-GAAP financial measures derived from our Condensed Consolidated Statements of Operations. These non-GAAP financial measures of Gross profit, Gross margin and Operating expenses are not presented in accordance with, nor are they intended to be a substitute for, accounting principles generally accepted in the United States of America ("GAAP"). In addition, our presentations of these measures may not be comparable to similarly titled measures used by other companies. The non-GAAP financial measures described below should not be considered alternatives for, or in isolation from, the financial information prepared and presented in accordance with GAAP.
 

We use a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of our business, in making operating decisions, planning and forecasting future periods and determining payments under compensation programs. We consider the use of these non-GAAP financial measures helpful in assessing the core performance of our continuing operations and liquidity, and when planning and forecasting future periods. These items for the periods presented are Stock-based compensation expense and Amortization of intangible assets.

 
Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. In particular, many of the adjustments to the Company's GAAP financial measures reflect the exclusion of items that are recurring and will be reflected in the Company's financial results for the foreseeable future.
 
         
Three months ended
June 30, March 31, June 30,
Notes   2011     2011     2010  
 
GAAP Total gross profit $ 29,936 $ 26,625 $ 38,513
Stock-based compensation expense A 498 493 493
Amortization of intangible assets B   -     -     38  
Non-GAAP Total gross profit $ 30,434   $ 27,118   $ 39,044  
 
GAAP Total gross margin 57.8 % 39.6 % 62.9 %
Stock-based compensation expense A 1.0 % 0.7 % 0.8 %
Amortization of intangible assets B   0.0 %   0.0 %   0.1 %
Non-GAAP Total gross margin   58.8 %   40.3 %   63.8 %
 
GAAP Operating expenses $ 36,682 $ 38,101 $ 38,469
Stock-based compensation expense A (1,717 ) (1,533 ) (2,719 )
Amortization of intangible assets B   (100 )   (100 )   (100 )
Non-GAAP Operating expenses $ 34,865   $ 36,468   $ 35,650  
 
     
Six months ended
June 30, June 30,
Notes   2011     2010  
 
GAAP Total gross profit $ 56,561 $ 76,691
Stock-based compensation expense A 991 983
Amortization of intangible assets B   -     76  
Non-GAAP Total gross profit $ 57,552   $ 77,750  
 
GAAP Total gross margin 47.5 % 62.1 %
Stock-based compensation expense A 0.8 % 0.7 %
Amortization of intangible assets B   0.0 %   0.1 %
Non-GAAP Total gross margin   48.3 %   62.9 %
 
GAAP Operating expenses $ 74,783 $ 77,147
Stock-based compensation expense A (3,250 ) (4,715 )
Amortization of intangible assets B   (200 )   (200 )
Non-GAAP Operating expenses $ 71,333   $ 72,232  
 
 
SONUS NETWORKS, INC.
Notes to the Reconciliation of Non-GAAP and GAAP Financial Information
(In thousands, except per share data)
(unaudited)
 
 
 
A Stock-based compensation is different from other forms of compensation, as it is a non-cash expense. A cash salary or bonus has a fixed and unvarying cash cost. In contrast, the expense associated with the award of an option is generally unrelated to the amount of cash ultimately received by the employee, and the cost to us is based on a stock-based compensation valuation methodology and underlying assumptions that may vary over time. We believe that excluding non-cash stock-based compensation expense from our operating results enables the readers of our financial statements to more accurately compare our operating results to our historical results and to other companies in our industry.
 
B On January 15, 2010, we entered into an intellectual property asset purchase and license agreement with Winphoria, Inc. ("Winphoria") and Motorola, Inc. ("Motorola") to purchase certain of Winphoria's software code and related patents and licensed certain other intellectual property from Winphoria and Motorola. The purchase price included an initial payment of $2.0 million and future potential royalty payments dependent upon future sales of certain of our products that include the Winphoria technology that was purchased or licensed. In connection with this transaction we recorded identifiable intangible assets which we have classified as developed technology and that will be amortized on a straight-line basis over five years, the expected useful life of the technology. The amortization expense for these identifiable intangible assets is included in Amortization of intangible assets.
 
On April 13, 2007, we completed our acquisition of Zynetix Limited ("Zynetix"), a privately-held designer of innovative Global System for Mobile Communications infrastructure solutions located in the United Kingdom. In connection with this acquisition we recorded intangible assets consisting of customer relationships, intellectual property and a trade name. A portion of the Intellectual property was allocated to the Sonus reporting unit. During the third quarter of fiscal 2008, we committed to a plan to sell Zynetix, and completed the sale transaction on November 26, 2008. The amortization expense for the intellectual property allocated to the Sonus reporting unit is included in Amortization of intangible assets.
 
We believe that excluding the non-cash amortization of intangible assets facilitates the comparison of our financial results to our historical operating results and to other companies in our industry and provides meaningful information regarding our liquidity.

Sonus Networks, Inc.
Wayne Pastore, 978-614-8291
wpastore@sonusnet.com
or
Fran Murphy, 978-614-8148
fmurphy@sonusnet.com

Source: Sonus Networks, Inc.

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