Sonus Networks Reports 2012 Fourth Quarter and Full Year Results

Fiscal Year 2012 SBC Total Revenue Grew 69% Year Over Year to $87.6 Million

WESTFORD, Mass.– Sonus Networks, Inc. (Nasdaq: SONS), a global leader in SIP-based communications, today announced results for the fourth quarter and full year ended December 31, 2012.

Results are reported on a consolidated basis and include the full fourth quarter financial effect of Network Equipment Technologies, Inc. (“NET”), an acquisition which closed on August 24, 2012. A table providing stand-alone Sonus and stand-alone NET results is provided in the “Supplementary Financial and Operational Data” located on the Investor Relations page of the Company’s website.

Fourth Quarter 2012 Highlights

• Total revenue was $75.1 million.
• Total SBC revenue, including product, maintenance and services, was $26.1 million.
• SBC product-only revenue was $20.6 million.

Full Year 2012 Highlights

• Total revenue was $254.1 million.
• Total SBC revenue, including product, maintenance and services, was $87.6 million, representing a 69% increase over 2011.
• SBC product-only revenue was $67.6 million, representing a 79% increase over 2011.

Revenue for the fourth quarter of 2012 was $75.1 million, compared to $57.0 million in the third quarter of 2012 and $74.3 million in the fourth quarter of 2011. The GAAP net loss for the fourth quarter of 2012 was $16.4 million, or $0.06 per share, compared to a GAAP net loss of $15.6 million, or $0.06 per share, in the third quarter of 2012 and GAAP net income of $3.7 million, or $0.01 per diluted share, in the fourth quarter of 2011. Non-GAAP net income for the fourth quarter of 2012 was $1.8 million, or $0.01 per diluted share, compared to a non-GAAP net loss of $6.3 million, or $0.02 per share, in the third quarter of 2012 and non-GAAP net income of $5.4 million, or $0.02 per diluted share, in the fourth quarter of 2011.

Revenue for fiscal 2012 was $254.1 million, compared to $259.7 million in fiscal 2011. The GAAP net loss in fiscal 2012 was $50.2 million, or $0.18 per share, compared to a GAAP net loss of $12.7 million, or $0.05 per share, in fiscal 2011. The Non-GAAP net loss in fiscal 2012 was $17.4 million, or $0.06 per share, compared to a non-GAAP net loss of $4.4 million, or $0.02 per share, in fiscal 2011.

2013 First Quarter and Full Year Outlook

The Company’s outlook is based on current indications for its business, which may change during the current quarter. Gross margin, operating expenses and EPS are presented on a non-GAAP basis. 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.

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 2012, the Company recorded restructuring expense of $2.0 million for severance and related charges and facility-related charges. The Company recorded additional restructuring expense of $5.7 million in the fourth quarter of 2012, comprised of $4.1 million for facility-related charges, $1.3 million for severance and related charges and $0.3 million for the writedown of property and equipment. The Company expects to record additional restructuring expense of approximately $2 million in the first quarter of 2013, comprised of severance and related charges.

Quote

“Sonus made tremendous progress during 2012 in our transformation to become a pure-play SBC company,” said Ray Dolan, president and chief executive officer. “We grew our total SBC revenue by 69% over 2011 and gained substantial market share in the service provider segment. We also considerably enhanced our go-to-market strategy with the addition of our new channel program, Sonus Partner Assure, and with the expansion of our SBC product portfolio. Additionally, the acquisition of NET during 2012 significantly increased our exposure to the enterprise SBC market. Sonus now has the market’s broadest SBC portfolio, including the most Microsoft Lync SBCs, enabling us to address the entire SBC market opportunity.” Dolan continued, “Sonus has also made solid progress streamlining operations. Our restructuring initiatives, coupled with ongoing improvements in operating efficiencies, are expected to drive significant improvements in our operating leverage and gross margins this year. The team is focused on accelerating our SBC transformation in 2013, driving toward long-term profitability, and enhancing shareholder value.”

Conference Call Details

Date: February 28, 2013
Time: 4:30 p.m. (EST)
Dial-in number: 800-354-6885
International Callers: +1 303-223-2680

Replay information:

A telephone playback of the call will be available following the conference call until March 14, 2013 and can be accessed by calling 800-633-8284 or +1 402-977-9140 for international callers. The reservation number for the replay is 21646000. A webcast replay of the conference call will also be available shortly following the conference call on the Company’s Investor Relations website in the Events & Presentations – Archived Events section.

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 fourth quarter, earnings, results, IP-based network solutions, SBC, SBC 1000, SBC 2000, 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 in the section “2013 First Quarter and Full Year Outlook” and other statements regarding the following: plans, objectives, outlook, goals, strategies, future events or performance, growth in market share, 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; economic conditions; our ability to recruit and retain key personnel; difficulties supporting our strategic focus on channel sales; difficulties retaining and expanding our customer base; difficulties leveraging market opportunities; the impact of restructuring activities; our ability to realize benefits from acquisitions (including with respect to our 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 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, restructuring, write-off of prepaid royalties, acquisition-related costs, amortization of intangible assets and depreciation expense related to the fair value write-up of acquired property and equipment. We also consider the use of non-GAAP earnings per share helpful in assessing the performance of the continuing operations of our business. 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 financial results to our historical operating results and to other companies in our industry.

We recorded $7.7 million of restructuring expense in fiscal 2012, comprised of $2.0 million in the third quarter and $5.7 million in the fourth quarter. We believe that excluding restructuring expense facilitates the comparison of our financial results to our historical operating results and to other companies in our industry.

In the fourth quarter of fiscal 2012 we wrote off $7.1 million of prepaid royalties for software licenses related to products from which we do not expect to derive future revenues. We believe that excluding the write-off of these prepaid royalties facilitates the comparison of our product gross margins to our historical operating results and other companies in our industry.

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 continuing operations of the acquired business or the Company. 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. We believe that excluding acquisition-related costs facilitates the comparison of our financial results to our historical operating 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.

As part of the assessment of the assets acquired and liabilities assumed in connection with the NET acquisition, we were required to increase the aggregate fair value of acquired property and equipment by $2.0 million. The acquired property and equipment is being depreciated over a weighted average useful life of approximately 2.5 years. We believe that excluding the incremental depreciation expense resulting from the fair value write-up of this acquired property and equipment facilitates the comparison of our financial results to our historical operating results and to other companies in our industry.

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 helps 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.

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