Sonus Cleared by SEC, Stock Jumps

Sonus Networks Inc. (Nasdaq: SONS) shares jumped 6 percent today after the company announced that the Securities and Exchange Commission (SEC) has ended formal investigation of its accounting practices and that no enforcement action will be taken (see SEC Ends Sonus Inquiry).

Sonus shares closed at $4.64, up $0.25 (5.69%). The 52-week range in the stock has been $2.94 to $7.02.

Sonus undertook a major review of its books and got into hot water with the SEC after revenue recognition issues came to light in early 2004. Last year, it restated is earnings for 2001-2003, and the SEC launched a "formal inquiry." The latest news from the company appears to put those chapters and its troubles with the SEC to rest, though it still has shareholder lawsuits to contend with. (See Sonus Drops a Bomb, SEC Steps Up Sonus Probe, Sonus Soothes Numbers Nerves, and Sonus Files, Share Price Rockets.)

Sporting one of the more volatile stock prices in the telecom supplier world, the news that the SEC inquiry has ended appears to have soothed the nerves of many investors, although the softswitch vendor's uneven financial performance still weighs on Wall Street (see Sonus Dips Into the Red).

"While this announcement is a clear positive, the ruling does not change the company's inability to forecast revenues nor does it lower the significant operating expenses that are required to strengthen Sonus' internal controls," wrote Lehman Brothers analyst Steven Levy in a note to investors this afternoon. Levy still rates Sonus Underweight, meaning he thinks it will underperform the market.

— R. Scott Raynovich, US Editor, Light Reading

allidia 12/5/2012 | 3:12:01 AM
re: Sonus Cleared by SEC, Stock Jumps has to be Sonus networks...

They introduce the GSX 4000 and an IMS solution while others are announcing roadmaps - Sonus delivers a solution. Land big Japanese customer (Jupiter) for entire product portfolio including IMS functionality. To complete the day as a Bonus SEC clears them without fines or even a finding. Sorry NT but you are on your own now.

Then we get the quote from Steve "Lucent to $6" Levy who just days before reiterated his underweight on SONS because of SEC and lawsuit uncertainty and lo and behold the SEC is gone completely now and what does he do... nothing. IMO it's because good news for SONS is bad news for Lucent. What is it with New Jersey? What do they need to show you Steve...

AOL/Jupiter/Global Crossing expansion and record bookings in Q4 with Q4+Q1 total bookings pushing $150m. That's momentum and did I mention no Pension Obligations or Legacy junk. Lucent seems to be stuck in the mud at $2.80 so the 2H05 must be a barn burner coming up or was that a reverse split figure.

materialgirl 12/5/2012 | 3:11:54 AM
re: Sonus Cleared by SEC, Stock Jumps Dear Allidia:

As a SONS bigot, I have to like your post. Here is my worry, however. They have continual problems with revenue recognition, seemlingly due to "elements of value" yet to be delivered that in turn seem dependent upon third party vendor interoperability. This is why Q1 reported revenues were so far below reputed orders (for which no Gaap test exists).

Then, you get the TWX guy (a SONS user) lamenting about the complexity of getting these multi-vendor VoIP networks to work. This lament is reflected in the SONS numbers. So, these are my nightmare worries:

1) Is multi-vendor VoIP worth the hassle?
2) When will these interop headaches go away?
3) Why are they taking so long to resolve?
4)If this is indeed a "race of turtles" (a slow race, but one with a winner none-the-less), does SONS have the resources to stay ahead?

I like the low market cap and the opportunity. The devil, however, seems to be in these details. Until these interop hassles go away, we cannot achieve a nice ramp and a smooth revenue growth trajectory.
allidia 12/5/2012 | 3:11:47 AM
re: Sonus Cleared by SEC, Stock Jumps Good questions.

Revenue recognition is a problem but nowhere near what Levy makes it to be. In a few qtrs this may likely be resolved. The CEO said he was disappointed that revenues in "This Qtr" didn't reflect the companies strength. He also said some of it was because of maintenance renewal timing and a contract expansion (notice none was lost business). They provided a Book to Bill that was fantastic for Q4/Q1. SB and GSCO understand that means business is strong.

A year of investment.... First Sarbanes Oxley affects all companies and most companies are spending 15% more to meet the needs so naturally SONS costs would go up even more to put the controls they need in place and for compliance. Second, SONS is building an employee infrastructure to support significant contract wins which they vaguely refer to as larger, more complicated networks. It takes more people to support a $300m run rate than a $150m run rate. These contracts often take longer upfront with the trial period but kick in heavy soon thereafter. The hiring supports the BtB Ratio.

TWTC comments are not directed at SONS but rather the industry failing to accept open standards. Many don't want them because they are STUCK with legacy gear and need more time to burn down inventory so they try to delay the process... SONS having recently landed AOL and Jupiter keeps cementing their technological dominance. I will be watching VZ/BLS/and SBC closely to see which direction they go for residential VOIP. It will be telling as to how fast they plan to rollout services. Selecting SONS shows commitment to immediate deployment. SBC seems to be leaning SONS direction with embracing of T's network, VZ deal with NT is up this month and the reviews are less than stellar, BLS is to soon to tell but the selection of other element vendors is encouraging. My guess is VZ will be first to announce an extension or change. Don't forget SONS has 12,000,000,000 minutes of traffic on the Sonus Powered Networks.

I'm amazed SONS hasn't been approached by MOT or CSCO for M+A. Especially now with the SEC out of the way... No legacy gear, No pension obligation, debt free, $300M cash, technology leader, lean and mean.

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