Optical/IP Networks

Sonus: Whew!

The management at Sonus Networks Inc. gathered early this morning for a tightly scripted conference that started with a massive, metaphorical sigh of relief. The reason? It looks as if the softswitch vendor's eight-month accounting nightmare may finally be over, and this morning's upward trend of its share price suggests that investors think likewise.

Sonus is hoping for a swift return to the Nasdaq after filing its second-quarter financials with the Securities and Exchange Commission (SEC) late on Friday (see Sonus Reports Q2 ).

It was ejected from the exchange only a few weeks ago (see Nasdaq to Delist Sonus). That setback followed a traumatic 2004 for the firm as it worked towards the restatement of previous financial results (see Sonus Files, Share Price Rockets, Sonus Soothes Numbers Nerves, SEC Steps Up Sonus Probe, Sonus Redeploys CFO, and Sonus Drops a Bomb).

Now the outlook seems a bit brighter. CEO Hassan Ahmed told a conference call this morning that Sonus is "current on its financial reporting requirements with both the SEC and Nasdaq," and that Sonus could relist "under the continued listing requirements rather than the more stringent initial listing standards" once it's up to date with its filings.

COO Bert Notini said the company filed its submission to be relisted on Friday night, but he couldn't give a timetable for when further action might be taken. Analysts, though, expect Sonus to rejoin the exchange within the next two weeks.

That expectation, and the company's strong revenue growth, sent Sonus's share price up by 50 cents, more than 12 percent, to $4.60 in early trading today, valuing the company at $1.13 billion. That contrasts sharply with last Monday's closing price of just $3.20.

In its second quarter, Sonus met analysts' 2 cent EPS expectations and exceeded analysts' average revenue expectations of $38.9 million. It generated net income of $4.9 million on revenues of $42.4 million, compared with revenues of $36.5 million and net income of $3 million in the first quarter and revenues of $15.4 million (net loss of $7.3 million) in the second quarter of 2003. The firm ended the quarter with $303 million in cash and marketable securities.

Sonus is matching this revenue boost with an expansion in headcount, up to 471 employees from about 440 at the end of the first quarter, and a greater number of revenue-generating customers -- 37 in the second quarter, compared with 35 in the previous quarter.

Three companies contributed more than 10 percent of revenues in the second quarter: previously unannounced customer AT&T Wireless Services Inc. (NYSE: AWE), which is using the vendor's SMARRT wireless product; long-time user Qwest Communications International Inc. (NYSE: Q); and recent addition Volo Communications Inc. (see Volo Picks Sonus for VOIP).

This trio accounted for about 48 percent of revenues, while the top five customers brought in 60 percent, compared with 80 percent in the first quarter.

Given that ongoing heavy reliance on a small number of carriers, Sonus is still displaying a certain amount of caution in its financial reporting. The vendor declined to provide any guidance for the third quarter, with Notini saying only that the market factors driving growth in the first half of the year are set to continue.

One of those drivers is the growing, though unstated, revenues from the company's Class 5 switch replacement system launched in June, with Qwest named as an early adopter for its OneFlex VOIP service (see Sonus Solutions Chosen by Qwest and Qwest Uses Sylantro for VOIP Service). Sonus says AT&T Corp. (NYSE: T), for its CallVantage service, and NTT Communications Corp. are also customers.

Sonus says this product line, based on its Insignus softswitch and including its SX access server, isn't big enough yet to break out separately in its financial reports, but Ahmed expects it to be a "meaningful" revenue contributor by the end of 2004.

— Ray Le Maistre, International News Editor, Light Reading

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