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Sonus Networks Reports 2012 Second Quarter Results

  Sonus Networks Reports 2012 Second Quarter Results

 Exceeds SBC Revenue Expectations and Reaffirms Full Year SBC Revenue Outlook

Business Wire

WESTFORD, Mass. -- August 07, 2012

Sonus Networks, Inc. (Nasdaq: SONS), a global leader in SIP communications,
today announced results for the second quarter ended June 29, 2012 and
provided its outlook for the third quarter ending Friday, September 28, 2012
and the fourth quarter and full year ending December 31, 2012.

Second Quarter 2012 Highlights

  *Total revenue was $57.6 million
  *SBC total revenue, including maintenance and services, grew 77%
    year-over-year, to $19.1 million, compared to $10.8 million in the second
    quarter of 2011 and $17.0 million in the first quarter of 2012
  *SBC product revenue grew 75% year-over-year, to $13.5 million, compared to
    $7.7 million in the second quarter of 2011 and $13.2 million in the first
    quarter of 2012
  *SBC product revenue comprised 42% of total product revenue, the highest
    percentage of quarterly product revenue contribution to date
  *Sonus won six new customers in the quarter, all of whom purchased SBC
    products and services
  *Launched first enterprise and channel-focused product, the Sonus SBC 5100,
    which became Generally Available on July 31, 2012
  *Launched Sonus Partner Assure, the Company’s first global channel program
    to extend coverage of the enterprise market
  *Announced intent to acquire Network Equipment Technologies, Inc. Proposed
    acquisition expands Sonus’ coverage of the enterprise SBC market

Revenue for the second quarter of fiscal 2012 was $57.6 million, compared to
$64.3 million in the first quarter of fiscal 2012 and $51.8 million in the
second quarter of fiscal 2011. The GAAP net loss for the second quarter of
fiscal 2012 was $11.7 million, or $0.04 per share, compared to a GAAP net loss
of $6.4 million, or $0.02 per share, in the first quarter of 2012 and a GAAP
net loss of $5.9 million, or $0.02 per share, in the second quarter of fiscal
2011. The non-GAAP net loss for the second quarter of fiscal 2012 was $8.6
million, or $0.03 per share, compared to a non-GAAP net loss of $4.2 million,
or $0.02 per share, in the first quarter of fiscal 2012 and a non-GAAP net
loss of $3.6 million, or $0.01 per share, in the second quarter of fiscal
2011.

2012 Third Quarter, Fourth Quarter and Full Year Outlook

The Company’s outlook is based on current indications for its business, which
may change during the current quarter. A reconciliation of the non-GAAP to
GAAP outlook and a statement on the use of non-GAAP financial measures are
included at the end of this press release. All figures exclude the impact of
the proposed acquisition of NET, which was announced on June 19, 2012, unless
otherwise noted.

For the third quarter of 2012, management provides the following outlook on a
non-GAAP basis:

  *Total revenue of $51 million to $53 million
  *SBC total revenue, including maintenance and services, of $17 million to
    $19 million, up 23% to 37% from the third quarter of 2011

       *SBC product revenue of $14 million to $16 million, up 35% to 54% from
         the third quarter of 2011

  *Gross margins between 58% and 59%
  *Operating expenses of $39 million to $40 million
  *Loss per share of $0.03
  *Basic shares of 280 million
  *Cash and investments of approximately $300 million, assuming the NET
    acquisition closes in the third quarter

For the fourth quarter of 2012, management provides the following outlook on a
non-GAAP basis:

  *Total revenue of $84 million to $86 million
  *SBC total revenue, including maintenance and services, of $22 million to
    $25 million

       *SBC product revenue of $19 million to $22 million

  *Gross margins between 58% and 59%
  *Operating expenses of $38 million to $39 million
  *Diluted earnings per share of $0.04
  *Diluted shares of 282 million

Management reiterates the following outlook on a non-GAAP basis for the year
ending December 31, 2012:

  *Total SBC revenue, including maintenance and services, between $75 million
    and $80 million, up 44% to 54% year over year

       *SBC product revenue between $60 million and $65 million, up 58% to
         72% year over year

Management provides the following updated outlook on a non-GAAP basis for the
year ending December 31, 2012:

  *Total revenue of approximately $257 million to $261 million

  *Gross margins of approximately 60%
  *Operating expenses reduced to between $165 million and $166 million
  *Loss per share of $0.04
  *Basic shares of 280 million
  *Cash and investments of approximately $290 million to $300 million,
    assuming the NET acquisition has closed

Restructuring

In August 2012, the Company initiated a plan to streamline operations and
reduce operating costs, including a corporate-wide restructuring plan. In the
third quarter of fiscal 2012 the Company expects to record restructuring
expense of approximately $2.3 million for severance and related expenses.
These initiatives are expected to reduce third quarter and fourth quarter 2012
non-GAAP operating expenses by approximately $2 million and $3 million,
respectively, compared to second quarter 2012 non-GAAP operating expenses of
$41.7 million.

Quotes

“Our team is effectively transforming Sonus, as evidenced by our strong SBC
results this quarter, which exceeded our expectations,” said Ray Dolan,
President and Chief Executive Officer. “Demand for our SBC solutions continues
to grow, allowing us to reaffirm our SBC outlook for the year. Given the
current environment, we are taking proactive cost reduction measures to ensure
that Sonus has a business model which should accelerate our path to
profitability while enabling us to continue to grow our SBC business,” Dolan
continued. “We will continue to invest in SBC as we remain optimistic about
our growth prospects, which are driven by a highly competitive portfolio of
SBC products.”

NET Proposed Acquisition

The Company’s proposed acquisition of NET, which was announced on June 19,
2012, is projected to result in incremental revenue of approximately $5
million in the third quarter and $10 million to $12 million in the fourth
quarter of fiscal 2012, assuming the transaction closes by the end of August
as currently anticipated. The Company expects the acquisition to have a $0.01
dilutive to break-even impact on non-GAAP EPS for the balance of the year. As
noted above, the previous Sonus outlook provided by management for the third
and fourth quarters of 2012 and the full year ending December 31, 2012
excludes the impact of the proposed acquisition of NET except where
specifically indicated.

Conference Call Details

Date: August 7, 2012

Time: 4:45pm (EST)

Dial-in number: 800 734 8592

International Callers: +1 212 231 2900

Replay information:

A telephone playback of the call will be available shortly following the
conference call until August 21, 2012 and can be accessed by calling 800 633
8284 or +1 402 977 9140 for international callers. The reservation number for
the replay is 21599357.

Accounting Period:

As of the beginning of fiscal 2012, the Company began reporting its first,
second and third quarters on a 4-4-5 basis, with the quarter ending on the
Friday closest to the last day of each third month. The Company's fiscal
year-end is December 31.

Tags:

Sonus Networks, Sonus, SONS, 2012 second quarter, earnings, results, IP-based
network solutions, SBC, SBC 5100, SBC 5200, SBC 9000, session border
controller, session border control, session management, SIP trunking, Cloud
VoIP communications, unified communications, UC, VoIP, IP, TDM.

About Sonus Networks

Sonus helps the world's leading communications service providers and
enterprises embrace the next generation of SIP-based solutions including VoIP,
video and Unified Communications through secure, reliable and scalable IP
networks. With customers around the globe and 15 years of experience
transforming networks to IP, Sonus has enabled service providers to capture
and retain users and both service providers and enterprises to generate
significant ROI. Sonus products include session border controllers,
policy/routing servers, subscriber feature servers and media and signaling
gateways. 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.sonus.net or call 1-855-GO-SONUS.

Important Information Regarding Forward-Looking Statements

The information in this release contains “forward-looking statements” within
the meaning of the U.S. Private Securities Litigation Reform Act of 1995,
which are subject to a number of risks and uncertainties. All statements other
than statements of historical facts contained in this report are
forward-looking statements. Without limiting the foregoing, the words
“anticipates”, “believes”, “could”, “estimates”, “expects”, “intends”, “may”,
“plans”, “seeks”, “projects” and other similar language, whether in the
negative or affirmative, are intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying words.

Examples of forward-looking statements include, but are not limited to,
statements regarding the following: plans, objectives, outlook, goals,
strategies, future events or performance, trends, investments, customer
growth, operational performance and costs, liquidity and financial positions,
competition, estimated expenditures and investments, impacts of laws, rules
and regulations, revenues and earnings, performance and other statements that
are other than statements of historical facts. Forward-looking statements are
based on our current expectations and assumptions regarding our business, the
economy and other future conditions. Because forward-looking statements relate
to the future, they are subject to inherent uncertainties, risks and changes
in circumstances that are difficult to predict. They are neither statements of
historical fact nor guarantees or assurances of future performance. Our actual
results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including, but not
limited to, the timing of our recognition of revenues; our ability to recruit
and retain key personnel; difficulties supporting our new strategic focus on
channel sales; difficulties retaining and expanding our customer base;
difficulties leveraging market opportunities; restructuring activities; our
ability to realize benefits from acquisitions (including with respect to the
proposed acquisition of Network Equipment Technologies, Inc.); litigation;
actions taken by significant stockholders; difficulties providing solutions
that meet the needs of customers; market acceptance of our products and
services; rapid technological and market change; our ability to protect our
intellectual property rights; our ability to maintain partner, reseller,
distribution and vendor support and supply relationships; higher risks in
international operations and markets; the impact of increased competition;
currency fluctuations; changes in the market price of our common stock; and/or
failure or circumvention of our controls and procedures. Important factors
that could cause actual results to differ materially from those in these
forward-looking statements are discussed in Part I, Item 2 "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
Part I, Item 3 "Quantitative and Qualitative Disclosures About Market Risk"
and Part II, Item 1A "Risk Factors" in the Company's most recent Quarterly
Report on Form 10-Q. We undertake no obligation to publicly update any
forward-looking statement, whether as a result of new information, future
developments or otherwise, except as may be required by law. We therefore
caution you against relying on any of these forward-looking statements, which
speak only as of the date made.

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.

Discussion of Non-GAAP Financial Measures

Sonus management uses a number of different financial measures, both GAAP and
non-GAAP, in analyzing and assessing the overall performance of the business,
making operating decisions, planning and forecasting future periods, and
determining payments under compensation programs. Our annual financial plan is
prepared both on a GAAP and non-GAAP basis, and the non-GAAP annual financial
plan is approved by our board of directors. Continuous budgeting and
forecasting for revenue and expenses are conducted on a consistent non-GAAP
basis (in addition to GAAP) and actual results on a non-GAAP basis are
assessed against the annual financial plan. We consider the use of non-GAAP
financial measures helpful in assessing the core performance of our continuing
operations and liquidity, and when planning and forecasting future periods. By
continuing operations we mean the ongoing results of the business excluding
certain costs, including, but not limited to: stock-based compensation,
amortization of intangible assets, acquisition-related costs and
restructuring. We also consider the use of non-GAAP earnings per share helpful
in assessing the organic performance of the continuing operations of our
business. By organic performance we mean performance as if we had owned an
acquired business in the same period a year ago. While our management uses
these non-GAAP financial measures as a tool to enhance their understanding of
certain aspects of our financial performance, our management does not consider
these measures to be a substitute for, or superior to, GAAP measures. In
addition, our presentations of these measures may not be comparable to
similarly titled measures used by other companies. These non-GAAP financial
measures should not be considered alternatives for, or in isolation from, the
financial information prepared and presented in accordance with GAAP.

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 Sonus’ financial measures reflect the exclusion of
items that are recurring and will be reflected in our financial results for
the foreseeable future.

Stock-based compensation is different from other forms of compensation, as it
is a non-cash expense. For example, a cash salary generally has a fixed and
unvarying cash cost. In contrast, the expense associated with an equity-based
award 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 facilitates the ability of readers of our financial statements to
compare our operating results to our historical results and to other companies
in our industry.

We exclude the amortization of acquired intangible assets from non-GAAP
expense and income measures. These amounts are inconsistent in amount and
frequency and are significantly impacted by the timing and size of
acquisitions. Although we exclude amortization of acquired intangible assets
from our non-GAAP expenses, we believe that it is important for investors to
understand that intangible assets contribute to revenue generation. 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 as if the acquired intangible assets had been
developed internally rather than acquired, and provides meaningful information
regarding our liquidity.

We consider certain transition, integration and other acquisition-related
costs to be unpredictable and dependent on a significant number of factors
that may be outside of our control. We do not consider these
acquisition-related costs to be related to the organic continuing operations
of the acquired businesses and accordingly, they are generally not relevant in
assessing or estimating the long-term performance of the acquired assets. In
addition, the size, complexity and/or volume of an acquisition, which often
drives the magnitude of acquisition-related costs, may not be indicative of
such future costs. By excluding acquisition-related costs from our non-GAAP
measures, management is better able to evaluate our ability to utilize our
existing assets and estimate the long-term value that acquired assets will
generate for the Company.

We expect to record approximately $2.3 million of restructuring expense in the
third quarter of fiscal 2012 for severance and related costs. We believe that
excluding restructuring expenses 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.

We believe that providing non-GAAP information to investors, in addition to
the GAAP presentation, will allow investors to view the financial results in
the way management views the operating results. We further believe that
providing this information allows investors to better understand our financial
performance and evaluate the efficacy of the methodology and information used
by our management to evaluate and measure such performance.


SONUS NETWORKS, INC.
Condensed Consolidated Statements of Operations
(in thousands, except percentages and per share amounts)
(unaudited)
                                                                
                                                                   
                                       Three months ended
                                       June 29,      March 30,     June 30,
                                       2012          2012          2011
Revenue:
Product                                $ 32,586      $ 41,411      $ 29,446
Service                                 25,024      22,928      22,326  
Total revenue                           57,610      64,339      51,772  
                                                                             
Cost of revenue:
Product                                  11,027        9,193         9,618
Service                                 13,788      13,392      12,218  
Total cost of revenue                   24,815      22,585      21,836  
                                                                             
Gross profit                            32,795      41,754      29,936  
                                                                             
Gross margin:
Product                                  66.2    %     77.8    %     67.3    %
Service                                  44.9    %     41.6    %     45.3    %
Total gross margin                       56.9    %     64.9    %     57.8    %
                                                                             
Operating expenses:
Research and development                 17,095        18,387        15,187
Sales and marketing                      18,141        20,585        13,298
General and administrative              9,351       8,979       8,197   
Total operating expenses                44,587      47,951      36,682  
                                                                             
Loss from operations                     (11,792 )     (6,197  )     (6,746  )
Interest income, net                    222         215         332     
                                                                             
Loss before income taxes                 (11,570 )     (5,982  )     (6,414  )
Income tax (provision) benefit          (155    )    (456    )    480     
                                                                             
Net loss                               $ (11,725 )   $ (6,438  )   $ (5,934  )
                                                                             
Loss per share:
Basic                                  $ (0.04   )   $ (0.02   )   $ (0.02   )
Diluted                                $ (0.04   )   $ (0.02   )   $ (0.02   )
                                                                             
Shares used to compute loss per share:
Basic                                    279,926       279,487       278,400
Diluted                                  279,926       279,487       278,400


SONUS NETWORKS, INC.
Condensed Consolidated Statements of Operations
(in thousands, except percentages and per share amounts)
(unaudited)
                                                   
                                                         
                                       Six months ended
                                       June 29,      June 30,
                                       2012          2011
Revenue:
Product                                $ 73,997      $ 65,399
Service                                 47,952      53,672  
Total revenue                           121,949     119,071 
                                                               
Cost of revenue:
Product                                  20,220        32,779
Service                                 27,180      29,731  
Total cost of revenue                   47,400      62,510  
                                                               
Gross profit                            74,549      56,561  
                                                               
Gross margin:
Product                                  72.7    %     49.9    %
Service                                  43.3    %     44.6    %
Total gross margin                       61.1    %     47.5    %
                                                               
Operating expenses:
Research and development                 35,482        30,795
Sales and marketing                      38,726        27,595
General and administrative              18,330      16,393  
Total operating expenses                92,538      74,783  
                                                               
Loss from operations                     (17,989 )     (18,222 )
Interest income, net                    437         767     
                                                               
Loss before income taxes                 (17,552 )     (17,455 )
Income tax provision                    (611    )    (887    )
                                                               
Net loss                               $ (18,163 )   $ (18,342 )
                                                               
Loss per share:
Basic                                  $ (0.06   )   $ (0.07   )
Diluted                                $ (0.06   )   $ (0.07   )
                                                               
Shares used to compute loss per share:
Basic                                    279,708       278,080
Diluted                                  279,708       278,080


SONUS NETWORKS, INC.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
                                                       
                                                                     
                                         June 29,        December 31,
                                         2012            2011
Assets
Current assets:
Cash and cash equivalents                $ 106,112       $ 105,451
Marketable securities                      234,740         224,090
Accounts receivable, net                   41,300          53,126
Inventory                                  18,262          15,434
Deferred income taxes                      475             486
Other current assets                      18,281        12,246    
Total current assets                       419,170         410,833
                                                                     
Property and equipment, net                21,939          22,084
Intangible assets, net                     1,000           1,200
Goodwill                                   5,062           5,062
Investments                                22,890          55,427
Deferred income taxes                      1,099           1,137
Other assets                              14,267        8,972     
                                         $ 485,427      $ 504,715   
                                                                     
Liabilities and stockholders' equity
Current liabilities:
Accounts payable                         $ 12,066        $ 12,754
Accrued expenses                           20,013          21,620
Current portion of deferred revenue        36,479          38,565
Current portion of long-term liabilities  1,099         1,275     
Total current liabilities                  69,657          74,214
                                                                     
Deferred revenue                           10,673          11,601
Long-term liabilities                     3,229         3,599     
Total liabilities                         83,559        89,414    
                                                                     
Commitments and contingencies
                                                                     
Stockholders equity:
Common stock                               280             279
Additional paid-in capital                 1,314,946       1,309,919
Accumulated deficit                        (920,367  )     (902,204  )
Accumulated other comprehensive income    7,009         7,307     
Total stockholders' equity                401,868       415,301   
                                         $ 485,427      $ 504,715   


SONUS NETWORKS, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
                                                                
                                                                       
                                                   Six months ended
                                                   June 29,       June 30,
                                                   2012           2011
Cash flows from operating activities:
Net loss                                           $ (18,163  )   $ (18,342  )
Adjustments to reconcile net loss to cash flows
used in operating activities:
Depreciation and amortization of property and        5,778          5,644
equipment
Amortization of intangible assets                    200            200
Stock-based compensation                             4,140          4,241
Loss on disposal of property and equipment           -              6
Changes in operating assets and liabilities:
Accounts receivable                                  11,739         17,243
Inventory                                            (3,390   )     12,799
Other operating assets                               (8,222   )     6,565
Accounts payable                                     (2,011   )     (1,926   )
Accrued expenses and other long-term liabilities     (1,967   )     (12,375  )
Deferred revenue                                    (3,010   )    (25,336  )
Net cash used in operating activities               (14,906  )    (11,281  )
                                                                             
Cash flows from investing activities:
Purchases of property and equipment                  (4,380   )     (7,319   )
Purchases of marketable securities                   (128,931 )     (101,584 )
Sale/maturities of marketable securities            148,045      130,194  
Net cash provided by investing activities           14,734       21,291   
                                                                             
Cash flows from financing activities:
Proceeds from sale of common stock in connection     993            754
with employee stock purchase plan
Proceeds from exercise of stock options              68             777
Payment of tax withholding obligations related to    (134     )     (902     )
net share settlements of restricted stock awards
Principal payments of capital lease obligations     (51      )    (48      )
Net cash provided by financing activities           876          581      
                                                                             
Effect of exchange rate changes on cash and cash    (43      )    309      
equivalents
                                                                             
Net increase in cash and cash equivalents            661            10,900
Cash and cash equivalents, beginning of year        105,451      62,501   
Cash and cash equivalents, end of period           $ 106,112     $ 73,401   


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.
                                                                
                                 Three months ended
                                 June 29,         March 30,        June 30,
                                 2012             2012             2011
Stock-based compensation
Cost of revenue - product        $    36          $    53          $   109
Cost of revenue - service            209             175            389
Cost of revenue                      245             228            498
                                                                       
Research and development expense      633              616             527
Sales and marketing expense           491              467             563
General and administrative           654             806            627
expense
Operating expense                    1,778           1,889          1,717
                                                                       
Total stock-based compensation   $    2,023       $    2,117       $   2,215
                                                                       
                                                                       
Amortization of intangible
assets
Research and development         $    100         $    100         $   100
                                                                       
                                                                       
Acquisition-related costs
General and administrative       $    967         $    -           $   -
                                                                       
                                                                       
                                                   
                                 Six months ended
                                 June 29,         June 30,
                                 2012             2011
Stock-based compensation
Cost of revenue - product        $    89          $    217
Cost of revenue - service            384             774
Cost of revenue                      473             991
                                                                       
Research and development expense      1,249            1,060
Sales and marketing expense           958              1,060
General and administrative           1,460           1,130
expense
Operating expense                    3,667           3,250
                                                                       
Total stock-based compensation   $    4,140       $    4,241
                                                                       
                                                                       
Amortization of intangible
assets
Research and development         $    200         $    200
                                                                       
                                                                       
Acquisition-related costs
General and administrative       $    967         $    -


SONUS NETWORKS, INC.
Statement on the Use of Non-GAAP Financial Measures and
Reconciliation of Non-GAAP to GAAP Financial Measures
(unaudited)

                                                               
To supplement its condensed consolidated financial statements presented in
accordance with accounting principles generally accepted in the United States
("GAAP"), the Company discloses certain non-GAAP financial measures, including
Gross margin - product, Gross margin - service, Total gross profit, Total
gross margin, Research and development expense, Sales and marketing expense,
General and administrative expense, Operating expenses, Loss (income) from
operations, Net (loss) income, and (Loss) per share/diluted earnings per
share. These non-GAAP financial measures are not presented in accordance with,
nor are they 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. These non-GAAP financial measures 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, 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. We
define continuing operations as the ongoing revenues and expenses of the
business, excluding certain items. These excluded items for the periods
presented are stock-based compensation expense and amortization of intangible
assets. We do not include any income tax effect of non-GAAP adjustments as we
were unable to recognize a tax benefit on domestic losses incurred in any of
the periods presented; accordingly, no adjustment to income taxes for non-GAAP
items is required.

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.

Stock-Based Compensation
Stock-based compensation is different from other forms of compensation, as it
is a non-cash expense. For example, a cash salary generally has a fixed and
unvarying cash cost. In contrast, the expense associated with an equity-based
award 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 facilitates the ability of readers of our financial statements to
compare our operating results to our historical results and to other companies
in our industry.
                                                               
Amortization of Intangible Assets
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 to license 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
are being 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 charged to Research and development expense. 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.

Acquisition-Related Costs
On June 18, 2012, we and Network Equipment Technologies, Inc. ("NET") entered
into a definitive agreement for Sonus to acquire NET in a cash merger. The
transaction is expected to close in the third quarter of 2012, subject to NET
stockholder approval, the satisfaction of customary closing conditions and any
applicable regulatory reviews. We exclude certain expense items resulting from
both pending and completed acquisitions, including legal, accounting and
advisory fees associated with acquisitions; costs related to integrating the
acquired businesses; and restructuring costs. We believe that excluding these
acquisition-related expenses from our operating results, which we would not
otherwise have incurred in the normal course of our business operations,
facilitates the comparison of our financial results to our historical
operating results and to other companies in our industry.

Restructuring
We expect to record approximately $2.3 million of restructuring expense in the
third quarter of fiscal 2012 for severance and related costs. We believe that
excluding restructuring expenses 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.
Reconciliation of Non-GAAP and GAAP Financial Measures - Outlook
(in millions, except percentages and per share amounts)
(unaudited)
                                                                  
                                                                             
                                                                
                                   Three months ended      Three months ended
                                   September 28, 2012      December 31, 2012
                                   Range                   Range
                                                                             
Revenue                            $ 51       $ 53       $ 84      $ 86   
                                                                             
Gross margin
GAAP outlook                         57.6  %     58.6  %     57.8 %     58.8 %
Stock-based compensation            0.4   %    0.4   %    0.2  %    0.2  %
Non-GAAP outlook                    58.0  %    59.0  %    58.0 %    59.0 %
                                                                             
Operating expenses
GAAP outlook                       $ 45.4      $ 46.4      $ 42.0     $ 43.0
Stock-based compensation             (2.5  )     (2.5  )     (3.9 )     (3.9 )
Amortization of intangible assets    (0.1  )     (0.1  )     (0.1 )     (0.1 )
Acquisition-related costs (A)        (1.5  )     (1.5  )     -          -
Restructuring                       (2.3  )    (2.3  )    -        -    
Non-GAAP outlook                   $ 39.0     $ 40.0     $ 38.0    $ 39.0 
                                                                             
(Loss) earnings per share
GAAP outlook                       $ (0.05 )   $ (0.05 )   $ 0.03     $ 0.03
Stock-based compensation expense     0.01        0.01        0.01       0.01
Amortization of intangible assets    -           -           -          -
*
Acquisition-related costs *          -           -           -          -
Restructuring                       0.01      0.01      -        -    
Non-GAAP outlook                   $ (0.03 )   $ (0.03 )   $ 0.04    $ 0.04 
                                                                             
                                                                             
                                                 
                                   Year ended
                                   December 31, 2012
                                   Range
                                                                             
Revenue                            $ 257      $ 261   
                                                                             
Gross margin
GAAP outlook                         59.6  %     59.7  %
Stock-based compensation            0.4   %    0.3   %
Non-GAAP outlook                    60.0  %    60.0  %
                                                                             
Operating expenses
GAAP outlook                       $ 180.3     $ 181.3
Stock-based compensation             (10.1 )     (10.1 )
Amortization of intangible assets    (0.4  )     (0.4  )
Acquisition-related costs (A)        (2.5  )     (2.5  )
Restructuring                       (2.3  )    (2.3  )
Non-GAAP outlook                   $ 165.0    $ 166.0 
                                                                             
Loss per share
GAAP outlook                       $ (0.10 )   $ (0.10 )
Stock-based compensation expense     0.04        0.04
Amortization of intangible assets    -           -
*
Acquisition-related costs            0.01        0.01
Restructuring                       0.01      0.01  
Non-GAAP outlook                   $ (0.04 )   $ (0.04 )

    Acquisition-related costs reflect expenses incurred by Sonus in
    anticipation of the proposed acquisition of NET. These amounts exclude any
(A) costs that would be incurred post-acquisition related to NET, including
    payments under NET change-in-control agreements, severance for NET
    employees, integration costs, etc.

* Less than $0.01 impact on earnings per share.


SONUS NETWORKS, INC.
Reconciliation of Non-GAAP and GAAP Financial Measures - Historical
(in thousands, except percentages and per share amounts)
(unaudited)
                                                                   
                                       Three months ended
                                       June 29,     March 30,    June 30,
                                       2012          2012          2011
                                                                             
GAAP gross margin - product              66.2    %     77.8    %     67.3    %
Stock-based compensation expense        0.1     %    0.1     %    0.4     %
Non-GAAP gross margin - product         66.3    %    77.9    %    67.7    %
                                                                             
GAAP gross margin - service              44.9    %     41.6    %     45.3    %
Stock-based compensation expense        0.8     %    0.8     %    1.7     %
Non-GAAP gross margin - service         45.7    %    42.4    %    47.0    %
                                                                             
GAAP total gross profit                $ 32,795      $ 41,754      $ 29,936
Stock-based compensation expense        245         228         498     
Non-GAAP total gross profit            $ 33,040     $ 41,982     $ 30,434  
                                                                             
GAAP total gross margin                  56.9    %     64.9    %     57.8    %
Stock-based compensation expense % of   0.5     %    0.4     %    1.0     %
revenue
Non-GAAP total gross margin             57.4    %    65.3    %    58.8    %
                                                                             
GAAP research and development expense  $ 17,095      $ 18,387      $ 15,187
Stock-based compensation expense         (633    )     (616    )     (527    )
Amortization of intangible assets       (100    )    (100    )    (100    )
Non-GAAP research and development      $ 16,362     $ 17,671     $ 14,560  
expense
                                                                             
GAAP sales and marketing expense       $ 18,141      $ 20,585      $ 13,298
Stock-based compensation expense        (491    )    (467    )    (563    )
Non-GAAP sales and marketing expense   $ 17,650     $ 20,118     $ 12,735  
                                                                             
GAAP general and administrative        $ 9,351       $ 8,979       $ 8,197
expense
Stock-based compensation expense         (654    )     (806    )     (627    )
Acquisition-related costs               (967    )    -           -       
Non-GAAP general and administrative    $ 7,730      $ 8,173      $ 7,570   
expense
                                                                             
GAAP operating expenses                $ 44,587      $ 47,951      $ 36,682
Stock-based compensation expense         (1,778  )     (1,889  )     (1,717  )
Amortization of intangible asses         (100    )     (100    )     (100    )
Acquisition-related costs               (967    )    -           -       
Non-GAAP operating expenses            $ 41,742     $ 45,962     $ 34,865  
                                                                             
GAAP loss from operations              $ (11,792 )   $ (6,197  )   $ (6,746  )
Stock-based compensation expense         2,023         2,117         2,215
Amortization of intangible assets        100           100           100
Acquisition-related costs               967         -           -       
Non-GAAP loss from operations          $ (8,702  )   $ (3,980  )   $ (4,431  )
                                                                             
GAAP net loss                          $ (11,725 )   $ (6,438  )   $ (5,934  )
Stock-based compensation expense         2,023         2,117         2,215
Amortization of intangible assets        100           100           100
Acquisition-related costs               967         -           -       
Non-GAAP net loss                      $ (8,635  )   $ (4,221  )   $ (3,619  )
                                                                             
Loss per share
GAAP                                   $ (0.04   )   $ (0.02   )   $ (0.02   )
Non-GAAP                               $ (0.03   )   $ (0.02   )   $ (0.01   )
                                                                             
Shares used to compute loss per share
GAAP shares used to compute loss per     279,926       279,487       278,400
share
Non-GAAP shares used to compute loss     279,926       279,487       278,400
per share


SONUS NETWORKS, INC.
Reconciliation of Non-GAAP and GAAP Financial Measures - Historical
(in thousands, except percentages and per share amounts)
(unaudited)
                                                                 
                                               Six months ended
                                               June 29,     June 30,
                                               2012          2011
                                                                       
GAAP gross margin - product                      72.7    %     49.9    %
Stock-based compensation expense                0.1     %    0.3     %
Non-GAAP gross margin - product                 72.8    %    50.2    %
                                                                       
GAAP gross margin - service                      43.3    %     44.6    %
Stock-based compensation expense                0.8     %    1.4     %
Non-GAAP gross margin - service                 44.1    %    46.0    %
                                                                       
GAAP total gross profit                        $ 74,549      $ 56,561
Stock-based compensation expense                473         991     
Non-GAAP total gross profit                    $ 75,022     $ 57,552  
                                                                       
GAAP total gross margin                          61.1    %     47.5    %
Stock-based compensation expense % of revenue   0.4     %    0.8     %
Non-GAAP total gross margin                     61.5    %    48.3    %
                                                                       
GAAP research and development expense          $ 35,482      $ 30,795
Stock-based compensation expense                 (1,249  )     (1,060  )
Amortization of intangible assets               (200    )    (200    )
Non-GAAP research and development expense      $ 34,033     $ 29,535  
                                                                       
GAAP sales and marketing expense               $ 38,726      $ 27,595
Stock-based compensation expense                (958    )    (1,060  )
Non-GAAP sales and marketing expense           $ 37,768     $ 26,535  
                                                                       
GAAP general and administrative expense        $ 18,330      $ 16,393
Stock-based compensation expense                 (1,460  )     (1,130  )
Acquisition-related costs                       (967    )    -       
Non-GAAP general and administrative expense    $ 15,903     $ 15,263  
                                                                       
GAAP operating expenses                        $ 92,538      $ 74,783
Stock-based compensation expense                 (3,667  )     (3,250  )
Amortization of intangible asses                 (200    )     (200    )
Acquisition-related costs                       (967    )    -       
Non-GAAP operating expenses                    $ 87,704     $ 71,333  
                                                                       
GAAP loss from operations                      $ (17,989 )   $ (18,222 )
Stock-based compensation expense                 4,140         4,241
Amortization of intangible assets                200           200
Acquisition-related costs                       967         -       
Non-GAAP loss from operations                  $ (12,682 )   $ (13,781 )
                                                                       
GAAP net loss                                  $ (18,163 )   $ (18,342 )
Stock-based compensation expense                 4,140         4,241
Amortization of intangible assets                200           200
Acquisition-related costs                       967         -       
Non-GAAP net loss                              $ (12,856 )   $ (13,901 )
                                                                       
Loss per share
GAAP                                           $ (0.06   )   $ (0.07   )
Non-GAAP                                       $ (0.05   )   $ (0.05   )
                                                                       
Shares used to compute loss per share
GAAP shares used to compute loss per share       279,708       278,080
Non-GAAP shares used to compute loss per share   279,708       278,080

Contact:

Sonus Networks, Inc.
Patti Leahy, 978-614-8440
pleahy@sonusnet.com
 
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