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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
MAY 8, 2006
DATE OF REPORT (Date of Earliest Event Reported)
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SONUS NETWORKS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 000-30229 04-3387074
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
250 Apollo Drive, Chelmsford, Massachusetts 01824
(Address of Principal Executive Offices) (Zip Code)
(978) 614-8100
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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The information in this Current Report on Form 8-K and the exhibit attached
hereto shall not be deemed "filed" for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended, or incorporated by reference in any filing
under the Securities Act of 1933, as amended, or the Exchange Act, except as
shall be expressly set forth by specific reference in such a filing.
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On May 8, 2006, Sonus Networks, Inc. issued a press release reporting its
financial results for the quarter ended March 31, 2006. A copy of the press
release is attached as Exhibit 99.1 hereto.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(d) Exhibits
The following exhibit relating to Item 2.02 shall be deemed to be
furnished, and not filed:
99.1 Press release of Sonus Networks, Inc. dated May 8, 2006
reporting financial results for the quarter ended
March 31, 2006.
2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: May 8, 2006 SONUS NETWORKS, INC.
By: /s/ Ellen Richstone
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Ellen Richstone
Chief Financial Officer
3
EXHIBIT INDEX
99.1 Press Release of Sonus Networks, Inc. dated May 8, 2006 Reporting
Financial Results for the Quarter Ended March 31, 2006.
4
Exhibit 99.1
SONUS NETWORKS REPORTS 2006 FIRST QUARTER RESULTS
Record First Quarter Revenues Increased 78% Annually;
EPS of $0.02 Reflects $0.01 Per Share for Stock-Based Compensation Expense
CHELMSFORD, MASS., MAY 8, 2006 - Sonus Networks, Inc. (Nasdaq: SONS), a leading
supplier of service provider Voice over IP (VoIP) infrastructure solutions,
today reported its financial results for the first quarter ended March 31, 2006.
Revenues for the first quarter of fiscal 2006 were $60 million, compared with
$57.2 million in the fourth quarter of fiscal 2005 and $33.6 million for the
first quarter of fiscal 2005.
Net income on a GAAP basis for the first quarter of 2006 was $5.7 million or
$0.02 per share. Excluding stock-based compensation expense of $1.9 million,
non-GAAP net income for the first quarter of 2006 was $7.6 million or $0.03 per
share, compared with a net loss of $3.7 million or $0.01 per share for the first
quarter of 2005.
-- more --
"Q1 was another solid quarter for Sonus. We reported record quarterly revenues
and healthy cash flow from operations, while making strides toward achieving our
long-term financial model," said Hassan Ahmed, chairman and CEO, Sonus Networks.
"Our laser-focused mission to expand our presence around the globe and execute
on our strategy generated results that went well beyond our financial
performance for the quarter. We unveiled eight new deployments with operators
globally, delivered the latest version of our industry-leading software,
extended our wireless solutions, and bolstered our renowned Open Services
Partner Alliance by announcing interoperability with some of the largest
consumer brands. We are proud of our leadership position in the market and our
ability to help the world's network operators deliver communications services
that will enhance the consumer experience and improve service providers'
business models."
With the adoption of Statement of Financial Accounting Standards No. 123R (FAS
123R) as of January 1, 2006, Sonus Networks is reporting stock-based
compensation expense under FAS 123R in its generally accepted accounting
principles (GAAP) results for the first time. Sonus recorded $1.9 million of
stock-based compensation on its condensed consolidated statement of operations
for the three months ended March 31, 2006.
The financial statements attached to this press release present both GAAP net
income and net income excluding this stock-based compensation expense. The
reconciliation between GAAP and non-GAAP net income is provided in a table
immediately following the GAAP Condensed Consolidated Statements of Operations.
Sonus reported today that the company has completed two years of selling its
products through its reseller, Motorola, Inc., and, as a result of its positive
history with Motorola, is now reporting this revenue on a sell-in basis where
revenue is recognized upon the shipment of products to Motorola, resulting in
approximately an additional $3 million in revenue being recognized in the first
quarter of fiscal 2006. Sonus' Quarterly Report on Form 10-Q filed today
provides further details.
"We are very pleased that our focus on strengthening our relationship with
Motorola and the positive experience we have had over the past two years has
allowed us to take one more step in improving the transparency and efficiency of
our revenue conversion cycle, which will benefit our shareholders," said Bert
Notini, president and COO, Sonus Networks.
-- more --
In Q1 2006, Sonus announced new or expanded customer relationships with eight of
the world's most innovative service providers. In North America, Vonage Network,
a subsidiary of Vonage Holdings Corp., deployed Sonus' industry-leading IP
Multimedia Subsystem (IMS)-ready solution to support traffic from their rapidly
growing subscriber base. Vonage is a leading provider of broadband telephone
services with over 1.6 million subscriber lines as of April 1, 2006. Also in the
United States, Sonus announced that West Interactive Corporation and 360networks
Corporation each selected Sonus' IMS-ready architecture as the foundation for
their next generation IP-based voice service. Sonus announced that Intrado Inc.,
a global provider of integrated data and telecommunications solutions, has
tapped Sonus to provide key elements of its IMS-ready architecture to support
Intrado's nationwide expansion of its V9-1-1(R) Services.
Sonus also continued to extend its leadership position in Japan during Q1. The
Company announced that KDDI, a leading telecommunication service provider in
Japan, selected it as the exclusive vendor for its convergence-enabled packet
voice network. The new packet voice network will deliver enhanced voice services
to a key market that is at the forefront of technology adoption. It is planned
to be the largest IP telephony network in Japan with KDDI aiming to have 100
percent of its long-distance traffic on a Sonus-based VoIP network by 2008.
Sonus announced its first Japanese wireless customer, WILLCOM, Inc., a major
provider of wireless data and voice services and the largest operator employing
Personal Handyphone System (PHS) technology in Japan. JAPAN TELECOM Co., Ltd.,
one of Japan's largest carriers and a wholly owned subsidiary of SOFTBANK Corp.,
also announced that it selected Sonus as the foundation for its next-generation
IP-based voice network.
Sonus' partnerships with the leading service providers throughout Japan
solidified the Company's position as the market leader. According to a report
issued by Synergy Research Group, for the full year 2005, Sonus led the Japanese
market with a 36.1% market share position, more than double any other equipment
provider. Sonus also accounted for approximately 76% of the Japanese high
density gateway market and more than 61% of the total Japanese gateway market in
2005.
-- more --
Globally, Sonus continued to be recognized as a market share leader in IP-based
voice solutions. By the end of Q1, voice traffic being carried over Sonus'
solutions reached approximately 19 billion minutes per month. In recognition of
Sonus' leadership position, Frost & Sullivan awarded the Company the 2006 IP
Communications Carrier Infrastructure Technology Innovation & Leadership of the
Year Award, an award that is presented to the company that has excelled
delivering advanced telecommunications solutions to the market, enabling the
seamless evolution of voice networks.
Recognizing that application delivery is a key competitive differentiator for
today's carriers, Sonus continued to leverage its industry-leading partner
program, the Open Services Partner Alliance (OSPA) to deliver greater value to
its customers. In Q1, the Company announced that it extended its partnership
with IP Unity to deliver a suite of enhanced services as part of the
recently-introduced Sonus Certified Consumer Voice over Broadband (c-VoBB)
solution. Sonus also announced a new partner relationship with Atreus Systems to
deliver hosted value-added consumer and business voice services, including
Hosted PBX, business trunking (Integrated Access), conferencing, and voice VPN
services. Further, the Company announced that it successfully completed
interoperability testing between Sonus' VoBB platform and NETGEAR's line of
broadband phone adapters, streamlining next-generation customer access services.
"The impact of IP-based voice technologies has largely taken place behind the
scenes, offering immense value to service providers, but remaining relatively
transparent to consumers," continued Ahmed. "But in the coming years, the entire
communications paradigm will change as a result of IP-based technologies.
Consumers will experience a new level of richness in their communications
experience with customizable applications and services that integrate both voice
and data. This is a very exciting time in the history of voice communications,
and as both wireless and wireline service providers continue to embrace
next-generation voice solutions, Sonus is poised to capitalize on the market's
evolution to a smarter, more robust voice network."
-- more --
ABOUT SONUS NETWORKS
Sonus Networks, Inc. is a leading provider of voice over IP (VoIP)
infrastructure solutions for wireline and wireless service providers. With its
comprehensive IP Multimedia Subsystem (IMS) solution, Sonus addresses the full
range of carrier applications, including residential and business voice
services, wireless voice and multimedia, trunking and tandem switching, carrier
interconnection and enhanced services. Sonus' voice infrastructure solutions are
deployed in service provider networks worldwide. Founded in 1997, Sonus is
headquartered in Chelmsford, Massachusetts. Additional information on Sonus is
available at http://www.sonusnet.com.
This release may contain forward-looking statements regarding future events that
involve risks and uncertainties. Readers are cautioned that these
forward-looking statements are only predictions and may differ materially from
actual future events or results. Readers are referred to Item 1A "Risk Factors"
of Sonus' Annual Report on Form 10-K dated March 14, 2006 and Quarterly Report
on Form 10-Q dated May 8, 2006, which identify important risk factors that could
cause actual results to differ from those contained in the forward-looking
statements. Risk factors include among others: the impact of material weaknesses
in our disclosure controls and procedures and our internal control over
financial reporting on our ability to report our financial results timely and
accurately; the unpredictability of our quarterly financial results; risks
associated with our international expansion and growth; consolidation in the
telecommunications industry; and potential costs resulting from pending
securities litigation against the company. 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.
Sonus is a registered trademark of Sonus Networks. All other company and product
names may be trademarks of the respective companies with which they are
associated.
In addition to Sonus' financial results which have been prepared in accordance
with accounting principles generally accepted in the United States of America
(GAAP), this release includes certain non-GAAP financial results to assist
investors and analysts in assessing our periodic operating results. The non-GAAP
financial results exclude non-cash stock-based compensation expense. Non-GAAP
financial results are not a substitute for GAAP results.
Sonus uses non-GAAP financial results internally as an alternative means for
assessing our results of operations. By excluding a non-cash charge such as
stock-based compensation, Sonus can evaluate its operations excluding this
non-cash charge and can compare its results on a more consistent basis to the
results of other companies in the industry and to its operations in prior
quarters where it did not include stock-based compensation expense under
FAS123-R in its GAAP results. For its internal budgeting and planning, Sonus'
management uses financial statements that do not include employee stock-based
compensation. Sonus' management also uses the foregoing non-GAAP results, in
addition to the corresponding GAAP results, in determining objectives for
compensation and bonus programs or reviewing the financial performance of Sonus.
Non-GAAP financial results that exclude stock-based compensation expense also
provide useful information to investors and analysts to more readily compare the
Company's operations to prior financial results and to the financial results of
other companies in the industry who similarly exclude stock-based compensation
expense in non-GAAP results to investors and analysts. Because we have
historically reported results that exclude stock-based compensation under
FAS123-R to the investment community, we believe the inclusion of non-GAAP
numbers provides consistency in our financial reporting.
We intend to continue to assess the potential value of reporting non-GAAP
results consistent with applicable rules and regulations.
SONUS NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED
MARCH 31, DECEMBER 31, MARCH 31,
2006 2005 2005
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REVENUES :
Product $ 44,383 $ 41,908 $ 22,458
Service 15,589 15,342 11,152
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Total revenues 59,972 57,250 33,610
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COST OF REVENUES:
Product 15,853 13,965 6,843
Service 7,381 6,905 5,269
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Total cost of revenues 23,234 20,870 12,112
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GROSS PROFIT 36,738 36,380 21,498
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GROSS PROFIT %:
Product 64.3% 66.7% 69.5%
Service 52.7% 55.0% 52.8%
Total gross profit 61.3% 63.5% 64.0%
OPERATING EXPENSES:
Research and development 12,891 12,483 11,017
Sales and marketing 13,898 12,886 9,027
General and administrative 6,719 8,116 6,800
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Total operating expenses 33,508 33,485 26,844
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INCOME (LOSS) FROM OPERATIONS 3,230 2,895 (5,346)
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Interest expense (137) (121) (128)
Interest income 3,442 3,092 1,875
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INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 6,535 5,866 (3,599)
Provision for income taxes 791 844 96
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NET INCOME (LOSS) $ 5,744 $ 5,022 $ (3,695)
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NET INCOME (LOSS) PER SHARE:
Basic $ 0.02 $ 0.02 $ (0.01)
Diluted $ 0.02 $ 0.02 $ (0.01)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 250,064 249,390 247,877
Diluted 254,459 252,356 247,877
--more--
SONUS NETWORKS, INC.
NON- GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2006
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AS REPORTED ADJUSTMENTS (1) AS ADJUSTED
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REVENUES :
Product $ 44,383 $ -- $ 44,383
Service 15,589 -- 15,589
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Total revenues 59,972 -- 59,972
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COST OF REVENUES:
Product 15,853 (3) 15,850
Service 7,381 (252) 7,129
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Total cost of revenues 23,234 (255) 22,979
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GROSS PROFIT 36,738 255 36,993
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GROSS PROFIT %:
Product 64.3% 64.3%
Service 52.7% 54.3%
Total gross profit 61.3% 61.7%
OPERATING EXPENSES:
Research and development 12,891 (610) 12,281
Sales and marketing 13,898 (405) 13,493
General and administrative 6,719 (633) 6,086
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Total operating expenses 33,508 (1,648) 31,860
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INCOME FROM OPERATIONS 3,230 1,903 5,133
--------------- --------------- ---------------
Interest expense (137) -- (137)
Interest income 3,442 -- 3,442
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INCOME BEFORE PROVISION FOR INCOME TAXES 6,535 1,903 8,438
Provision for income taxes 791 -- 791
--------------- --------------- ---------------
NET INCOME $ 5,744 $ 1,903 $ 7,647
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NET INCOME PER SHARE:
Basic $ 0.02 $ 0.03
Diluted $ 0.02 $ 0.03
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 250,064 250,064
Diluted 254,459 254,459
(1) Non-GAAP adjustments represent recorded stock-based compensation expense.
--more--
SONUS NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
MARCH 31, DECEMBER 31,
2006 2005
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 50,309 $ 155,679
Marketable debt securities 239,312 140,569
Accounts receivable, net 33,272 72,321
Inventory, net 37,169 37,831
Other current assets 15,197 15,833
Deferred income taxes 519 519
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Total current assets 375,778 422,752
Property and equipment, net 15,315 15,181
Long-term investments 50,616 17,993
Other assets 1,878 631
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$ 443,587 $ 456,557
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 16,370 $ 20,408
Accrued expenses 19,384 23,204
Accrued restructuring expenses 198 195
Current portion of deferred revenue 73,209 88,199
Current portion of long-term liabilities 49 48
Convertible subordinated note 10,000 10,000
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Total current liabilities 119,210 142,054
Long-term deferred revenue, less current portion 28,990 33,853
Long-term liabilities, less current portion 422 485
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Total liabilities 148,622 176,392
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Commitments and contingencies
STOCKHOLDERS' EQUITY:
Common stock 254 252
Capital in excess of par value 1,064,989 1,055,941
Accumulated deficit (769,973) (775,717)
Accumulated other comprehensive loss (38) (44)
Treasury stock (267) (267)
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Total stockholders' equity 294,965 280,165
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$ 443,587 $ 456,557
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--more--
SONUS NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2006 2005
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,744 $ (3,695)
Adjustments to reconcile net income (loss) to cash flows
provided by (used in) operating activities:
Depreciation and amortization of property and equipment 2,293 1,476
Stock-based compensation 1,903 --
Loss of disposal of property and equipment 6 --
Changes in current assets and liabilities
Accounts receivable 39,071 4,855
Inventory 713 (2,910)
Other current assets (857) (762)
Accounts payable (4,072) 1,334
Accrued expenses and accrued restructuring expenses (3,926) (1,330)
Deferred revenue (19,920) 948
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Cash flows provided by (used in) operating activities 20,955 (84)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,328) (4,303)
(Purchases) maturities of marketable debt securities, net (131,366) 2,977
Decrease in restricted cash 250 --
Other assets 85 (81)
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Net cash used in investing activities (133,359) (1,407)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of common stock in connection with
employee stock purchase plan 2,311 2,313
Proceeds from exercise of stock options 4,821 420
Payments of long-term liabilities (12) (58)
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Net cash provided by financing activities 7,120 2,675
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Effect of exchange rate changes on cash and
cash equivalents (86) --
Net (decrease) increase in cash and cash equivalents (105,370) 1,184
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Cash and cash equivalents, beginning of period 155,679 121,931
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Cash and cash equivalents, end of period $ 50,309 $ 123,115
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