Niklas Bjorkman wrote: Firstly I agree with your conclusion. NewSQL takes the best of the traditional databases and NoSQL databases to combine the benefits of both worlds. I do not agree that NewSQL vendors focus on giving scale-out features to transactional data. The NewSQL market is focusing on giving true ACID support combined with extreme performance, stepping away from the traditional relational structures in databases. A lot of developers appreciate the ease of accessing data using SQL and I think we will see more and more databases supporting standard SQL.
As you said - NewSQL databases often maintain the...
Results are reported on a consolidated basis and include the partial
quarter financial effect of Network Equipment Technologies, Inc.
(“NET”), an acquisition which closed on August 24, 2012. A table
providing stand-alone Sonus and stand-alone NET results is provided in
the supplementary financial data on the IR page of the Company’s website.
Third Quarter Consolidated 2012 Highlights (including NET)
Total revenue was $57.0 million.
Total SBC revenue, including maintenance and services, was $25.4
million, compared to $19.1 million in the second quarter of 2012 and
$13.9 million in the third quarter of 2011.
SBC product revenue was $20.4 million, compared to $13.5 million in
the second quarter of 2012 and $10.4 million in the third quarter of
2011.
SBC product revenue was a record 61% of total product revenue.
Won 40 new customers in the quarter, 11 for Sonus and 29 for NET
(post-acquisition).
Sonus SBC 5100 and Sonus SBC 5200 Certified in Microsoft's Unified
Communications Open Interoperability Program for Microsoft Lync Server
2010; together with Sonus SBC 1000 and Sonus SBC 2000 represents the
largest portfolio of MS Lync certified SBCs on the market.
Revenue for the third quarter of fiscal 2012 was $57.0 million, compared
to $57.6 million in the second quarter of fiscal 2012 and $66.4 million
in the third quarter of fiscal 2011. The GAAP net loss for the third
quarter of fiscal 2012 was $15.6 million, or $0.06 per share, compared
to a GAAP net loss of $11.7 million, or $0.04 per share, in the second
quarter of 2012 and GAAP net income of $1.9 million, or $0.01 per
diluted share, in the third quarter of fiscal 2011. The non-GAAP net
loss for the third quarter of fiscal 2012 was $6.3 million, or $0.02 per
share, compared to a non-GAAP net loss of $8.6 million, or $0.03 per
share, in the second quarter of fiscal 2012 and non-GAAP net income of
$4.1 million, or $0.01 per diluted share, in the third quarter of fiscal
2011.
2012 Fourth Quarter and Full Year Outlook
The Company’s outlook is based on current indications for its business,
which may change during the current quarter. All figures are non-GAAP
and include the partial quarter effect of NET in the third quarter of
2012 and the anticipated full quarter effect of NET in the fourth
quarter of 2012. 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.
Fourth Quarter 2012
Current Guidance
Total Revenue
$77 to $81 million
SBC Total Revenue
$25 to $26 million
SBC Product Revenue
$21 to $22 million
NET Total Revenue (incl. in Total Revenue)
NET SBC Total Revenue (incl. in SBC Total Revenue)
$10 million
$4 million
Gross Margin
58%
Operating Expenses
$44 to $45 million
Diluted EPS
$0.00 to $0.01
Cash & Investments
$270 million
Diluted shares
282 million
Full Year 2012
Current Guidance
Total Revenue
$256 to $260 million
SBC Total Revenue
$87 to $88 million
SBC Product Revenue
$68 to $69 million
NET Total Revenue (incl. in Total Revenue)
NET SBC Total Revenue (incl. in SBC Total Revenue)
$17 million
$6 million
Gross Margin
60%
Operating Expenses
$170 to $171 million
Basic EPS
$(0.06) to $(0.07)
Cash & Investments
$270 million
Diluted shares
280 million
Restructuring
In August 2012, the Company initiated a plan to streamline operations
and reduce operating costs, including a corporate-wide restructuring
plan. In the third quarter of fiscal 2012 the Company recorded
restructuring expenses of $2.0 million for severance and related
expenses and the consolidation of its France offices. The Company
expects to record additional restructuring expenses of $6.0 million in
the fourth quarter of fiscal 2012, comprised of approximately $5 million
for facility-related charges and $1 million for severance and other
related charges.
Quote
“Sonus proved this quarter that our SBC growth engine is continuing to
grow faster than the market. We continue to compete very effectively and
grow our market share,” said Ray Dolan, President and Chief Executive
Officer. “This continued momentum will enable us to more rapidly
transition our business from legacy Media Gateway toward a profitable
SBC growth company.”
Conference Call Details
Date: November 7, 2012 Time: 8:30 am (ET) Dial-in number: 800
908 8402 International Callers: +1 212 231 2936
Replay information:
A telephone playback of the call will be available shortly following the
conference call until November 21, 2012 and can be accessed by calling
800 633 8284 or +1 402 977 9140 for international callers. The
reservation number for the replay is 21606654. A webcast replay of the
conference call will also be available shortly following the conference
call on the Company’s Investor Relations Web site in the Events &
Presentations – Archived Events section.
Accounting Period:
As of the beginning of fiscal 2012, the Company began reporting its
first, second and third quarters on a 4-4-5 basis, with the quarter
ending on the Friday closest to the last day of each third month. The
Company's fiscal year-end is December 31.
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 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
report are forward-looking statements. Without limiting the foregoing,
the words “anticipates”, “believes”, “could”, “estimates”, “expects”,
“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 regarding the following: plans, objectives, outlook, goals,
strategies, future events or performance, growth in market share,
trends, investments, customer growth, operational performance and costs,
liquidity and financial positions, competition, estimated expenditures
and investments, impacts of laws, rules and regulations, 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; our ability to recruit and retain key
personnel; difficulties supporting our new strategic focus on channel
sales; difficulties retaining and expanding our customer base;
difficulties leveraging market opportunities; restructuring activities;
our ability to realize benefits from acquisitions (including with
respect to our acquisition of Network Equipment Technologies, Inc.);
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 consistent 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, amortization of intangible assets, depreciation expense
related to the fair value write-up of acquired property and equipment,
acquisition-related costs and restructuring. We also consider the use of
non-GAAP earnings per share helpful in assessing the organic performance
of the continuing operations of our business. By organic performance we
mean performance as if we had owned an acquired business in the same
period a year ago. 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
operating results to our historical results and to other companies in
our industry.
We exclude the amortization of acquired intangible assets from non-GAAP
expense and income measures. These amounts are inconsistent in amount
and frequency 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, and provides meaningful information regarding our
liquidity.
As part of the assessment of the assets acquired and liabilities assumed
in connection with the NET acquisition, we were required to increase the
aggregate fair value of acquired property and equipment by $2.0 million.
The acquired property and equipment is being depreciated over a weighted
average useful life of approximately 2.5 years. We believe that
excluding the incremental depreciation expense resulting from the fair
value write-up of this acquired property and equipment facilitates the
comparison of our operating results to our historical 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
organic continuing operations of the acquired business and accordingly,
we believe they are generally not relevant in assessing or estimating
the long-term performance of the acquired assets. 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. By excluding acquisition-related costs from our non-GAAP
measures, management is able to evaluate our ability to utilize our
existing assets and estimate the long-term value that acquired assets
will generate for the Company.
We recorded $2.0 million of restructuring expense in the third quarter
of fiscal 2012 and expect to record approximately $6 million of
restructuring expense in the fourth quarter of fiscal 2012 for
facilities associated with the continuing integration of NET, severance
and related costs. We believe that excluding restructuring expenses
facilitates the comparison of our financial results to our historical
operating results and to other companies in our industry and provides
meaningful information regarding our liquidity.
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)
(unaudited)
Three months ended
September 28,
June 29,
September 30,
2012
2012
2011
Revenue:
Product
$
33,520
$
32,586
$
41,892
Service
23,529
25,024
24,461
Total revenue
57,049
57,610
66,353
Cost of revenue:
Product
11,768
11,027
11,504
Service
12,839
13,788
12,633
Total cost of revenue
24,607
24,815
24,137
Gross profit
32,442
32,795
42,216
Gross margin:
Product
64.9
%
66.2
%
72.5
%
Service
45.4
%
44.9
%
48.4
%
Total gross margin
56.9
%
56.9
%
63.6
%
Operating expenses:
Research and development
15,612
17,095
16,231
Sales and marketing
17,613
18,141
14,651
General and administrative
7,939
8,384
10,133
Acquisition-related
4,090
967
-
Restructuring
1,992
-
-
Total operating expenses
47,246
44,587
41,015
Income (loss) from operations
(14,804
)
(11,792
)
1,201
Interest income, net
20
222
269
Other expense, net
(2
)
-
-
Income (loss) before income taxes
(14,786
)
(11,570
)
1,470
Income tax (provision) benefit
(833
)
(155
)
439
Net income (loss)
$
(15,619
)
$
(11,725
)
$
1,909
Earnings (loss) per share:
Basic
$
(0.06
)
$
(0.04
)
$
0.01
Diluted
$
(0.06
)
$
(0.04
)
$
0.01
Shares used to compute earnings (loss) per share:
Basic
280,145
279,926
278,721
Diluted
280,145
279,926
279,324
SONUS NETWORKS, INC.
Condensed Consolidated Statements of Operations
(in thousands, except percentages and per share amounts)
(unaudited)
Nine months ended
September 28,
September 30,
2012
2011
Revenue:
Product
$
107,517
$
107,291
Service
71,481
78,133
Total revenue
178,998
185,424
Cost of revenue:
Product
31,988
44,283
Service
40,019
42,364
Total cost of revenue
72,007
86,647
Gross profit
106,991
98,777
Gross margin:
Product
70.2
%
58.7
%
Service
44.0
%
45.8
%
Total gross margin
59.8
%
53.3
%
Operating expenses:
Research and development
51,094
47,026
Sales and marketing
56,339
42,246
General and administrative
25,302
26,526
Acquisition-related
5,057
-
Restructuring
1,992
-
Total operating expenses
139,784
115,798
Loss from operations
(32,793
)
(17,021
)
Interest income, net
457
1,036
Other expense, net
(2
)
-
Loss before income taxes
(32,338
)
(15,985
)
Income tax provision
(1,444
)
(448
)
Net loss
$
(33,782
)
$
(16,433
)
Loss per share:
Basic
$
(0.12
)
$
(0.06
)
Diluted
$
(0.12
)
$
(0.06
)
Shares used to compute loss per share:
Basic
279,854
278,286
Diluted
279,854
278,286
SONUS NETWORKS, INC.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
September 28,
December 31,
2012
2011
Assets
Current assets:
Cash and cash equivalents
$
72,608
$
105,451
Marketable securities
206,614
224,090
Accounts receivable, net
46,638
53,126
Inventory
21,253
15,434
Deferred income taxes
751
486
Other current assets
21,605
12,246
Total current assets
369,469
410,833
Property and equipment, net
25,452
22,084
Intangible assets, net
17,106
1,200
Goodwill
34,563
5,062
Investments
24,058
55,427
Deferred income taxes
1,708
1,137
Other assets
14,464
8,972
$
486,820
$
504,715
Liabilities and stockholders' equity
Current liabilities:
Accounts payable
$
14,114
$
12,754
Accrued expenses
24,313
21,620
Current portion of deferred revenue
32,722
38,565
Current portion of convertible subordinated note
8,120
-
Current portion of other long-term liabilities
1,469
1,275
Total current liabilities
80,738
74,214
Deferred revenue
9,568
11,601
Long-term portion of convertible subordinated note
2,380
-
Other long-term liabilities
3,471
3,599
Total liabilities
96,157
89,414
Commitments and contingencies
Stockholders equity:
Common stock
281
279
Additional paid-in capital
1,319,113
1,309,919
Accumulated deficit
(935,986
)
(902,204
)
Accumulated other comprehensive income
7,255
7,307
Total stockholders' equity
390,663
415,301
$
486,820
$
504,715
SONUS NETWORKS, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine months ended
September 28,
September 30,
2012
2011
Cash flows from operating activities:
Net loss
$
(33,782
)
$
(16,433
)
Adjustments to reconcile net loss to cash flows used in operating
activities:
Depreciation and amortization of property and equipment
9,081
8,721
Amortization of intangible assets
904
300
Stock-based compensation
6,540
6,308
Loss on disposal of property and equipment
23
14
Changes in operating assets and liabilities:
Accounts receivable
13,020
8,762
Inventory
(3,868
)
19,113
Other operating assets
(4,998
)
9,763
Accounts payable
(1,753
)
(7,234
)
Accrued expenses and other long-term liabilities
(3,625
)
(12,046
)
Deferred revenue
(9,624
)
(33,477
)
Net cash used in operating activities
(28,082
)
(16,209
)
Cash flows from investing activities:
Purchases of property and equipment
(7,792
)
(10,962
)
Business acquisition, net of cash acquired
(35,508
)
-
Purchases of marketable securities
(139,917
)
(152,402
)
Sale/maturities of marketable securities
200,380
192,769
Net cash provided by investing activities
17,163
29,405
Cash flows from financing activities:
Proceeds from sale of common stock in connection with employee stock
purchase plan
1,693
1,513
Proceeds from exercise of stock options
151
818
Payment of tax withholding obligations related to net share
settlements of restricted stock awards
(169
)
(1,245
)
Principal payments of capital lease obligations
(87
)
(66
)
Settlement of redeemable convertible subordinated debentures
(23,704
)
-
Net cash (used in) provided by financing activities
(22,116
)
1,020
Effect of exchange rate changes on cash and cash equivalents
192
(445
)
Net (decrease) increase in cash and cash equivalents
(32,843
)
13,771
Cash and cash equivalents, beginning of year
105,451
62,501
Cash and cash equivalents, end of period
$
72,608
$
76,272
SONUS NETWORKS, INC.
Supplemental Information
(In thousands)
(unaudited)
The following tables provide the details of stock-based compensation
and amortization of intangible assets included in the Company's
Condensed Consolidated Statements of Operations and the line items
in which these amounts are reported.
Three months ended
September 28,
June 29,
September 30,
2012
2012
2011
Stock-based compensation
Cost of revenue - product
$
41
$
36
$
100
Cost of revenue - service
211
209
258
Cost of revenue
252
245
358
Research and development expense
524
633
505
Sales and marketing expense
500
491
408
General and administrative expense
1,124
654
796
Operating expense
2,148
1,778
1,709
Total stock-based compensation
$
2,400
$
2,023
$
2,067
Amortization of intangible assets
Cost of revenue - product
$
428
$
-
$
-
Research and development
100
100
100
Sales and marketing
176
-
-
Operating expense
276
100
100
Total amortization of intangible assets
$
704
$
100
$
100
Nine months ended
September 28,
September 30,
2012
2011
Stock-based compensation
Cost of revenue - product
$
130
$
317
Cost of revenue - service
595
1,032
Cost of revenue
725
1,349
Research and development
1,773
1,565
Sales and marketing
1,458
1,468
General and administrative
2,584
1,926
Operating expense
5,815
4,959
Total stock-based compensation
$
6,540
$
6,308
Amortization of intangible assets
Cost of revenue - product
$
428
$
-
Research and development
300
300
Sales and marketing
176
-
Operating expense
476
300
Total amortization of intangible assets
$
904
$
300
SONUS NETWORKS, INC.
Statement on the Use of Non-GAAP Financial Measures and
Reconciliation of Non-GAAP to GAAP Financial Measures
(unaudited)
To supplement its condensed consolidated financial statements
presented in accordance with accounting principles generally
accepted in the United States ("GAAP"), the Company discloses
certain non-GAAP financial measures, including Gross margin -
product, Gross margin - service, Total gross profit, Total gross
margin, Research and development expense, Sales and marketing
expense, General and administrative expense, Operating expenses,
Income (loss) from operations, Net income (loss), and Income (loss)
per share. These non-GAAP financial measures are not presented in
accordance with, nor are they intended to be a substitute for, GAAP.
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.
We use a number of different financial measures, both GAAP and
non-GAAP, in analyzing and assessing the overall performance of our
business, making operating decisions, planning and forecasting
future periods, and determining payments under compensation
programs. We consider the use of these non-GAAP financial measures
helpful in assessing the core performance of our continuing
operations and liquidity, and when planning and forecasting future
periods. We define continuing operations as the ongoing revenues and
expenses of the business, excluding certain items. These excluded
items for the periods presented are stock-based compensation
expense, amortization of intangible assets, depreciation expense
related to the fair value write-up of acquired property and
equipment, acquisition-related costs and restructuring. We do not
include any income tax effect of non-GAAP adjustments as we were
unable to recognize a tax benefit on domestic losses incurred in any
of the periods presented; accordingly, no adjustment to income taxes
for non-GAAP items is required.
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 the
Company's GAAP financial measures reflect the exclusion of items
that are recurring and will be reflected in the Company's financial
results for the foreseeable future.
Stock-Based Compensation
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 operating results to our
historical results and to other companies in our industry.
Amortization of Intangible Assets
On August 24, 2012, we acquired all of the outstanding common stock
of Network Equipment Technologies, Inc. (“NET”) for $41.5 million,
or $1.35 per share of NET common stock. The transaction has been
accounted for as a business combination and the financial results of
NET have been included in our condensed consolidated financial
statements for the period subsequent to its acquisition. As part of
the preliminary purchase price allocation, we recorded $16.8 million
of identifiable intangible assets, comprised of developed
technology, customer relationships, order backlog and internal use
software, and $29.5 million of goodwill. We are amortizing the
identifiable intangible assets in relation to the expected cash
flows from the individual intangible assets over their respective
useful lives, which range from 4 months to 7 years. The amortization
of the developed technology, order backlog and internal use software
intangible assets is being recorded as cost of revenue (product) and
the amortization of the customer relationships is being recorded as
sales and marketing expense.
On January 15, 2010, we entered into an intellectual property asset
purchase and license agreement with Winphoria, Inc. (“Winphoria”)
and Motorola, Inc. (“Motorola”) to purchase certain of Winphoria’s
software code and related patents and to license certain other
intellectual property from Winphoria and Motorola. The purchase
price included an initial payment of $2.0 million and future
potential royalty payments dependent upon future sales of certain of
our products that include the Winphoria technology that was
purchased or licensed. In connection with this transaction we
recorded identifiable intangible assets which we have classified as
developed technology and that are being amortized on a straight-line
basis over five years, the expected useful life of the technology.
The amortization expense for these identifiable intangible assets is
charged to research and development expense.
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,
and provides meaningful information regarding our liquidity.
Depreciation Expense - Fair Value Write-up of Acquired
Property and Equipment
As part of the assessment of the assets acquired and liabilities
assumed in connection with the NET acquisition, we were required to
increase the aggregate fair value of acquired property and equipment
by $2.0 million. The acquired property and equipment is being
depreciated over a weighted average useful life of approximately 2.5
years. We believe that excluding the incremental depreciation
expense resulting from the fair value write-up of this acquired
property and equipment facilitates the ability of readers of our
financial statements to compare our operating results to our
historical results and to other companies in our industry.
Acquisition-Related Costs
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
organic continuing operations of the acquired business and
accordingly, we believe they are generally not relevant in assessing
or estimating the long-term performance of the acquired assets. 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. By excluding
acquisition-related costs from our non-GAAP measures, management is
able to evaluate our ability to utilize our existing assets and
estimate the long-term value that acquired assets will generate for
the Company.
Restructuring
We recorded $2.0 million of restructuring expense in the third
quarter of fiscal 2012 and expect to record approximately $6 million
of restructuring expense in the fourth quarter of fiscal 2012 for
facilities associated with the continuing integration of NET,
severance and related costs. We believe that excluding restructuring
expenses facilitates the comparison of our financial results to our
historical operating results and to other companies in our industry
and provides meaningful information regarding our liquidity.
SONUS NETWORKS, INC.
Reconciliation of Non-GAAP and GAAP Financial Measures - Outlook
(in millions, except percentages and per share amounts)
(unaudited)
Three months ended
Year ended
December 31, 2012
December 31, 2012
Range
Range
Revenue
$
77
$
81
$
256
$
260
Gross margin
GAAP outlook
55.5
%
55.6
%
58.5
%
58.5
%
Stock-based compensation
0.4
%
0.4
%
0.4
%
0.4
%
Amortization of intangible assets
1.7
%
1.6
%
0.7
%
0.7
%
Depreciation expense - fair value write-up of acquired property and
equipment
0.4
%
0.4
%
0.4
%
0.4
%
Non-GAAP outlook
58.0
%
58.0
%
60.0
%
60.0
%
Operating expenses
GAAP outlook
$
53.4
$
54.4
$
192.9
$
193.9
Stock-based compensation
(2.2
)
(2.2
)
(8.0
)
(8.0
)
Amortization of intangible assets
(0.6
)
(0.6
)
(1.1
)
(1.1
)
Depreciation expense - fair value write-up of acquired property and
equipment
(0.6
)
(0.6
)
(0.7
)
(0.7
)
Acquisition-related costs
-
-
(5.1
)
(5.1
)
Restructuring
(6.0
)
(6.0
)
(8.0
)
(8.0
)
Non-GAAP outlook
$
44.0
$
45.0
$
170.0
$
171.0
(Loss) earnings per share
GAAP outlook
$
(0.04
)
$
(0.03
)
$
(0.16
)
$
(0.15
)
Stock-based compensation expense
0.01
0.01
0.03
0.03
Amortization of intangible assets
0.01
0.01
0.01
0.01
Depreciation expense - fair value write-up of acquired property and
equipment
-
*
-
*
-
*
-
*
Acquisition-related costs
-
-
0.02
0.02
Restructuring
0.02
0.02
0.03
0.03
Non-GAAP outlook
$
-
$
0.01
$
(0.07
)
$
(0.06
)
* Less than $0.01 impact on earnings per share.
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 28,
June 29,
September 30,
2012
2012
2011
GAAP gross margin - product
64.9
%
66.2
%
72.5
%
Stock-based compensation expense
0.1
%
0.1
%
0.3
%
Amortization of intangible assets
1.3
%
0.0
%
0.0
%
Depreciation expense - fair value write-up of acquired property and
equipment
0.0
%
0.0
%
0.0
%
Non-GAAP gross margin - product
66.3
%
66.3
%
72.8
%
GAAP gross margin - service
45.4
%
44.9
%
48.4
%
Stock-based compensation expense
0.9
%
0.8
%
1.0
%
Depreciation expense - fair value write-up of acquired property and
equipment
0.1
%
0.0
%
0.0
%
Non-GAAP gross margin - service
46.4
%
45.7
%
49.4
%
GAAP total gross profit
$
32,442
$
32,795
$
42,216
Stock-based compensation expense
252
245
358
Amortization of intangible assets
428
-
-
Depreciation expense - fair value write-up of acquired property and
equipment
33
-
-
Non-GAAP total gross profit
$
33,155
$
33,040
$
42,574
GAAP total gross margin
56.9
%
56.9
%
63.6
%
Stock-based compensation expense % of revenue
0.4
%
0.5
%
0.6
%
Amortization of intangible assets % of revenue
0.8
%
0.0
%
0.0
%
Depreciation expense - fair value write-up of acquired property and
equipment % of revenue
0.0
%
0.0
%
0.0
%
Non-GAAP total gross margin
58.1
%
57.4
%
64.2
%
GAAP research and development expense
$
15,612
$
17,095
$
16,231
Stock-based compensation expense
(524
)
(633
)
(505
)
Amortization of intangible assets
(100
)
(100
)
(100
)
Depreciation expense - fair value write-up of acquired property and
equipment
(89
)
-
-
Non-GAAP research and development expense
$
14,899
$
16,362
$
15,626
GAAP sales and marketing expense
$
17,613
$
18,141
$
14,651
Stock-based compensation expense
(500
)
(491
)
(408
)
Amortization of intangible assets
(176
)
-
-
Depreciation expense - fair value write-up of acquired property and
equipment
(19
)
-
-
Non-GAAP sales and marketing expense
$
16,918
$
17,650
$
14,243
GAAP general and administrative expense
$
7,939
$
8,384
$
10,133
Stock-based compensation expense
(1,124
)
(654
)
(796
)
Depreciation expense - fair value write-up of acquired property and
equipment
(24
)
-
-
Non-GAAP general and administrative expense
$
6,791
$
7,730
$
9,337
GAAP operating expenses
$
47,246
$
44,587
$
41,015
Stock-based compensation expense
(2,148
)
(1,778
)
(1,709
)
Amortization of intangible assets
(276
)
(100
)
(100
)
Depreciation expense - fair value write-up of acquired property and
equipment
(132
)
-
-
Acquisition-related expense
(4,090
)
(967
)
-
Restructuring
(1,992
)
-
-
Non-GAAP operating expenses
$
38,608
$
41,742
$
39,206
GAAP income (loss) from operations
$
(14,804
)
$
(11,792
)
$
1,201
Stock-based compensation expense
2,400
2,023
2,067
Amortization of intangible assets
704
100
100
Depreciation expense - fair value of acquired property and equipment
165
-
-
Acquisition-related expense
4,090
967
-
Restructuring
1,992
-
-
Non-GAAP income (loss) from operations
$
(5,453
)
$
(8,702
)
$
3,368
GAAP net income (loss)
$
(15,619
)
$
(11,725
)
$
1,909
Stock-based compensation expense
2,400
2,023
2,067
Amortization of intangible assets
704
100
100
Depreciation expense - fair value of acquired property and equipment
165
-
-
Acquisition-related expense
4,090
967
-
Restructuring
1,992
-
-
Non-GAAP net income (loss)
$
(6,268
)
$
(8,635
)
$
4,076
(Loss) per share/diluted earnings per share
GAAP
$
(0.06
)
$
(0.04
)
$
0.01
Non-GAAP
$
(0.02
)
$
(0.03
)
$
0.01
Shares used to compute (loss) per share/diluted earnings per share
GAAP shares used to compute (loss) per share/diluted earnings
per share
280,145
279,926
279,324
Non-GAAP shares used to compute (loss) per share/diluted
earnings per share
280,145
279,926
279,324
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 28,
September 30,
2012
2011
GAAP gross margin - product
70.2
%
58.7
%
Stock-based compensation expense
0.1
%
0.3
%
Amortization of intangible assets
0.4
%
0.0
%
Depreciation expense - fair value write-up of acquired property and
equipment
0.0
%
0.0
%
Non-GAAP gross margin - product
70.7
%
59.0
%
GAAP gross margin - service
44.0
%
45.8
%
Stock-based compensation expense
0.8
%
1.3
%
Depreciation expense - fair value write-up of acquired property and
equipment
0.0
%
0.0
%
Non-GAAP gross margin - service
44.8
%
47.1
%
GAAP total gross profit
$
106,991
$
98,777
Stock-based compensation expense
725
1,349
Amortization of intangible assets
428
-
Depreciation expense - fair value write-up of acquired property and
equipment
33
-
Non-GAAP total gross profit
$
108,177
$
100,126
GAAP total gross margin
59.8
%
53.3
%
Stock-based compensation expense % of revenue
0.4
%
0.7
%
Amortization of intangible assets % of revenue
0.2
%
0.0
%
Depreciation expense - fair value write-up of acquired property and
equipment % of revenue
0.0
%
0.0
%
Non-GAAP total gross margin
60.4
%
54.0
%
GAAP research and development expense
$
51,094
$
47,026
Stock-based compensation expense
(1,773
)
(1,565
)
Amortization of intangible assets
(300
)
(300
)
Depreciation expense - fair value write-up of acquired property and
equipment
(89
)
-
Non-GAAP research and development expense
$
48,932
$
45,161
GAAP sales and marketing expense
$
56,339
$
42,246
Stock-based compensation expense
(1,458
)
(1,468
)
Amortization of intangible assets
(176
)
-
Depreciation expense - fair value write-up of acquired property and
equipment
(19
)
-
Non-GAAP sales and marketing expense
$
54,686
$
40,778
GAAP general and administrative expense
$
25,302
$
26,526
Stock-based compensation expense
(2,584
)
(1,626
)
Depreciation expense - fair value write-up of acquired property and
equipment
(24
)
-
Non-GAAP general and administrative expense
$
22,694
$
24,900
GAAP operating expenses
$
139,784
$
115,798
Stock-based compensation expense
(5,815
)
(4,959
)
Amortization of intangible assets
(476
)
(300
)
Depreciation expense - fair value write-up of acquired property and
equipment
(132
)
-
Acquisition-related expense
(5,057
)
-
Restructuring
(1,992
)
-
Non-GAAP operating expenses
$
126,312
$
110,539
GAAP loss from operations
$
(32,793
)
$
(17,021
)
Stock-based compensation expense
6,540
6,308
Amortization of intangible assets
904
300
Depreciation expense - fair value of acquired property and equipment
165
-
Acquisition-related expense
5,057
-
Restructuring
1,992
-
Non-GAAP loss from operations
$
(18,135
)
$
(10,413
)
GAAP net loss
$
(33,782
)
$
(16,433
)
Stock-based compensation expense
6,540
6,308
Amortization of intangible assets
904
300
Depreciation expense - fair value of acquired property and equipment
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