October 26, 2016

Sonus Networks Reports 2016 Third Quarter Results

WESTFORD, Mass., Oct. 26, 2016 /PRNewswire/ -- Sonus Networks, Inc. (Nasdaq: SONS), a global leader in secure and intelligent Cloud communications, today announced results for the third quarter ended September 30, 2016.

Sonus Networks, Inc. Corporate Logo

 

Third Quarter 2016 Highlights

  • Total Company revenue was $65.0 million, compared to $67.9 million in the third quarter of 2015.
  • Product revenue was $38.6 million, compared to $42.2 million in the third quarter of 2015.
  • Service revenue was $26.4 million, compared to $25.6 million in the third quarter of 2015.
  • GAAP gross margin was 67.0%, compared to 67.4% in the third quarter of 2015.
  • Non-GAAP gross margin was 69.9%, compared to 70.0% in the third quarter of 2015.
  • GAAP operating expenses were $47.9 million, compared to $47.1 million in the third quarter of 2015.
  • Non-GAAP operating expenses were $39.0 million, compared to $41.4 million in the third quarter of 2015.
  • GAAP loss per share was $0.08, compared to a GAAP loss per share of $0.04 in the third quarter of 2015.
  • Non-GAAP earnings per share was $0.12, compared to non-GAAP earnings per share of $0.11 in the third quarter of 2015.
  • Cash and investments were $121.0 million at quarter end, compared to $142.7 million at the end of the second quarter of 2016.

"I am pleased with our strong financial performance in the third quarter of 2016 as our sustained investment in the transition to software-based solutions continues to pay off.  As our customers shift to a Cloud-based approach, Sonus is pleased to provide the critical network architecture and support to make this transition simple and affordable," said Ray Dolan, Sonus President and CEO.

Susan Villare, Sonus Interim CFO, commented, "We were pleased to see that our flagship Sonus SBC 7000 and Sonus SBC 5000 products continue to do well as it relates to revenue growth as well as gross margin performance.  Product revenue for these products increased approximately 30% for the nine months ended September 30, 2016, compared to the nine months ended September 30, 2015.  Our margin improvements and expense controls drove our performance, and our balance sheet remains strong with cash and equivalents of $121 million," continued Villare.

2016 Restructuring Program   
On July 27, 2016, the Company announced a restructuring program to further accelerate its investment in new technologies as the communications industry migrates to the Cloud.  The total anticipated restructuring expense for this program to be recorded over a twelve-month period is between $3 million and $4 million.  The Company expects to generate approximately $6 million to $8 million of savings over the term of the program. The Company intends to utilize the entire savings to shift headcount towards new strategic initiatives (e.g., new products, expanded go-to-market footprint in selected geographies and discrete vertical markets).  Restructuring expense of $1.2 million was recorded in the third quarter of 2016 in connection with this program, resulting in estimated annualized savings of approximately $4 million.  The Company has re-invested $2.6 million on an annualized basis to fund the previously noted strategic initiatives.

Taqua Acquisition  
On September 26, 2016, the Company announced the closing of its acquisition of Taqua, LLC, a leading supplier of IP communications systems, applications and services to mobile and fixed operators.  Sonus paid $19.9 million in cash to the sellers on the acquisition date, net of cash acquired.  Additionally, the Company recorded $10.0 million of contingent consideration, based upon the Company's estimate of historical and probability weighted cash flows related to forecasted sales through the earn-out period.  Acquisition-related fees of $1.0 million were recorded in the third quarter of 2016, primarily related to legal, audit and consulting fees.  As the deal closed the last week of Sonus' third quarter of 2016, Taqua's revenue contribution was modest at $0.1 million.  The GAAP and Non-GAAP impact of this acquisition in the third quarter of 2016 was a loss per share of $0.01.

Taqua Restructuring Program   
In connection with the acquisition of Taqua, the Company's management initiated an immaterial restructuring plan in the third quarter to eliminate certain redundant positions.  In addition, on October 24, 2016, the Audit Committee of the Board of Directors of the Company approved a broader restructuring plan related to the Taqua acquisition to eliminate both redundant positions and facilities.  The Company recorded $0.4 million of Taqua-related restructuring expense during the three months ended September 30, 2016.  The Company anticipates it will record an additional restructuring expense between $1 million and $2 million in connection with this program.

Stock Buyback Program  
During the third quarter of 2016, the Company repurchased a total of 0.3 million shares at a weighted average price of $8.33 per share, for a total of $2.1 million.  Under the current stock buyback program, the Company is authorized to repurchase up to an additional $7.8 million of the Company's common stock as of the end of its third quarter of 2016.

Q416 and FY16 Guidance  
The Company's guidance is based on current indications for its business, which are subject to change.  Gross margin, operating expenses and diluted earnings per share are presented on both a GAAP and Non-GAAP basis.  A reconciliation of the non-GAAP to GAAP guidance and a statement on the use of Non-GAAP financial measures are included at the end of this press release.

 

Sonus (excluding Taqua Acquisition):


Q416 Guidance

FY16 Guidance

Revenue

$65 million to $67 million

$250 million to $252 million

GAAP Gross Margin

66.0% to 66.6%

65.9% to 66.4%

Non-GAAP Gross Margin1

69.0% to 69.5%

69.0% to 69.5%

GAAP Operating Expenses

$44.4 million to $45.4 million

$176.9 million to $177.9 million

Non-GAAP Operating Expenses1

$39.5 million to $40.5 million

$154 million to $155 million

GAAP Diluted Earnings (Loss) per Share

($0.05) to ($0.02)

($0.27) to ($0.24)

Non-GAAP Diluted Earnings per Share1 

$0.09 to $0.12

$0.33 to $0.36

Basic Shares

49.5 million

49.4 million

Diluted Shares

50 million

50 million

 

Taqua Acquisition:


Q416 Guidance

FY16 Guidance

Revenue

$1.8 million

$2 million

GAAP Loss per Share

($0.08)

($0.10)

Non-GAAP Loss per Share1 

($0.05)

($0.06)

Basic Shares

49.5 million

49.4 million

Diluted Shares

49.5 million

49.4 million

 

Consolidated (including Taqua Acquisition):


Q416 Guidance

FY16 Guidance

Total Company Revenue

$66.8 million to $68.8 million

$252 million to $254 million

GAAP Gross Margin

64.1% to 64.7%

65.7% to 66.2%

Non-GAAP Gross Margin1

68.0% to 68.5%

69.0% to 69.5%

GAAP Operating Expenses

$48.8 million to $49.8 million

$181.7 million to $182.7 million

Non-GAAP Operating Expenses1

$43 million to $44 million

$157.5 million to $158.5 million

GAAP Loss per Share

($0.13) to ($0.10)

($0.36) to ($0.33)

Non-GAAP Diluted Earnings per Share1 

$0.04 to $0.07

$0.27 to $0.30

Basic Shares

49.5 million

49.4 million

Diluted Shares

50 million

50 million


1)   Please see the reconciliation of Non-GAAP and GAAP financial measures in the press release appendix.

Conference call details:   
Date:  October 26, 2016   
Time:  8:30 a.m. (ET)   
Dial-in number:  800-672-8961   
International callers:  +1-312-281-1202   

The Company will offer a live, listen-only Webcast of the conference call via the Sonus Networks Investor Web site at http://investors.sonusnet.com/events.cfm where supporting materials, including a presentation and supplemental financial and operational data, have been posted.

An archived version of the broadcast will be available on the same website shortly after the conclusion of the live event.  A replay of the telephone conference call will be available following the conference call until November 9, 2016, and can be accessed by calling 800-633-8284 or +1-402-977-9140 for international callers.  The reservation number for the replay is 21818798.

Accounting Period  
Beginning in fiscal 2016, the Company will report its first, second and third quarters on a month-end basis, such that the first quarter ended on March 31, 2016, the second quarter ended on June 30, 2016, and the third quarter ended on September 30, 2016.  The Company's fiscal year will continue to end on December 31.

Tags  
Sonus Networks, Sonus, SONS, 2016 second quarter, 2016 earnings, results, IP-based network solutions, SBC, DSC, SWe, SDN, software edition, software SBC, session border controller, session management, SIP trunking, Cloud VoIP communications, unified communications, UC, VoIP, IP, media gateway, GSX, NFV

About Sonus Networks  
Sonus brings intelligence and security to real-time communications.  By helping the world embrace the next generation of Cloud-based SIP and 4G/LTE solutions, Sonus enables and secures latency-sensitive, mission critical traffic for VoIP, video, instant messaging and online collaboration.  With Sonus, enterprises can give priority to real-time communications based on smart business rules while service providers can offer reliable, comprehensive and secure on-demand network services to their customers. With solutions deployed in more than 100 countries and nearly two decades of experience, Sonus offers a complete portfolio of hardware-based and virtualized session border controllers (SBCs), diameter signaling controllers (DSCs), policy/routing servers, network intelligence applications, media and signaling gateways and network analytics tools.  For more information, visit www.sonus.net or call 1-855-GO-SONUS. 

Important Information Regarding Forward-Looking Statements  
This press 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 release, including statements made by our executive officers in the section "Third Quarter 2016 Highlights", statements in the sections "2016 Restructuring Program", "Taqua Restructuring Program" and "Q416 and FY16 Guidance" and statements regarding our future results of operations and financial position, business strategy, strategic position, plans and objectives of management for future operations and plans for future product development and manufacturing, and statements regarding the impact of the Taqua acquisition on Sonus' financial results, business performance and product offerings, are forward-looking statements.  Without limiting the foregoing, the words "anticipates", "believes", "could", "estimates", "expects", "expectations", "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.

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.  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 customer purchasing decisions and 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 and cost-containment activities; our ability to realize benefits from the acquisitions that we have completed; the effects of disruption from the acquisitions that we have completed, making it more difficult to maintain relationships with employees, customers, business partners or government entities; the success implementing the integration strategies with respect to the acquisitions that we have completed; 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.  These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.  We therefore caution you against relying on any of these forward-looking statements.  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.  Any forward-looking statement made by us in this release speaks only as of the date of this release.  Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them.  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.

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 several 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 expenses and credits, including, but not limited to: cost of product revenue related to the fair value write-up of acquired inventory, stock-based compensation, amortization of intangible assets, depreciation expense for an abandoned facility, patent litigation settlement costs, acquisition-related expense, restructuring and certain gains and losses included in other income (expense).  We consider the use of non-GAAP earnings (loss) per share helpful in assessing the performance of the continuing operations of our business.  While our management uses 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.

As part of the assessment of assets acquired and liabilities assumed in connection with the Taqua acquisition, we were required to increase the aggregate fair value of acquired inventory by $0.6 million.  The acquired inventory will be charged to cost of product revenue as it is sold to end customers.  We believe that excluding the incremental cost of product revenue resulting from the fair value write-up of this acquired inventory facilitates the comparison of our operating results to our historical results and to other companies in our industry as if we had purchased the inventory ourselves rather than acquired it through a business combination.

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 comparison of our financial statements 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 amortization amounts are inconsistent in frequency and amount 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.

During the second quarter of 2015, we reached an agreement with the landlord of one of our previously restructured facilities to vacate the facility without penalty or future payments.  As a result, we were able to vacate the facility earlier than originally planned.  In connection with this settlement, we recorded incremental depreciation expense to account for the change in estimated life of the fixed assets related to this facility.  We believe that excluding this incremental depreciation expense facilitates the comparison of our financial results to our historical operating results and to other companies in our industry, as such incremental depreciation expense is not related to our ongoing operations or our core business activities.

In June 2016, we recorded $0.6 million of patent litigation settlement costs.  This amount is included as a component of General and administrative expense; however, we believe that such patent litigation settlement costs are not part of our core business or ongoing operations.  Accordingly, we believe that excluding this patent litigation settlement expense facilitates the comparison of our financial results to our historical operating results and to 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 have recorded restructuring expense to streamline operations and reduce operating costs by closing and consolidating certain facilities and reducing our worldwide workforce.  Additionally, as previously announced, we expect to record restructuring expense in connection with new restructuring initiatives over the next twelve months.  We review our restructuring accruals regularly and record adjustments (both expense and credits) to these estimates as required.  We believe that excluding restructuring expense and credits facilitates the comparison of our financial results to our historical operating results and to other companies in our industry, as there are no future revenue streams or other benefits associated with these costs.

In July 2016, we sold the NET domain name to a third party and recognized a gain, net of commission and fees, of $0.8 million, which is included as a component of Other income, net, in the three and nine months ended September 30, 2016.  We believe that such gains are not part of our core business or ongoing operations.  Accordingly, we believe that excluding the other income arising from this sale facilitates the comparison of our financial results to our historical 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.

For more information    
Wendy Tullo    
(978) 614-8167    
wtullo@sonusnet.com

Facebook: http://www.facebook.com/Sonusnet   
Twitter: https://twitter.com/sonusnet  
LinkedIn: https://www.linkedin.com/company/sonus

 

SONUS NETWORKS, INC.

Condensed Consolidated Statements of Operations

(in thousands, except percentages and per share amounts)

(unaudited)























Three months ended





September 30,


June 30,


September 25,





2016


2016


2015

Revenue:







Product

$             38,601


$             35,349


$             42,230


Service

26,410


25,508


25,632



Total revenue

65,011


60,857


67,862










Cost of revenue:







Product

12,285


11,409


13,158


Service

9,140


9,220


8,992



Total cost of revenue

21,425


20,629


22,150










Gross profit

43,586


40,228


45,712










Gross margin:







Product

68.2%


67.7%


68.8%


Service

65.4%


63.9%


64.9%



Total gross margin

67.0%


66.1%


67.4%










Operating expenses:







Research and development

18,230


17,457


19,335


Sales and marketing

18,103


16,192


16,507


General and administrative

8,998


9,287


11,074


Acquisition-related

951


-


-


Restructuring

1,620


-


158



Total operating expenses

47,902


42,936


47,074










Loss from operations

(4,316)


(2,708)


(1,362)

Interest income, net

209


217


82

Other income, net

803


10


133










Loss before income taxes

(3,304)


(2,481)


(1,147)

Income tax provision

(427)


(435)


(749)










Net loss


$             (3,731)


$             (2,916)


$             (1,896)










Loss per share:







Basic


$               (0.08)


$               (0.06)


$               (0.04)


Diluted

$               (0.08)


$               (0.06)


$               (0.04)










Shares used to compute loss per share:







Basic


49,402


49,423


49,625


Diluted

49,402


49,423


49,625










 

 

SONUS NETWORKS, INC.

Condensed Consolidated Statements of Operations

(in thousands, except percentages and per share amounts)

(unaudited)



















Nine months ended





September 30,


September 25,





2016


2015

Revenue:





Product

$           108,719


$             94,137


Service

76,300


78,571



Total revenue

185,019


172,708








Cost of revenue:





Product

35,230


36,075


Service

27,572


27,277



Total cost of revenue

62,802


63,352








Gross profit

122,217


109,356








Gross margin:





Product

67.6%


61.7%


Service

63.9%


65.3%



Total gross margin

66.1%


63.3%








Operating expenses:





Research and development

53,005


58,642


Sales and marketing

50,890


53,812


General and administrative

26,656


30,742


Acquisition-related

951


131


Restructuring

1,620


1,306



Total operating expenses

133,122


144,633








Loss from operations

(10,905)


(35,277)

Interest income, net

590


90

Other income, net

916


183








Loss before income taxes

(9,399)


(35,004)

Income tax provision

(1,902)


(1,594)








Net loss


$           (11,301)


$           (36,598)








Loss per share:





Basic


$               (0.23)


$               (0.74)


Diluted

$               (0.23)


$               (0.74)








Shares used to compute loss per share:





Basic


49,436


49,512


Diluted

49,436


49,512








 

 

SONUS NETWORKS, INC.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)



















September 30,


December 31,





2016


2015

Assets




Current assets:





Cash and cash equivalents

$             32,566


$             50,111


Short-term investments

49,829


58,533


Accounts receivable, net

44,169


51,533


Inventory

20,811


23,111


Other current assets

13,237


11,853



Total current assets

160,612


195,141








Property and equipment, net

13,077


13,620

Intangible assets, net

38,794


26,087

Goodwill


52,136


40,310

Investments

38,603


33,605

Deferred income taxes

1,797


1,879

Other assets

4,834


2,249





$           309,853


$           312,891








Liabilities and stockholders' equity




Current liabilities:





Accounts payable

$               4,331


$               5,949


Accrued expenses

22,990


31,963


Current portion of deferred revenue

37,896


38,716


Current portion of long-term liabilities

1,029


821



Total current liabilities

66,246


77,449








Deferred revenue

8,465


7,374

Deferred income taxes

2,806


2,282

Contingent consideration - acquisition

10,000


-

Other long-term liabilities

1,675


2,760




Total liabilities

89,192


89,865








Commitments and contingencies











Stockholders equity:





Common stock

49


49


Additional paid-in capital

1,249,095


1,240,803


Accumulated deficit

(1,034,543)


(1,023,242)


Accumulated other comprehensive income

6,060


5,416




Total stockholders' equity

220,661


223,026





$           309,853


$           312,891








 

SONUS NETWORKS, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)






















Nine months ended






 September 30, 


 September 25, 






2016


2015

Cash flows from operating activities:





Net loss


$           (11,301)


$           (36,598)


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






Depreciation and amortization of property and equipment

5,914


9,646



Amortization of intangible assets

5,493


4,975



Stock-based compensation

15,464


16,902



Loss on disposal of property and equipment

29


112



Gain on sale of domain name

(800)


-



Deferred income taxes

763


514



Changes in operating assets and liabilities:







Accounts receivable

9,287


11,623




Inventory

2,756


(2,076)




Other operating assets

(798)


1,282




Accounts payable

(2,904)


(2,329)




Accrued expenses and other long-term liabilities

(12,032)


(5,733)




Deferred revenue

(1,823)


3,379





Net cash provided by operating activities

10,048


1,697









Cash flows from investing activities:





Purchases of property and equipment

(3,637)


(6,417)


Business acquisitions, net of cash acquired

(20,669)


(10,897)


Purchases of marketable securities

(62,468)


(25,577)


Sale/maturities of marketable securities

65,327


49,328


Cash proceeds from sale of domain name

800


-





Net cash (used in) provided by investing activities

(20,647)


6,437









Cash flows from financing activities:





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

1,360


2,378


Proceeds from exercise of stock options

135


1,757


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

(1,538)


(2,314)


Repurchase of common stock

(7,130)


(6,083)


Principal payments of capital lease obligations

(33)


(62)





Net cash used in financing activities

(7,206)


(4,324)









Effect of exchange rate changes on cash and cash equivalents

260


(194)









Net (decrease) increase in cash and cash equivalents

(17,545)


3,616

Cash and cash equivalents, beginning of year

50,111


41,157

Cash and cash equivalents, end of period

$             32,566


$             44,773









 

 

SONUS NETWORKS, INC.

Supplemental Information

(In thousands)

(unaudited)



















The following tables provide the details of stock-based compensation, amortization of intangible assets, depreciation expense related to an abandoned facility, patent litigation settlement expense and the gain on the sale of a domain name included in the Company's Condensed Consolidated Statements of Operations and the line items in which these amounts are reported.














 Three months ended 





September 30,


June 30,


September 25,





2016


2016


2015

Stock-based compensation







Cost of revenue - product

$                    95


$                    93


$                    81


Cost of revenue - service

331


322


378



Cost of revenue

426


415


459











Research and development expense

1,298


1,210


1,349


Sales and marketing expense

3,048


1,224


1,282


General and administrative expense

1,636


1,792


2,183



Operating expense

5,982


4,226


4,814













Total stock-based compensation

$               6,408


$               4,641


$               5,273



















Amortization of intangible assets







Cost of revenue - product

$               1,455


$               1,455


$               1,323











Sales and marketing expense

319


318


414



Operating expense

319


318


414













Total amortization of intangible assets

$               1,774


$               1,773


$               1,737



















Depreciation expense for abandoned facility







Research and development expense

$                      -


$                      -


$                  322



















Patent litigation settlement







General and administrative expense

$                      -


$                  605


$                      -



















Gain on sale of domain name







Other income, net

$                  800


$                      -


$                      -










 

 

SONUS NETWORKS, INC.

Supplemental Information

(In thousands)

(unaudited)















The following tables provide the details of stock-based compensation, amortization of intangible assets, depreciation expense related to an abandoned facility, patent litigation settlement expense and the gain on the sale of a domain name included in the Company's Condensed Consolidated Statements of Operations and the line items in which these amounts are reported.












 Nine months ended 





September 30,


September 25,





2016


2015

Stock-based compensation





Cost of revenue - product

$                  259


$                  238


Cost of revenue - service

985


1,155



Cost of revenue

1,244


1,393









Research and development expense

3,687


4,152


Sales and marketing expense

5,292


4,150


General and administrative expense

5,241


7,207



Operating expense

14,220


15,509











Total stock-based compensation

$             15,464


$             16,902















Amortization of intangible assets





Cost of revenue - product

$               4,537


$               3,667









Sales and marketing expense

956


1,308



Operating expense

956


1,308











Total amortization of intangible assets

$               5,493


$               4,975















Depreciation expense for abandoned facility





Research and development expense

$                      -


$                  646















Patent litigation settlement expense





General and administrative expense

$                  605


$                      -















Gain on sale of domain name





Other income, net

$                  800


$                      -








 

 

SONUS NETWORKS, INC.

Reconciliation of Non-GAAP and GAAP Financial Measures - Historical

(in thousands, except percentages and per share amounts)

(unaudited)








Three months ended


September 30,


June 30,


September 25,


2016


2016


2015







GAAP gross margin - product

68.2%


67.7%


68.8%

Stock-based compensation expense

0.2%


0.3%


0.2%

Amortization of intangible assets

3.8%


4.1%


3.2%

Non-GAAP gross margin - product

72.2%


72.1%


72.2%







GAAP gross margin - service

65.4%


63.9%


64.9%

Stock-based compensation expense

1.2%


1.2%


1.5%

Non-GAAP gross margin - service

66.6%


65.1%


66.4%







GAAP total gross margin

67.0%


66.1%


67.4%

Stock-based compensation expense

0.7%


0.7%


0.7%

Amortization of intangible assets

2.2%


2.4%


1.9%

Non-GAAP total gross margin

69.9%


69.2%


70.0%







GAAP total gross profit

$             43,586


$             40,228


$             45,712

Stock-based compensation expense

426


415


459

Amortization of intangible assets

1,455


1,455


1,323

Non-GAAP total gross profit

$             45,467


$             42,098


$             47,494







GAAP research and development expense

$             18,230


$             17,457


$             19,335

Stock-based compensation expense

(1,298)


(1,210)


(1,349)

Depreciation expense for abandoned facility

-


-


(322)

Non-GAAP research and development expense

$             16,932


$             16,247


$             17,664







GAAP sales and marketing expense

$             18,103


$             16,192


$             16,507

Stock-based compensation expense

(3,048)


(1,224)


(1,282)

Amortization of intangible assets

(319)


(318)


(414)

Non-GAAP sales and marketing expense

$             14,736


$             14,650


$             14,811







GAAP general and administrative expense

$               8,998


$               9,287


$             11,074

Stock-based compensation expense

(1,636)


(1,792)


(2,183)

Patent litigation settlement expense

-


(605)


-

Non-GAAP general and administrative expense

$               7,362


$               6,890


$               8,891







GAAP operating expenses

$             47,902


$             42,936


$             47,074

Stock-based compensation expense

(5,982)


(4,226)


(4,814)

Amortization of intangible assets

(319)


(318)


(414)

Patent litigation settlement expense

-


(605)


-

Depreciation expense for abandoned facility

-


-


(322)

Acquisition-related expense

(951)


-


-

Restructuring

(1,620)


-


(158)

Non-GAAP operating expenses

$             39,030


$             37,787


$             41,366







GAAP loss from operations

$             (4,316)


$             (2,708)


$             (1,362)

Stock-based compensation expense

6,408


4,641


5,273

Amortization of intangible assets

1,774


1,773


1,737

Patent litigation settlement expense

-


605


-

Depreciation expense for abandoned facility

-


-


322

Acquisition-related expense

951


-


-

Restructuring

1,620


-


158

Non-GAAP income from operations

$               6,437


$               4,311


$               6,128







GAAP income (loss) from operations as a percentage of revenue

-6.6%


-4.4%


-2.0%

Stock-based compensation expense

9.8%


7.6%


7.7%

Amortization of intangible assets

2.7%


2.9%


2.6%

Patent litigation settlement expense

0.0%


1.0%


0.0%

Depreciation expense for abandoned facility

0.0%


0.0%


0.5%

Acquisition-related expense

1.5%


0.0%


0.0%

Restructuring

2.5%


0.0%


0.2%

Non-GAAP income from operations as a percentage of revenue

9.9%


7.1%


9.0%







GAAP net loss

$             (3,731)


$             (2,916)


$             (1,896)

Stock-based compensation expense

6,408


4,641


5,273

Amortization of intangible assets

1,774


1,773


1,737

Depreciation expense for abandoned facility

-


-


322

Patent litigation settlement expense

-


605


-

Acquisition-related expense

951


-


-

Restructuring

1,620


-


158

Gain on sale of domain name

(800)


-


-

Non-GAAP net income

$               6,222


$               4,103


$               5,594







Diluted earnings per share or (loss) per share






GAAP loss per share

$               (0.08)


$               (0.06)


$               (0.04)

Stock-based compensation expense

0.13


0.09


0.11

Amortization of intangible assets

0.04


0.04


0.03

Depreciation expense for abandoned facility

-


-


0.01

Patent litigation settlement expense

-


0.01


-

Acquisition-related expense

0.02


-


-

Restructuring

0.03


-


 * 

Gain on sale of domain name

(0.02)


-


-

Non-GAAP diluted earnings per share

$                 0.12


$                 0.08


$                 0.11







Shares used to compute diluted earnings per share or (loss) per share






  GAAP shares used to compute loss per share

49,402


49,423


49,625

  Non-GAAP shares used to compute diluted earnings per share

49,877


49,970


49,696







*  Less than $0.01 impact on loss per share












 

SONUS NETWORKS, INC.

Reconciliation of Non-GAAP and GAAP Financial Measures - Historical

(in thousands, except percentages and per share amounts)

(unaudited)






Nine months ended


September 30,


September 25,


2016


2015





GAAP gross margin - product

67.6%


61.7%

Stock-based compensation expense

0.2%


0.3%

Amortization of intangible assets

4.2%


3.8%

Non-GAAP gross margin - product

72.0%


65.8%





GAAP gross margin - service

63.9%


65.3%

Stock-based compensation expense

1.3%


1.5%

Non-GAAP gross margin - service

65.2%


66.8%





GAAP total gross margin

66.1%


63.3%

Stock-based compensation expense

0.6%


0.8%

Amortization of intangible assets

2.5%


2.1%

Non-GAAP total gross margin

69.2%


66.2%





GAAP total gross profit

$           122,217


$           109,356

Stock-based compensation expense

1,244


1,393

Amortization of intangible assets

4,537


3,667

Non-GAAP total gross profit

$           127,998


$           114,416





GAAP research and development expense

$             53,005


$             58,642

Stock-based compensation expense

(3,687)


(4,152)

Depreciation expense for abandoned facility

-


(646)

Non-GAAP research and development expense

$             49,318


$             53,844





GAAP sales and marketing expense

$             50,890


$             53,812

Stock-based compensation expense

(5,292)


(4,150)

Amortization of intangible assets

(956)


(1,308)

Non-GAAP sales and marketing expense

$             44,642


$             48,354





GAAP general and administrative expense

$             26,656


$             30,742

Stock-based compensation expense

(5,241)


(7,207)

Patent litigation settlement expense

(605)


-

Non-GAAP general and administrative expense

$             20,810


$             23,535





GAAP operating expenses

$           133,122


$           144,633

Stock-based compensation expense

(14,220)


(15,509)

Amortization of intangible assets

(956)


(1,308)

Depreciation expense for abandoned facility

-


(646)

Patent litigation settlement expense

(605)


-

Acquisition-related expense

(951)


(131)

Restructuring

(1,620)


(1,306)

Non-GAAP operating expenses

$           114,770


$           125,733





GAAP loss from operations

$           (10,905)


$           (35,277)

Stock-based compensation expense

15,464


16,902

Amortization of intangible assets

5,493


4,975

Depreciation expense for abandoned facility

-


646

Patent litigation settlement expense

605


-

Acquisition-related expense

951


131

Restructuring

1,620


1,306

Non-GAAP income (loss) from operations

$             13,228


$           (11,317)





GAAP loss from operations as a percentage of revenue

-5.9%


-20.4%

Stock-based compensation expense

8.3%


9.7%

Amortization of intangible assets

3.0%


2.8%

Depreciation expense for abandoned facility

0.0%


0.4%

Patent litigation settlement expense

0.3%


0.0%

Acquisition-related expense

0.5%


0.1%

Restructuring

0.9%


0.8%

Non-GAAP income (loss) from operations as a percentage of revenue

7.1%


-6.6%





GAAP net loss

$           (11,301)


$           (36,598)

Stock-based compensation expense

15,464


16,902

Amortization of intangible assets

5,493


4,975

Depreciation expense for abandoned facility

-


646

Patent litigation settlement expense

605


-

Acquisition-related expense

951


131

Restructuring

1,620


1,306

Gain on sale of domain name

(800)


-

Non-GAAP net income (loss)

$             12,032


$           (12,638)





Diluted earnings per share or (loss) per share




GAAP loss per share

$               (0.23)


$               (0.74)

Stock-based compensation expense

0.32


0.34

Amortization of intangible assets

0.11


0.10

Depreciation expense for abandoned facility

-


0.01

Patent litigation settlement expense

0.01


-

Acquisition-related expense

0.02


 * 

Restructuring

0.03


0.03

Gain on sale of domain name

(0.02)


-

Non-GAAP diluted earnings (loss) per share

$                 0.24


$               (0.26)





Shares used to compute diluted earnings per share or (loss) per share




  GAAP shares used to compute loss per share

49,436


49,512

  Non-GAAP shares used to compute diluted earnings per share or (loss) per share

49,752


49,512





*  Less than $0.01 impact on loss per share








 

 

 SONUS NETWORKS, INC. 

 Reconciliation of Non-GAAP and GAAP Financial Measures - Guidance 

 (in millions, except percentages and per share amounts) 

 (unaudited) 




























Three months ending December 31, 2016




Sonus Only (excluding Taqua)


Taqua


Consolidated




Range




Range













Revenue

$                 65.0


$                 67.0


$                   1.8


$                 66.8


$                 68.8













Gross margin











GAAP outlook

66.0%


66.6%




64.1%


64.7%


Stock-based compensation expense

0.7%


0.7%




0.7%


0.7%


Amortization of intangible assets

2.3%


2.2%




2.9%


2.8%


Fair value write-up of acquired inventory

0.0%


0.0%




0.3%


0.3%


Non-GAAP guidance

69.0%


69.5%




68.0%


68.5%













Operating expenses











GAAP outlook

$                 44.4


$                 45.4




$                  48.8


$                 49.8


Stock-based compensation expense

(4.6)


(4.6)




(4.6)


(4.6)


Amortization of intangible assets

(0.3)


(0.3)




(0.6)


(0.6)


Restructuring

-


-




(0.6)


(0.6)


Non-GAAP guidance

$                 39.5


$                 40.5




$                 43.0


$                 44.0













Income (loss) per share











GAAP outlook

$                (0.05)


$                (0.02)


$               (0.08)


$                (0.13)


$                (0.10)


Stock-based compensation expense

0.10


0.10


-


0.10


0.10


Amortization of intangible assets

0.04


0.04


0.02


0.06


0.06


Fair value write-up of acquired inventory

-


-


 * 


 * 


 * 


Restructuring

-


-


0.01


0.01


0.01


Non-GAAP guidance

$                 0.09


$                 0.12


$               (0.05)


$                 0.04


$                 0.07




























Year ending December 31, 2016




Sonus Only (excluding Taqua)


Taqua


Consolidated




Range


Range


Range













Revenue

$               250.0


$               252.0


$                   2.0


$               252.0


$               254.0













Gross margin











GAAP outlook

65.9%


66.4%




65.7%


66.2%


Stock-based compensation expense

0.7%


0.7%




0.7%


0.7%


Amortization of intangible assets

2.4%


2.4%




2.5%


2.5%


Fair value write-up of acquired inventory

0.0%


0.0%




0.1%


0.1%


Non-GAAP guidance

69.0%


69.5%




69.0%


69.5%













Operating expenses











GAAP outlook

$                176.9


$               177.9




$                181.7


$               182.7


Stock-based compensation expense

(18.8)


(18.8)




(18.8)


(18.8)


Amortization of intangible assets

(1.3)


(1.3)




(1.6)


(1.6)


Patent litigation settlement expense

(1.0)


(1.0)




(1.0)


(1.0)


Acquisition-related expense

(0.6)


(0.6)




(0.6)


(0.6)


Restructuring

(1.2)


(1.2)




(2.2)


(2.2)


Non-GAAP guidance

$               154.0


$               155.0




$               157.5


$               158.5













Income (loss) per share











GAAP outlook

$                (0.27)


$                (0.24)


$               (0.10)


$                (0.36)


$                (0.33)


Stock-based compensation expense

0.41


0.41


-


0.41


0.41


Amortization of intangible assets

0.15


0.15


0.02


0.17


0.17


Fair value write-up of acquired inventory

-


-


 * 


 * 


 * 


Patent litigation settlement expense

0.01


0.01


-


0.01


0.01


Acquisition-related expense

0.02


0.02


-


0.02


0.02


Restructuring

0.03


0.03


0.02


0.04


0.04


Gain on sale of domain name

(0.02)


(0.02)


-


(0.02)


(0.02)


Non-GAAP guidance

$                 0.33


$                 0.36


$               (0.06)


$                 0.27


$                 0.30













*  Less than $0.01 impact on loss per share






















 

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SOURCE Sonus Networks, Inc.

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