February 28, 2011

Sonus Networks Reports 2010 Fourth Quarter and Full Year Results

WESTFORD, Mass., Feb. 28, 2011 /PRNewswire/ -- Sonus Networks, Inc. (Nasdaq: SONS), a market leader in next-generation IP-based network solutions, today announced results for the fourth quarter and full year ended December 31, 2010.

(Logo: http://photos.prnewswire.com/prnh/20100928/NE71605LOGO )

Revenue for the fourth quarter of 2010 was $83.0 million, compared to $42.7 million in the third quarter of 2010 and $68.7 million for the fourth quarter of 2009.  The Company's net income on a GAAP basis for the fourth quarter of 2010 was $11.4 million, or $0.04 per diluted share, compared to a net loss of $22.3 million, or $0.08 per share, for the third quarter of 2010, and net income of $10.3 million, or $0.04 per diluted share, for the fourth quarter of 2009.

Revenue for 2010 was $249.3 million, compared to $227.5 million for 2009, a year-over-year increase of $21.8 million.  Gross profit on a GAAP basis for 2010 was $153.2 million, compared to $144.1 million for 2009, reflecting a year-over-year increase of $9.1 million.  Operating expenses on a GAAP basis for 2010 were $164.7 million, compared to $155.5 million for 2009.  The Company's net loss on a GAAP basis for 2010 was $10.7 million, or $0.04 per share, compared to a net loss of $4.9 million, or $0.02 per share, in 2009.

Gross profit on a non-GAAP basis for 2010 was $155.5 million, compared to $146.5 million for 2009, reflecting a year-over-year increase of $9.0 million.  Operating expenses on a non-GAAP basis for 2010 were $149.5 million, compared to $141.3 million for 2009.  The Company's net income on a non-GAAP basis for 2010 was $6.8 million, or $0.02 per diluted share, compared to net income of $11.6 million, or $0.04 per diluted share, for 2009.

"I am pleased with the Company's ability to execute during the fourth quarter.  These results reflect strength in all of our product platforms, giving us confidence regarding our strategy and future prospects," said Raymond P. Dolan, President and Chief Executive Officer of Sonus.  "We will continue to focus on execution in 2011 and bringing world class solutions to the marketplace."

Sonus Financial Guidance for Fiscal Year 2011:

The following forward-looking statements reflect the Company's expectations as of February 28, 2011:

The Company expects to achieve total revenue between $265 million and $285 million for 2011.  For 2011, GAAP gross margin is expected to be within the range of 58% to 62%, and total GAAP operating expenses are expected to be in the range of $151 million to $155 million.  Non-GAAP gross margin is expected to be within the range of 59% to 63% on an annual basis, and total non-GAAP operating expenses are expected to be in the range of $143 million to $147 million for 2011.

The Company's GAAP financials for the fourth quarter and fiscal 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.

Conference Call Details:

Sonus Networks will host a conference call for analysts and investors to discuss its fourth-quarter and full-year 2010 results as well as certain forward-looking information today at 4:45 p.m. ET.

To listen live via telephone:
Dial-in number: 800-915-4586
International Callers: +1 212-231-2900

To listen live 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.  Such forward-looking statements may relate to, among others, expected financial and operating results, expected growth rates, future stock-based compensation and amortization expenses, future business prospects and market conditions.  Such forward-looking statements do not constitute guarantees of future performance and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those anticipated.  These include, but are not limited to: difficulties supporting our new strategic focus on channel sales; difficulties expanding the Company's customer base; difficulties leveraging market opportunities; difficulties providing solutions that meet the needs of customers; market acceptance of the Company's products and services; rapid technological and market change; the ability to recruit and retain key personnel; the ability to protect intellectual property rights; the ability to maintain partner, reseller, distribution and vendor support and supply relationships; higher risks in international operations and markets; the ability to hire and retain employees; the impact of increased competition; currency fluctuations; litigation; changes in the market price of the Company's common stock; the timing of the Company's recognition of revenues; actions taken by significant stockholders; failure or circumvention of the Company's controls and procedures; and other risks and uncertainties described more fully in documents filed with or furnished to the Securities and Exchange Commission by the Company, including in Item 1A - "Risk Factors" of our Annual Report on Form 10-K.  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.

For more information, please contact:


Wayne Pastore

Senior Vice President and Chief Financial Officer

978-614-8291

wpastore@sonusnet.com


Fran Murphy

Vice President, Finance and Investor Relations

978-614-8148

fmurphy@sonusnet.com




SONUS NETWORKS, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)























Three months ended





December 31,


September 30,


December 31,





2010


2010


2009

Revenue:








Product

$        54,118


$         19,391


$        47,009


Service

28,861


23,348


21,703



Total revenue

82,979


42,739


68,712










Cost of revenue:







Product

17,805


7,231


11,852


Service

12,491


11,730


11,481



Total cost of revenue

30,296


18,961


23,333










Gross profit

52,683


23,778


45,379










Gross profit %







Product

67.1%


62.7%


74.8%


Service

56.7%


49.8%


47.1%



Total gross profit %

63.5%


55.6%


66.0%










Operating expenses:







Research and development

16,514


16,226


13,869


Sales and marketing

13,211


11,836


12,911


General and administrative

11,119


17,157


10,958


Restructuring

387


1,114


-



Total operating expenses

41,231


46,333


37,738










Income (loss) from operations

11,452


(22,555)


7,641

Interest expense

(138)


(10)


(89)

Interest income

320


439


592

Other income, net

-


1


47










Income (loss) before income taxes

11,634


(22,125)


8,191

Income tax benefit (provision)

(224)


(153)


2,118










Net income (loss)

$        11,410


$       (22,278)


$        10,309










Earnings (loss) per share:







Basic


$            0.04


$           (0.08)


$            0.04


Diluted

$            0.04


$           (0.08)


$            0.04










Shares used to compute earnings (loss) per share:







Basic


276,659


275,412


274,359


Diluted

278,096


275,412


275,152



SONUS NETWORKS, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)



















Year ended





December 31,


December 31,





2010


2009

Revenue:






Product

$      146,583


$      136,276


Service

102,724


91,220



Total revenue

249,307


227,496








Cost of revenue:





Product

48,163


38,893


Service

47,992


44,467



Total cost of revenue

96,155


83,360








Gross profit

153,152


144,136








Gross profit %





Product

67.1%


71.5%


Service

53.3%


51.3%



Total gross profit %

61.4%


63.4%








Operating expenses:





Research and development

62,786


59,864


Sales and marketing

51,033


48,929


General and administrative

49,391


43,217


Restructuring

1,501


3,510



Total operating expenses

164,711


155,520








Loss from operations

(11,559)


(11,384)

Interest expense

(191)


(183)

Interest income

1,740


4,105

Other income, net

12


71








Loss before income taxes

(9,998)


(7,391)

Income tax benefit (provision)

(693)


2,459








Net loss


$      (10,691)


$        (4,932)








Loss per share:





Basic


$          (0.04)


$          (0.02)


Diluted

$          (0.04)


$          (0.02)








Shares used to compute loss per share:





Basic


275,470


273,730


Diluted

275,470


273,730



SONUS NETWORKS, INC.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)



















December 31,


December 31,





2010


2009

Assets




Current assets:





Cash and cash equivalents

$        62,501


$      125,323


Marketable securities

258,831


239,223


Accounts receivable, net

52,813


47,998


Inventory

22,499


21,925


Deferred income taxes

408


562


Other current assets

16,474


17,508



Total current assets

413,526


452,539








Property and equipment, net

21,284


14,646

Intangible assets, net

1,600


341

Goodwill


5,062


5,053

Investments

87,087


49,598

Deferred income taxes

1,271


711

Other assets

26,124


17,849





$      555,954


$      540,737








Liabilities and stockholders' equity




Current liabilities:





Accounts payable

$        16,936


$          5,337


Accrued expenses

29,999


19,292


Current portion of deferred revenue

42,776


74,748


Current portion of long-term liabilities

338


753



Total current liabilities

90,049


100,130








Deferred revenue

42,811


25,242

Long-term liabilities

4,138


1,127




Total liabilities

136,998


126,499








Commitments and contingencies











Stockholders equity:





Common stock

277


277


Additional paid-in capital

1,301,285


1,286,326


Accumulated deficit

(889,501)


(878,810)


Accumulated other comprehensive income

6,895


6,712


Treasury stock

-


(267)




Total stockholders' equity

418,956


414,238





$      555,954


$      540,737



SONUS NETWORKS, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)






















Year ended






December 31,


December 31,






2010


2009

Cash flows from operating activities:





Net loss 

$         (10,691)


$           (4,932)


Adjustments to reconcile net loss to cash flows provided by operating activities:






Depreciation and amortization of property and equipment

11,205


10,104



Amortization of intangible assets

741


232



Stock-based compensation

15,285


12,810



Loss on disposal of property and equipment

106


241



Deferred income taxes

406


449



Changes in operating assets and liabilities:







Accounts receivable

(4,689)


27,790




Inventory

(9,506)


(2,456)




Other operating assets

6,218


(7,836)




Accounts payable

11,539


(4,229)




Accrued expenses

12,587


(9,803)




Accrued litigation settlements

-


(9,600)




Deferred revenue

(14,694)


20,987





Net cash provided by operating activities

18,507


33,757









Cash flows from investing activities:





Purchases of property and equipment

(17,295)


(6,612)


Purchase of intangible assets

(2,000)


-


Purchases of marketable securities

(392,343)


(268,971)


Sale/maturities of marketable securities

330,374


243,984





Net cash used in investing activities

(81,264)


(31,599)









Cash flows from financing activities:





Proceeds from sale of common stock in connection with employee stock purchase plan

1,353


1,119


Proceeds from exercise of stock options

976


51


Payment of tax withholding obligations related to net share settlements of restricted stock awards

(2,385)


(673)


Principal payments of capital lease obligations

(221)


(233)





Net cash provided by (used in) financing activities

(277)


264









Effect of exchange rate changes on cash and cash equivalents

212


694









Net increase (decrease) in cash and cash equivalents

(62,822)


3,116

Cash and cash equivalents, beginning of year

125,323


122,207

Cash and cash equivalents, end of period

$          62,501


$        125,323



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


Year ended





December 31,


September 30,


December 31,


December 31,


December 31,





2010


2010


2009


2010


2009

Stock-based compensation











Cost of revenue - product

$             104


$              105


$               63


$             369


$             361


Cost of revenue - service

401


396


449


1,620


1,784



Cost of revenue

505


501


512


1,989


2,145















Research and development expense

626


617


706


2,514


3,349


Sales and marketing expense

597


647


812


2,661


4,231


General and administrative expense

1,147


4,947


891


8,121


3,085



Operating expense

2,370


6,211


2,409


13,296


10,665

















Total stock-based compensation

$          2,875


$           6,712


$          2,921


$        15,285


$        12,810



























Amortization of intangible assets











Cost of revenue - product

$             228


$                37


$               48


$             341


$             232


Research and development

100


100


-


400


-




Total amortization of intangible assets

$             328


$              137


$               48


$             741


$             232



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%

   Amortization of intangible assets (A)

0%


0%

       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)

       Non-GAAP guidance

$ 143


$ 147





























(A)  The impact of expense for amortization of intangible assets on non-GAAP gross margin is expected to be less than one percentage point in 2011.  



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, Operating expenses and Net income (loss) 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, Amortization of intangible assets and Restructuring.  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.





















Three months ended


Year ended





December 31,


September 30,


December 31,


December 31,


December 31,



Notes


2010


2010


2009


2010


2009














GAAP Total gross profit



$          52,683


$            23,778


$          45,379


$        153,152


$        144,136

Stock-based compensation expense

A


505


501


512


1,989


2,145

Amortization of intangible assets

B


228


37


48


341


232

Non-GAAP Total gross profit



$          53,416


$            24,316


$          45,939


$        155,482


$        146,513














GAAP Operating expenses



$          41,231


$            46,333


$          37,738


$        164,711


$        155,520

Stock-based compensation expense

A


(2,370)


(6,211)


(2,409)


(13,296)


(10,665)

Amortization of intangible assets

B


(100)


(100)


-


(400)


-

Restructuring

C


(387)


(1,114)


-


(1,501)


(3,510)

Non-GAAP Operating expenses



$          38,374


$            38,908


$          35,329


$        149,514


$        141,345














GAAP Net income (loss)



$          11,410


$          (22,278)


$          10,309


$         (10,691)


$           (4,932)

Stock-based compensation expense

A


2,875


6,712


2,921


15,285


12,810

Amortization of intangible assets

B


328


137


48


741


232

Restructuring

C


387


1,114


-


1,501


3,510

Non-GAAP Net income



$          15,000


$          (14,315)


$          13,278


$            6,836


$          11,620



























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.  


C  We recorded restructuring expense of $1.5 million in the year ended December 31, 2010, of which $0.4 million was recorded in the three months ended December 31, 2010 and $1.1 million was recorded in the three months ended September 30, 2010.  The amount recorded in the three months ended December 31, 2010 related to closing our office in Ottawa, Canada and the amount recorded in the three months ended September 30, 2010 was for a workforce reduction initiative that reduced our workforce by 12 employees.  We recorded $3.5 million of restructuring expense in the year ended December 31, 2009 for three headcount reduction restructuring initiatives that occurred in August, March and January 2009, and which reduced our headcount by approximately 193 people in the aggregate, or approximately 20% in the aggregate of our then-current workforce.  We believe that excluding these 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.  



SOURCE Sonus Networks, Inc.

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