Sonus Networks Reports 2014 First Quarter Results

Sonus Networks, Inc. (SONS), a global leader in SIP-based communications, today announced results for the first quarter ended March 28, 2014.

First Quarter 2014 Highlights

• Total Company revenue was $70.7 million, up 12% compared to the first quarter of 2013.
• Total Growth-related Revenue (Session Border Controller (SBC) and Diameter Signaling Controller (DSC)) was $34.3 million, reflecting growth of 14% compared to the first quarter of 2013; represents the highest first quarter Growth-related Revenue performance on record for the Company.
• GAAP gross margins were 65.6%; non-GAAP gross margins were 67.9% representing an increase of 690 basis points compared to non-GAAP gross margins in the first quarter of 2013.
• GAAP loss per share was $0.01; non-GAAP diluted earnings per share was $0.01.
• Successfully closed the acquisition of Performance Technologies, Incorporated (PT), strengthening the Company's mobility and virtualization strategies.
• Introduced the Sonus SBC 7000 Session Border Controller (SBC 7000), setting new performance standards for real-time, multimedia communications.
• Reduced ownership concentration of largest shareholder from approximately 22% to 7.5% of outstanding shares through a public underwritten secondary offering and concurrent share repurchase.

Quotes

“The first quarter represented a strong start to the year on multiple fronts,” said Ray Dolan, president and chief executive officer. “We delivered excellent financial results which exceeded expectations, and we continued to demonstrate strong commercial execution and product innovation with the expansion of our SBC portfolio and entry into the fast-growing Diameter Signaling market. We returned a substantial amount of capital to shareholders in the form of share repurchases, while also simultaneously reducing the ownership concentration of our largest shareholder.” Dolan continued, “We believe that our operations, competitive position and foundation for profitable growth are stronger today than ever before.”

“Our strong financial execution and pristine balance sheet have enabled us to invest organically in our business, pursue strategic acquisition opportunities and return excess capital to stockholders,” said Mark Greenquist, chief financial officer. Greenquist continued, “During the first quarter we closed the $34 million acquisition of PT and repurchased approximately $75 million of our shares, while still ending the quarter with over $159 million in cash and investments. This strong cash position, coupled with continued generation of cash from our operations (which was approximately $21 million in the first quarter), gives us financial flexibility for the future.”

Performance Technologies, Incorporated

On February 19, 2014, the Company announced the successful completion of its acquisition of PT. PT adds Diameter Signaling capabilities required in all-IP, IMS 4G/LTE (Long-Term Evolution) networks, and is expected to fortify the Company's mobility and virtualization strategies.

SBC 7000

On February 25, 2014, the Company announced the SBC 7000. The SBC 7000 sets new performance standards, delivering nearly two times greater scale than competitive solutions for secure, reliable delivery of multimedia services in the world's largest networks. The SBC 7000 is designed to address scalability requirements for real-time, multimedia communications with the capability to license up to 150,000 sessions, the highest in the industry, with fully enabled security, media and transcoding features. It is purpose-built to support emerging services such as high definition (HD) voice and video, Voice over Long-Term Evolution (VoLTE) and Rich Communications Services (RCS), and effectively addresses the unprecedented traffic demands these services will place on networks at access and interconnect borders.

Reduction in Ownership Concentration of Largest Shareholder and Stock Buyback Program

On March 25, 2014, the Company successfully concluded the previously announced underwritten public offering of 41.5 million shares of its common stock on behalf of Galahad Securities, Ltd. (Legatum Group) at $3.53 per share. The offering reduced the Legatum Group's ownership in Sonus to approximately 7.5%, or 18.5 million shares. As part of the underwritten offering, the Company repurchased from the Legatum Group approximately 21.5 million shares (of the 41.5 million shares sold) at the underwriter's price of approximately $3.49 per share.

The shares purchased from the Legatum Group, taken together with all past repurchases under the Company's existing stock buyback program announced in July 2013, has resulted in an aggregate repurchase of approximately 40 million shares at an average price per share of $3.36. As of March 28, 2014, the Company had 247.7 million shares outstanding, reflecting a 14% reduction in the total number of shares outstanding as compared to June 28, 2013, before the stock buyback program began. Approximately $40.6 million remains available to the Company for potential share repurchases under the stock buyback program.

Cash & Investments

The Company ended the first quarter of 2014 with $159.2 million in cash and investments, including the impact of the PT acquisition and the share repurchases described above.

2014 Second Quarter and Full Year Outlook

The Company's outlook is based on current indications for its business, which may change during the current quarter. Gross margin, operating expenses and EPS are presented on a non-GAAP basis. A reconciliation of the non-GAAP to GAAP outlook and a statement on the use of non-GAAP financial measures are included at the end of this press release. Full year 2014 (FY14) Total Company Revenue outlook of $300 million includes approximately $15 million from PT. FY14 SBC/DSC Total Revenue outlook of $168 million includes approximately $3 million from PT DSC. FY14 EPS guidance of $0.05 includes a loss of approximately $0.01 from PT.