Sonus Networks Reports 2004 Fourth Quarter and Annual Financial Result

    Business Editors/High-Tech Editors

    CHELMSFORD, Mass.--(BUSINESS WIRE)--March 15, 2005--Sonus Networks (Nasdaq: SONS), a leading supplier of service provider voice over IP (VoIP) infrastructure solutions, today reported its financial results for its fourth quarter and fiscal year ended December 31, 2004.
    Revenues for the fourth quarter of fiscal 2004 were $45.1 million compared with $46.4 million in the same period last year, a decrease of 3%. Net income for the fourth quarter of fiscal 2004 was $6.3 million or $0.02 per diluted share, compared with net income for the fourth quarter of fiscal 2003 of $6.9 million, or $0.03 per diluted share.
    Revenues for fiscal year 2004 were $170.7 million compared with $93.2 million for fiscal year 2003, an increase of 83%. Net income for fiscal year 2004 was $24.5 million, or $0.10 per diluted share, compared with a net loss for fiscal year 2003 of $15.1 million, or $0.07 per diluted share.
    "Our 2004 financial results represent record performance by our team around the world. Revenue grew 83%, we were profitable on an annual basis, and we generated positive cash flow," said Hassan Ahmed, chairman and CEO, Sonus Networks. "As we continue to focus on growing the company, we are equally focused on improving our financial controls and infrastructure. We are pleased to have timely filed our Form 10-K for 2004 and to have completed the assessment of internal control over financial reporting under the new Sarbanes-Oxley 404 requirements."

    Fourth Quarter 2004 Summary

    Further broadening its customer base in the fourth quarter, Sonus announced that NetVision, Israel's largest Internet Service Provider, is deploying Sonus infrastructure to build a new network for global inter-connect. Additionally, Sonus announced that Interoute, owner and operator of one of Europe's most advanced telecommunications networks, is expanding its Sonus platform to meet growing demand for its successful Virtual Voice Network (VVN).
    Collaborating with the National Communications System (NCS), an agency of the Department of Homeland Security, Sonus demonstrated critical emergency services features for the Government Emergency Telecommunications Service (GETS) at the Global MSF Interoperability (GMI) 2004 event. In support of the NCS participation at GMI 2004, Sonus developed a critical software application that enables priority routing of emergency calls via the use of the Session Initiation Protocol (SIP) Resource Priority Header (RPH).
    During the quarter, Sonus continued to build its sales presence around the world. In October, Sonus expanded its direct sales operations in its Europe, Middle East and Africa (EMEA) region to support its increasing business focus in the region. Sonus also launched a new channel partnership with Marconi Corporation plc. In addition, Sonus continued to invest in sales by developing its presence in Asia Pacific, including a partnership agreement with Putian Capitel Group, a subsidiary of China Putian Corporation. Under the agreement, Putian Capitel will resell the full range of Sonus' VoIP infrastructure solutions, as well as provide support and consultation to customers in China. These investments reflect the momentum in the market as service providers globally look to deploy new VoIP services in both the core of the network and at the access edge.
    In December, leading industry research firms issued quarterly reports showing that Sonus continued its leadership in the carrier-class packet voice equipment market. Dell'Oro Group, Infonetics Research, In-Stat/MDR and Synergy Research Group all named Sonus as the market share leader in several segments of the carrier voice over IP (VoIP) equipment market, according to quarterly market share reports for Q3 2004.
    "2004 will be remembered as the year that VoIP became a mainstream technology, with many of the world's largest carriers announcing plans to deliver VoIP services. In 2005, we are confident in our ability to grow through innovation and our ability to deliver value to our customers. Sonus has taken a leading role in driving the adoption of VoIP technology and is well positioned to continue to lead the market," concluded Ahmed.

    Sarbanes-Oxley Update

    In connection with the company's 2004 year-end financial statements review, the company has tested its internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002. Company management has concluded that it had material weaknesses in its internal controls as of December 31, 2004. The company's independent auditors have issued an audit report wherein they concur with management's assessment that the company's internal control over financial reporting was not effective as of December 31, 2004. The reports of management and of the company's independent auditors are included in the company's Annual Report on Form 10-K.

    Conference Call and Webcast Information

    Sonus Networks will host a conference call Tuesday, March 15, 2005, beginning at 8:00 a.m. Eastern time. To listen via telephone, the dial-in number is (800) 633-8680 or (212) 231-6032. Sonus will also host a live webcast of the conference call. To access the webcast, visit www.sonusnet.com, Corporate, Investor Relations. A telephone playback of the call will be available following the conference and can be accessed by calling (800) 633-8284 or (402) 977-9140. The reservation number for the replay is 21235464. The telephone playback will be available through Monday, March 28, 2005. The webcast will also be available on the Sonus Networks Investor Relations site through Wednesday, March 15, 2006. To access the replay of the webcast, visit www.sonusnet.com, Corporate, Investor Relations.

    About Sonus Networks

    Sonus Networks, Inc. is a leading provider of voice over IP (VoIP) infrastructure solutions for wireline and wireless service providers. With its Open Services Architecture (OSA), Sonus delivers end-to-end solutions addressing a full range of carrier applications, including trunking and tandem switching, residential and business access, network border switching and enhanced services. Sonus' voice infrastructure solutions, including media gateways, softswitches and network management systems, are deployed in service provider networks worldwide. Sonus, founded in 1997, is headquartered in Chelmsford, Massachusetts. Additional information on Sonus is available at http://www.sonusnet.com.

    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 the "Risk Factors" section of Sonus' Annual Report on Form 10-K for the year ended December 31, 2004 filed with the SEC, which identifies important risk factors that could cause actual results to differ from those contained in the forward-looking statements. Risk factors include among others: the impact of material weaknesses in our disclosure controls and procedures and our internal control over financial reporting on our ability to report our financial results timely and accurately; the unpredictability of our quarterly financial results; risks associated with our international expansion and growth; consolidation in the telecommunications industry; risks associated with the investigation of the company by the SEC; and potential costs resulting from pending securities litigation against the company. 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.

    Sonus is a registered trademark of Sonus Networks. Open Services Architecture, GSX9000, Insignus and Sonus Insight are trademarks of Sonus Networks. All other trademarks, service marks, registered trademarks, or registered service marks are the property of their respective owners.

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

Three Three Three Months Months Months Ended Ended Ended Dec. 31, Sept. 30, Dec. 31, 2004 2004 2003 --------- --------- --------- Revenues $ 45,083 $ 46,762 $ 46,384 Cost of revenues 13,757 10,469 17,295 -------- -------- -------- Gross profit 31,326 36,293 29,089 -------- -------- -------- Gross profit % 69.5% 77.6% 62.7% Operating expenses: Research and development 9,348 8,975 7,945 Sales and marketing 8,935 10,539 6,990 General and administrative 7,385 6,638 6,338 Stock-based compensation 65 91 802 Amort. of goodwill and purchased intangible assets 601 601 602 -------- -------- --------

Total operating expenses 26,334 26,844 22,677 -------- -------- --------

Income from operations 4,992 9,449 6,412 -------- -------- -------- Interest expense (119) (117) (204) Interest income 1,477 1,150 897 -------- -------- --------

Income before provision for income taxes 6,350 10,482 7,105 -------- -------- -------- Provision for income taxes 89 214 204 -------- -------- -------- Net income $ 6,261 $ 10,268 $ 6,901 ======== ======== ======== Net income per share: Basic $ 0.03 $ 0.04 $ 0.03 Diluted $ 0.02 $ 0.04 $ 0.03 Shares used in computation: Basic 247,134 246,198 242,983 Diluted 256,443 251,707 258,607

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

Year Year Ended Ended Dec. 31, Dec. 31, 2004 2003 --------- --------- Revenues $170,738 $ 93,210 Cost of revenues 50,567 37,909 -------- -------- Gross profit 120,171 55,301 -------- -------- Gross profit % 70.4% 59.3% Operating expenses: Research and development 36,174 32,190 Sales and marketing 34,969 23,169 General and administrative 24,595 10,475 Stock-based compensation 671 3,418 Amort. of goodwill and purchased intangible assets 2,402 2,408 -------- --------

Total operating expenses 98,811 71,660 -------- --------

Income (loss) from operations 21,360 (16,359) -------- -------- Interest expense (479) (610) Interest income 4,283 2,135 -------- --------

Income (loss) before provision for income taxes 25,164 (14,834) -------- -------- Provision for income taxes 687 302 -------- -------- Net income (loss) $ 24,477 $(15,136) ======== ======== Net income (loss) per share: Basic $ 0.10 $ (0.07) Diluted $ 0.10 $ (0.07) Shares used in computation: Basic 245,830 220,696 Diluted 253,816 220,696

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

Dec. 31, Dec. 31, 2004 2003 ----------- ----------- Assets Current assets: Cash, cash equivalents and marketable securities $ 292,076 $ 305,392 Accounts receivable, net 32,486 23,754 Inventory, net 28,346 13,739 Other current assets 10,891 6,935 ---------- ---------- Total current assets 363,799 349,820 ---------- ---------- Property and equipment, net 8,217 5,009 Purchased intangible assets, net - 2,402 Long-term marketable securities 21,029 - Other assets 783 1,193 ---------- ----------

$ 393,828 $ 358,424 ========== ==========

Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses $ 26,894 $ 25,413 Accrued restructuring expenses 186 565 Current portion of deferred revenue 65,105 62,698 Current portion of long-term liabilities 30 182 ---------- ---------- Total current liabilities 92,215 88,858 ---------- ---------- Long-term deferred revenue, less current portion 25,960 24,302 Long-term liabilities, less current portion 613 829 Convertible subordinated note 10,000 10,000 Stockholders' equity: Common stock 250 247 Capital in excess of par value 1,049,142 1,043,581 Accumulated deficit (784,085) (808,562) Deferred compensation - (564) Treasury stock (267) (267) ---------- ---------- Total stockholders' equity 265,040 234,435 ---------- ----------

$ 393,828 $ 358,424 ========== ==========

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

Three Three Three Months Months Months Ended Ended Ended Dec. 31, Sept. 30, Dec.31, 2004 2004 2003 Cash flows from operating activities: Net income $ 6,261 $ 10,268 $ 6,901 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 1,617 1,276 2,065 Tax benefit from stock options exercised 67 - - Stock-based compensation 65 91 802 Amortization of purchased intangible assets 601 601 602 Changes in current assets and liabilities Accounts receivable 2,916 (3,492) (15,418) Inventory (780) (7,365) 2,683 Other current assets 1,970 1,698 552 Accounts payable (2,445) 2,473 339 Accrued expenses 38 (3,950) 4,370 Deferred revenue 3,076 (5,017) 1,837 -------- -------- --------- Net cash provided by (used in) operating activities 13,386 (3,417) 4,733 -------- -------- ---------

Cash flows from investing activities: Purchase of property and equipment (2,696) (2,015) (141) Purchases of marketable securities, net (8,118) (5,649) (125,802) Other assets (20) 102 (894) -------- -------- --------- Net cash used in investing activities (10,834) (7,562) (126,837) -------- -------- ---------

Cash flows from financing activities: Net proceeds from sale of common stock to public - - 63 Sales of common stock in connection with employee stock purchase plan - 925 - Proceeds from exercise of stock options 2,565 704 2,792 Payments of long-term liabilities (31) (40) (2,095) -------- -------- --------- Net cash provided by financing activities 2,534 1,589 760 -------- -------- ---------

Net increase (decrease) in cash and cash equivalents 5,086 (9,390) (121,344) -------- -------- --------- Cash and cash equivalents, beginning of period 116,845 126,235 255,059 -------- -------- --------- Cash and cash equivalents, end of period $121,931 $116,845 $ 133,715 ======== ======== =========

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CONTACT: Sonus Networks Investor Relations: Jocelyn Philbrook, 978-589-8672 jphilbrook@sonusnet.com Media Relations: Sarah McAuley, 617-894-2807 smcauley@greenoughcom.com

KEYWORD: MASSACHUSETTS INTERNATIONAL ASIA PACIFIC EUROPE Finance INDUSTRY KEYWORD: TELECOMMUNICATIONS CONFERENCE CALLS EARNINGS SOURCE: Sonus Networks

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