Sonus Networks Reports 2013 Second Quarter Results
Sonus Networks Reports 2013 Second Quarter Results
Company Reports 2013 Second Quarter Revenue and non-GAAP EPS Above Expectations
Company Raises Outlook for Full Year and Announces Stock Buyback Program
Company Announces Management Transitions
WESTFORD, Mass.--(BUSINESS WIRE)-- Sonus Networks, Inc. (NAS: SONS) , a global leader in SIP-based communications, today announced results for the second quarter ended June 28, 2013. Sonus also announced that its Board of Directors has approved a stock buyback program of up to $100 million.
Second Quarter 2013 Highlights
- Total revenue was $69.2 million.
- Total SBC revenue, including product, maintenance and services, was $29.0 million, up 52% over the prior year.
- SBC product-only revenue was $20.4 million, up 51% over the prior year.
- Enterprise revenue comprised 21% of total product revenue.
- GAAP loss per share was $0.02; non-GAAP diluted earnings per share was above expectations at $0.01.
- Cash and investments totaled $304 million at period end.
- The Board of Directors has approved a stock buyback program of up to $100 million.
Revenue for the second quarter of 2013 was $69.2 million, compared to $63.3 million in the first quarter of 2013 and $57.6 million in the second quarter of 2012. The GAAP net loss for the second quarter of 2013 was $4.9 million, or $0.02 per share, compared to a GAAP net loss of $13.7 million, or $0.05 per share, in the first quarter of 2013 and a GAAP net loss of $11.7 million, or $0.04 per share, in the second quarter of 2012. Non-GAAP net income for the second quarter of 2013 was $3.2 million, or $0.01 per diluted share, compared to a non-GAAP net loss of $6.4 million, or $0.02 per share, in the first quarter of 2013 and a non-GAAP net loss of $8.6 million, or $0.03 per share, in the second quarter of 2012.
2013 Third 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.
Third Quarter 2013
|Total Revenue||$68 to $72 million|
|SBC Total Revenue||$28 to $32 million|
|SBC Product Revenue||$21 to $25 million|
|Gross Margin||64% to 65%|
|Operating Expenses||$42 to $43 million|
|Cash and Investments||$300 to $305 million*|
|Basic Shares||284 million|
|Diluted Shares||287 million|
Full Year 2013
|Total Revenue||$274 to $278 million|
|SBC Total Revenue||$120 to $124 million|
|SBC Product Revenue||$98 to $102 million|
|Gross Margin||64% to 65%|
|Operating Expenses||$171 to $172 million|
|Diluted EPS||$0.01 to $0.02|
|Cash and Investments
|Diluted Shares||286 million|
* Does not reflect potential stock buybacks in the period.
Stock Buyback Program
The Board of Directors has authorized a stock buyback program to repurchase up to $100 million of the Company's common stock from time to time on the open market or in privately negotiated transactions. The timing and amount of any shares repurchased will be determined by the Company's management based on its evaluation of market conditions and other factors. Repurchases may also be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws. The buyback program may be suspended or discontinued at any time. The buyback program will be funded using the Company's working capital. As of June 28, 2013, the Company had cash, cash equivalents and investments of $304.0 million. As of June 28, 2013, there were 282,803,260 shares of the Company's common stock, $0.001 par value, outstanding.
"Sonus' strong balance sheet has enabled us to invest in our business and effect a successful transformation. Our strong first-half results and enhanced outlook for 2013 demonstrate excellent progress and momentum as we deliver on our commitment to drive market-leading SBC growth and long-term profitability," said Mr. Dolan, president and chief executive officer. "This performance gives us confidence that we are now able to begin substantially increasing returns to shareholders. As a result of our improved profitability and growth in cash from operations, the Board has authorized the repurchase up to $100 million worth of outstanding shares, as it represents an attractive investment opportunity and demonstrates our commitment to enhancing shareholder value."
Sonus announced the planned departure of Maurice "Moe" Castonguay, senior vice president and chief financial officer. Mr. Castonguay will assist the CEO and Board in the search process to identify a new Chief Financial Officer and will continue to serve in his role through the year-end close period, as necessary.
"There is a strong foundation in place at Sonus and the time is right for me to explore my next challenge," said Mr. Castonguay. "I look forward to continuing in my role until my successor is named and I am committed to working closely with Ray and the Board to help identify a new CFO and ensure a smooth transition."
The Company also announced the planned departure of Matt Dillon, senior vice president, Global Services. Mr. Dillon will be replaced by Peter Polizzi, who has been appointed vice president, Global Services effective August 15, 2013. Mr. Polizzi joined Sonus in December 2011 to lead the Company's field-level technical sales engineers and has been instrumental in helping Sonus successfully establish its go-to-market channel and expand into the enterprise market. He previously worked for three years at Avaya Inc. where he led the Worldwide Channel technical strategy and operations. Prior to Avaya Inc., Mr. Polizzi spent three years at Symbol Technologies, now a Motorola Solutions company, and three years at Motorola, Inc. post-acquisition where he held various senior management positions in Global Services and led the development of Motorola Inc.'s Advanced and Professional Services practice across four Motorola companies. Mr. Polizzi is a veteran with NATO Allied Forces and received a Bachelor's degree in Mathematics at Columbia University.
"It has been an honor over the past 12 years to help shape the course of Sonus as the company has evolved," said, Mr. Dillon. "Sonus is in an excellent operational position to take advantage of our market opportunities and Peter has my full support to ensure the continued success of Global Services."
"Moe and Matt have each made outstanding contributions to Sonus' transformation, and we wish them continued success in their future endeavors," said Mr. Dolan. "I am pleased to announce Peter's appointment as vice president, Global Services. Sonus is fortunate to have someone of Peter's caliber who can step in immediately and allow for a smooth transition. I am proud of the progress our team has made and am confident that we will continue to drive leading SBC growth and enhanced profitability."
In August 2012, the Company initiated a plan to streamline operations and reduce operating costs, including a corporate-wide restructuring plan. In connection with this initiative, the Company recorded restructuring expense of $2.0 million for severance and related expenses in the third quarter of 2012 and $5.7 million in the fourth quarter of 2012. The Company recorded restructuring expense of $1.9 million in the first quarter of 2013 in connection with this initiative, primarily for severance and related costs. The Company recorded restructuring expenses of $1.7 million in the second quarter of 2013 in connection with this initiative, comprised of $1.4 million for severance and related costs and $0.3 million for facilities-related costs. The Company expects to record additional restructuring expense in connection with this initiative of approximately $1.5 million in the third quarter of 2013, comprised of severance and related costs.
Conference call details
Date: July 29, 2013
Time: 4:45 p.m. (EDT)
Dial-in number: 800-747-0367
International Callers: +1 212-231-2901
Supplementary financial and operational data is available on the Company's Investor Relations website in the Quarterly Results section at http://investors.sonusnet.com/results.cfm .
A telephone playback of the call will be available following the conference call until August 12, 2013 and can be accessed by calling 800-633-8284 or +1 402-977-9140 for international callers. The reservation number for the replay is 21668046. A webcast replay of the conference call will also be available shortly following the conference call on the Company's Investor Relations website in the Events & Presentations - Archived Events section at http://investors.sonusnet.com/events.cfm.
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About Sonus Networks
Sonus helps the world's leading communications service providers and enterprises embrace the next generation of SIP-based solutions including VoIP, video and Unified Communications through secure, reliable and scalable IP networks. With customers around the globe and over 15 years of experience transforming networks to IP, Sonus has enabled service providers to capture and retain users and both service providers and enterprises to generate significant ROI. Sonus products include session border controllers, policy/routing servers, subscriber feature servers and media and signaling gateways. Sonus products are supported by a global services team with experience in design, deployment and maintenance of some of the world's largest and most complex IP networks. For more information, visit www.sonus.net or call 1-855-GO-SONUS.
Important Information Regarding Forward-Looking Statements
The information in this 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 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.
Examples of forward-looking statements include, but are not limited to, statements in the section "2013 Third Quarter and Full Year Outlook" and other statements regarding the following: plans, expectations, objectives, outlook, goals, strategies, future events or performance, trends, customer growth, operational performance and costs, liquidity and financial positions, estimated expenditures and investments, estimated purchases under the Company's stock buyback program, the timing and success of announced management transitions, revenues and earnings, performance and other statements that are other than statements of historical facts. 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. They are neither statements of historical fact nor guarantees or assurances of future performance. 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 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 activities; our ability to realize benefits from acquisitions; 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. 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. 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. We therefore caution you against relying on any of these forward-looking statements, which speak only as of the date made.
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 a number of 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 costs, including, but not limited to: stock-based compensation, restructuring, write-off of prepaid royalties, write-off of Intangible assets, acquisition-related costs, amortization of intangible assets and depreciation expense related to the fair value write-up of acquired property and equipment. We also consider the use of non-GAAP earnings per share helpful in assessing the performance of the continuing operations of our business. While our management uses these 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.
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 ability of readers of our financial statements to compare our financial results 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.
In the second quarter of 2013 we recorded $0.6 million of expense for the write-off of an intellectual property intangible asset which we determined was impaired as of June 28, 2013. We believe that excluding the impairment of intangible assets 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 recorded $1.9 million and $1.7 million of restructuring expense in the first and second quarters of 2013, respectively. We believe that excluding restructuring expense facilitates the comparison of our financial results to our historical operating 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.
|SONUS NETWORKS, INC.|
|Condensed Consolidated Statements of Operations|
|(in thousands, except percentages and per share amounts)|
|Three months ended|
|June 28,||March 29,||June 29,|
|Cost of revenue:|
|Total cost of revenue||25,185||25,486||24,815|
|Total gross margin||63.6||%||59.7||%||56.9||%|
|Research and development||18,019||17,501||17,095|
|Sales and marketing||19,191||21,114||18,141|
|General and administrative||9,733||10,710||8,384|
|Total operating expenses||48,641||51,274||44,587|
|Loss from operations||(4,633||)||(13,472||)||(11,792||)|
|Interest income, net||90||138||222|
|Other income, net||3||-||-|
|Loss before income taxes||(4,540||)||(13,334||)||(11,570||)|
|Income tax provision||(330||)||(414||)||(155||)|
|Loss per share:|
|Shares used to compute loss per share:|
SONUS NETWORKS, INC.
Condensed Consolidated Statements of Operations
(in thousands, except percentages and per share amounts)
|Six months ended|
|June 28,||June 29,|