Sonus Networks Reports 2009 Fourth Quarter and Full Year Results

Westford, MA, February 25, 2010 – Sonus Networks, Inc. (Nasdaq: SONS), providing network transformation through IP communications technology, today announced results for the fourth quarter and full year ended December 31, 2009.

Revenue for the fourth quarter of fiscal 2009 was $68.7 million, compared to $56.2 million in the third quarter of fiscal 2009 and revenue from continuing operations of $89.5 million for the fourth quarter of fiscal 2008. The Company's net income on a GAAP basis for the fourth quarter of fiscal 2009 was $10.3 million, or $0.04 per diluted share, compared to a net loss of $3.4 million, or $0.01 per share, for the third quarter of fiscal 2009, and a loss from continuing operations of $99.5 million, or $0.37 per share, for the fourth quarter of fiscal 2008.

Revenue for fiscal 2009 was $227.5 million, compared to revenue from continuing operations of $313.1 million for fiscal 2008, a decrease of $85.6 million year over year. The Company's net loss on a GAAP basis for fiscal 2009 was $4.9 million, or $0.02 per share, compared to a loss from continuing operations of $116.2 million, or $0.43 per share, in fiscal 2008.

Included in both the fourth quarter and full year 2008 results is an $88.4 million non-cash charge related to an increase in the Company’s valuation allowance against its deferred tax asset.

"We are pleased with the progress we made over the past year to successfully re-engineer the Company,” said Richard Nottenburg, President and Chief Executive Officer of Sonus Networks. "Despite the challenges we and others in our industry faced in 2009, we ended the year profitable on a non-GAAP basis, with a strong balance sheet, more efficient cost structure and substantial operating leverage. As we accelerate our product innovation initiatives, I am confident Sonus is well positioned to capitalize on new growth opportunities to drive future profitability and success.”

Sonus Financial Guidance for Fiscal Year 2010

The following forward-looking statements reflect the Company’s expectations as of February 25, 2010:

  • Revenue estimate: flat to low single digit percentage revenue growth on an annual basis as compared to fiscal 2009.
  • Gross margin estimate: within longer term range of 58% to 62% on annual basis.
  • Total operating expenses: in the range of $142 million to $146 million for the year.

Conference Call Details

Sonus Networks will host a conference call for analysts and investors to discuss its fourth quarter and full year 2009 results as well as certain forward-looking information today at 4:45 p.m. ET.

To listen live via telephone

Dial-in number: 800-913-1647
International Callers: +1 212-231-2907

To listen via internet

Sonus Networks will host a live webcast of the conference call. To access the webcast, visit www.sonus.net, About Us, Investor Relations.

About Sonus Networks

Sonus Networks, Inc., providing network transformation through IP communications technology, is leading the evolution of communications networks to support the multi-device demands of today’s digital lifestyle. Sonus solutions and services enable fixed, mobile and cable operators to gain network awareness and new multi-media capabilities essential to retaining and expanding their subscriber base. Through standards-based interoperable solutions and services, Sonus extends the investments made in traditional networks by enabling operators to seamlessly migrate to next generation technology and deliver the secure, reliable, scalable and cost-effective network needed to grow their business. Sonus maintains a website sonus.net. By including the foregoing website address, Sonus does not intend to incorporate by reference material contained on such website.

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 for the year ended December 31, 2009, which identifies important risk factors that could cause actual results to differ from those contained in the forward-looking statements. 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
978-614-8291
wpastore@sonusnet.com

Beth Panfil
978-614-8034
bpanfil@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,
                                     2009           2009          2008
                                ------------  -------------  ------------
    Revenue:
      Product                       $47,009        $33,544       $53,642
      Service                        21,703         22,621        35,902
                                ------------  -------------  ------------
        Total revenue                68,712         56,165        89,544
                                ------------  -------------  ------------

    Cost of revenue:
      Product                        11,852         10,160        27,631
      Service                        11,481         10,755        22,101
                                ------------  -------------  ------------
        Total cost of revenue        23,333         20,915        49,732
                                ------------  -------------  ------------

    Gross profit                     45,379         35,250        39,812
                                ------------  -------------  ------------

    Gross profit %
      Product                         74.8%          69.7%         48.5%
      Service                         47.1%          52.5%         38.4%
        Total gross profit %          66.0%          62.8%         44.5%

    Operating expenses:
      Research and development       13,869         14,141        15,997
      Sales and marketing            12,911         11,527        18,952
      General and administrative     10,958         11,578        17,385
      Impairment of
       intangible assets                  -              -         2,727
      Restructuring                       -          1,533           702
                                ------------  -------------  ------------
        Total operating expenses     37,738         38,779        55,763
                                ------------  -------------  ------------

    Income (loss) from
     operations                       7,641         (3,529)      (15,951)
    Interest expense                    (89)           (23)          (34)
    Interest income                     592            787         2,546
    Other income, net                    47             12           (29)
                                ------------  -------------  ------------

    Income (loss) from
     continuing operations
     before income taxes              8,191         (2,753)      (13,468)
    Income tax benefit (provision)    2,118           (644)      (86,040)
                                ------------  -------------  ------------

    Income (loss) from
     continuing operations           10,309         (3,397)      (99,508)
    Loss from discontinued
     operations, net of tax               -              -          (183)
    Loss on disposal of
     discontinued operations,
     net of tax                           -              -          (741)
                                ------------  -------------  ------------

    Net income (loss)               $10,309        $(3,397)    $(100,432)
                                ============  =============  ============

    Earnings (loss) per share:
      Basic
        Continuing operations         $0.04         $(0.01)       $(0.37)
        Discontinued operations           -              -             -
                                ------------  -------------  ------------
                                      $0.04         $(0.01)       $(0.37)
                                ============  =============  ============

      Diluted
        Continuing operations         $0.04         $(0.01)       $(0.37)
        Discontinued operations           -              -             -
                                ------------  -------------  ------------
                                      $0.04         $(0.01)       $(0.37)
                                ============  =============  ============

    Shares used to compute
     earnings (loss) per share:
      Basic                         274,359        273,907       272,536
      Diluted                       275,152        273,907       272,536



                                SONUS NETWORKS, INC.
                   Condensed Consolidated Statements of Operations
                       (in thousands, except per share data)
                                    (unaudited)

                                                       Year ended
                                               --------------------------
                                               December 31,   December 31,
                                                   2009          2008
                                               ------------  ------------
    Revenue:
      Product                                     $136,276      $203,387
      Service                                       91,220       109,758
                                               ------------  ------------
        Total revenue                              227,496       313,145
                                               ------------  ------------

    Cost of revenue:
      Product                                       38,893        74,274
      Service                                       44,467        56,020
                                               ------------  ------------
        Total cost of revenue                       83,360       130,294
                                               ------------  ------------

    Gross profit                                   144,136       182,851
                                               ------------  ------------

    Gross profit %
      Product                                        71.5%         63.5%
      Service                                        51.3%         49.0%
        Total gross profit %                         63.4%         58.4%

    Operating expenses:
      Research and development                      59,864        73,098
      Sales and marketing                           48,929        74,364
      General and administrative                    43,217        62,045
      Litigation settlements                             -        19,100
      Impairment of intangible assets                    -         2,727
      Restructuring                                  3,510           702
                                               ------------  ------------
        Total operating expenses                   155,520       232,036
                                               ------------  ------------

    Loss from operations                           (11,384)      (49,185)
    Interest expense                                  (183)         (291)
    Interest income                                  4,105        12,643
    Other income, net                                   71           358
                                               ------------  ------------

    Loss from continuing operations
     before income taxes                            (7,391)      (36,475)
    Income tax benefit (provision)                   2,459       (79,675)
                                               ------------  ------------

    Loss from continuing operations                 (4,932)     (116,150)
    Loss from discontinued operations,
     net of tax                                          -        (4,491)
    Loss on disposal of discontinued
     operations, net of tax                              -          (741)
                                               ------------  ------------

    Net loss                                       $(4,932)    $(121,382)
                                               ============  ============

    Loss per share:
      Basic
        Continuing operations                       $(0.02)       $(0.43)
        Discontinued operations                          -         (0.02)
                                               ------------  ------------
                                                    $(0.02)       $(0.45)
                                               ============  ============

      Diluted
        Continuing operations                       $(0.02)       $(0.43)
        Discontinued operations                          -         (0.02)
                                               ------------  ------------
                                                    $(0.02)       $(0.45)
                                               ============  ============

    Shares used to compute loss per share:
      Basic                                        273,730       271,477
      Diluted                                      273,730       271,477



                                SONUS NETWORKS, INC.
                       Condensed Consolidated Balance Sheets
                                   (in thousands)
                                    (unaudited)

                                              December 31,  December 31,
                                                   2009          2008
                                              ------------  ------------
                   Assets
    Current assets:
      Cash and cash equivalents                   $125,323      $122,207
      Marketable securities                        239,223       180,786
      Accounts receivable, net                      47,998        75,788
      Inventory, net                                21,925        22,553
      Deferred income taxes                            562           111
      Other current assets                          17,508        14,937
                                                    ------        ------
        Total current assets                       452,539       416,382

    Property and equipment, net                     14,646        17,852
    Intangible assets, net                             341           568
    Goodwill                                         5,053         5,025
    Investments                                     49,598        84,965
    Deferred income taxes                              711         1,611
    Other assets                                    17,849         9,182
                                                    ------         -----
                                                  $540,737      $535,585
                                                  ========      ========

       Liabilities and stockholders' equity
    Current liabilities:
      Accounts payable                              $5,337        $9,200
      Accrued expenses                              19,292        28,231
      Accrued litigation settlements                     -         9,600
      Current portion of deferred revenue           74,748        40,962
      Current portion of long-term liabilities         753         1,301
                                                       ---         -----
        Total current liabilities                  100,130        89,294

    Deferred revenue                                25,242        37,991
    Long-term liabilities                            1,127         1,865
                                                     -----         -----
          Total liabilities                        126,499       129,150
                                                   -------       -------

    Commitments and contingencies

    Stockholders equity:
      Common stock                                     277           275
      Additional paid-in capital                 1,286,326     1,272,952
      Accumulated deficit                         (878,810)     (873,878)
      Accumulated other comprehensive income         6,712         7,353
      Treasury stock                                  (267)         (267)
                                                      ----          ----
          Total stockholders' equity               414,238       406,435
                                                   -------       -------
                                                  $540,737      $535,585
                                                  ========      ========



                                SONUS NETWORKS, INC.
                   Condensed Consolidated Statements of Cash Flows
                                  (in thousands)
                                   (unaudited)

                                                              Year ended
                                                            ---------------
                                                              December 31,
                                                            2009       2008
                                                            ----       ----
    Cash flows from operating activities:
      Net loss                                           $(4,932) $(121,382)
      Adjustments to reconcile net loss to cash
       flows provided by (used in) operating activities:
        Depreciation and amortization of property and
         equipment                                        10,104     11,661
        Amortization of intangible assets                    232      1,155
        Impairment of intangible assets and goodwill           -      6,357
        Impairment of marketable equity securities             -         92
        Stock-based compensation                          12,810     25,298
        Loss on disposal of property and equipment           241        325
        Deferred income taxes                                449     78,212
        Changes in operating assets and liabilities:
          Accounts receivable                             27,790     10,010
          Inventory                                       (2,456)    19,333
          Insurance receivable - litigation settlement         -     15,328
          Other operating assets                          (7,836)     9,814
          Accounts payable                                (4,229)    (9,167)
          Accrued expenses                                (9,803)   (13,769)
          Accrued litigation settlements                  (9,600)   (30,400)
          Deferred revenue                                20,987    (19,602)
                                                          ------    -------
            Net cash provided by (used in) operating
             activities                                   33,757    (16,735)
                                                          ------    -------

    Cash flows from investing activities:
      Purchases of property and equipment                 (6,612)    (9,709)
      Business acquisition, net of cash acquired               -     (4,909)
      Purchases of marketable securities                (268,971)  (370,102)
      Sale/maturities of  marketable securities          243,984    378,267
      Decrease in litigation settlement escrow                 -     25,000
                                                               -     ------
            Net cash provided by (used in)
             investing activities                        (31,599)    18,547
                                                         -------     ------

    Cash flows from financing activities:
      Sale of common stock in connection with
       employee stock purchase plan                        1,119      3,755
      Proceeds from exercise of stock options                 51        437
      Payment of tax withholding obligations related
       to net share settlements of restricted
       stock awards                                         (673)    (1,510)
      Principal payments of capital lease obligations       (233)      (175)
                                                            ----       ----
            Net cash provided by financing activities        264      2,507
                                                             ---      -----


    Effect of exchange rate changes on cash and
     cash equivalents                                        694     (1,045)
                                                             ---     ------

    Net increase in cash and cash equivalents              3,116      3,274
    Cash and cash equivalents, beginning of period       122,207    118,933
                                                         -------    -------
    Cash and cash equivalents, end of period            $125,323   $122,207
                                                        ========   ========



                                  SONUS NETWORKS, INC.
                               Supplemental Information
                                   (In thousands)
                                     (unaudited)


    The following tables provide the details of stock-based compensation,
    amortization of intangible assets, an earnout settlement related to our
    Zynetix Ltd. acquisition and a change in estimate of a loss contingency
    related to an employment tax audit 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
                                   -----------------------------------------
                                    December 31,  September 30,  December 31,
                                         2009           2009          2008
                                         ----           ----          ----
    Stock-based compensation
      Cost of revenue - product            $63            $67          $151
      Cost of revenue - service            449            483           465
                                           ---            ---           ---
        Cost of revenue                    512            550           616
                                           ---            ---           ---

      Research and development expense     706            774         1,213
      Sales and marketing expense          812            885         1,494
      General and administrative
       expense                             891            930         2,395
                                           ---            ---         -----
        Operating expense                2,409          2,589         5,102
                                         -----          -----         -----

          Total stock-based
           compensation                 $2,921         $3,139        $5,718
                                        ======         ======        ======


    Amortization of intangible assets
      Cost of revenue - product            $40            $40          $279
      Sales and marketing expense            -              -            52
                                             -              -            --
          Total amortization of
           intangible assets               $40            $40          $331
                                           ===            ===          ====


    Earnout settlement - Zynetix
      General and administrative expense    $-             $-         $(334)
                                            ==             ==         =====


    Change in estimate - reduction of
     loss contingency related to
     employment tax audit (1)
      Cost of revenue - product             $-             $-           $(1)
                                            --             --           ---

      Research and development expense       -              -            (1)
      Sales and marketing expense            -              -            (3)
      General and administrative expense     -              -          (117)
                                             -              -          ----
        Operating expense                    -              -          (121)
                                             -              -          ----

      Interest expense                       -              -            71
      Other income (expense)                 -              -             -
                                             -              -             -

          Total change in estimate -
           reduction of loss
           contingency related to
           employment tax audit             $-             $-         $(193)
                                            ==             ==         =====


                                                        Year ended
                                                 --------------------------
                                                 December 31,  December 31,
                                                      2009          2008
                                                      ----          ----
    Stock-based compensation
      Cost of revenue - product                         $361          $734
      Cost of revenue - service                        1,784         2,731
                                                       -----         -----
        Cost of revenue                                2,145         3,465
                                                       -----         -----

      Research and development expense                 3,349         7,921
      Sales and marketing expense                      4,231         5,662
      General and administrative expense               3,085         8,074
                                                       -----         -----
        Operating expense                             10,665        21,657
                                                      ------        ------

          Total stock-based compensation             $12,810       $25,122
                                                     =======       =======


    Amortization of intangible assets
      Cost of revenue - product                         $224          $852
      Sales and marketing expense                          -           169
                                                           -           ---
          Total amortization of intangible assets       $224        $1,021
                                                        ====        ======


    Earnout settlement - Zynetix
      General and administrative expense                  $-        $1,351
                                                          ==        ======


    Change in estimate - reduction of loss
     contingency related to employment tax audit (1)
      Cost of revenue - product                           $-           $(8)
                                                          --           ---

      Research and development expense                     -           (52)
      Sales and marketing expense                          -           (99)
      General and administrative expense                   -          (504)
                                                           -          ----
        Operating expense                                  -          (655)
                                                           -          ----

      Interest expense                                     -            71
      Other income (expense)                               -           379
                                                           -           ---

          Total change in estimate - reduction
           of loss contingency related to
           employment tax audit                           $-       $(1,113)
                                                          ==       =======


    (1) Change in estimate resulting in a reduction of the loss contingency
        related to the settlement of an employment tax audit by the Internal
        Revenue Service that had resulted from the stock option review and
        subsequent restatement.