Sonus Networks, Inc. (Nasdaq: SONS), a leading supplier of service provider voice over IP (VoIP) infrastructure solutions, today reported its financial results for the third quarter ended September 30, 2005.

Revenues for the third quarter of fiscal 2005 were $45.7 million compared with $58.1 million in the second quarter of fiscal 2005 and $46.8 million for the third quarter of fiscal 2004. Net loss for the third quarter of fiscal 2005 was $2.7 million or $0.01 per diluted share compared with net income of $9.7 million or $0.04 per diluted share for the second quarter of fiscal 2005, and compared with net income of $10.3 million or $0.04 per diluted share for the third quarter of fiscal 2004.

Revenues for the first nine months of fiscal 2005 were $137.4 million compared with $125.7 million in the same period last year. Net income for the first nine months of fiscal 2005 was $3.3 million or $0.01 per diluted share compared with net income for the first nine months of fiscal 2004 of $18.2 million or $0.07 per diluted share.

Third quarter revenue and earnings per share were lowered by $4.7 million and approximately 2 cents per diluted share respectively, as a consequence of the accounting treatment required for the renegotiation of certain customers' bundled maintenance and support arrangements in the quarter. This revenue will be recognized in subsequent periods as service revenue.

"While our reported financial results were lowered by the deferral of revenue related to two of our Tier 1 customers based on our accounting policies, our business in the third quarter expanded in several important ways," said Hassan Ahmed, chairman and CEO, Sonus Networks. "Our global leadership in the VoIP market resulted in the continued solid demand for Sonus' IP voice solutions from network operators around the world. We extended our wireless business in the U.S. and Japan, announced our first IMS-based consumer voice service in the U.S., achieved strong order activity in Europe, and delivered significant cash flow from operations."

In the third quarter, Sonus continued to broaden its customer base with the addition of several new customers and expansions of existing deployments. In September at this year's Fall Voice on the Net (VON) Conference, Sonus announced that Internet Service Provider (ISP) EarthLink selected Sonus Networks as the framework for its complete suite of consumer voice services. EarthLink is deploying key components in the Sonus Networks IP Multi-media Subsystem (IMS)-ready architecture, including the ASX(TM) Access Server, PSX(TM) Call Routing Server, and the Sonus Insight(TM) Management System. With the Sonus ISP solution, service providers like EarthLink are able simultaneously to deliver high quality telephony service and enriched communication applications.

Sonus and AOL announced the rollout of AOL's TotalTalk(TM), the first IMS-based consumer voice product to launch in the U.S. The two companies, which announced the first phase of their deployment in March 2005, announced that they are working together to deliver the next generation of enhanced consumer voice services that integrate voice, instant messaging and multi-media, as well as solutions that incorporate services based on VoIP/mobile integration.

Intrado, a leader in VoIP E9-1-1 solutions, also deployed Sonus solutions in the third quarter. Intrado is expanding its network coverage to support its VoIP service provider customers in meeting the functional requirements of the recent Federal Communications Commission ruling, which mandates E9-1-1 capabilities for VoIP service offerings. Intrado is leveraging a full suite of Sonus products to support the delivery of VoIP E9-1-1 calls using the Intrado(R) V9-1-1 Mobility Service, offering carriers both the security and point of demarcation functionality critical to delivering emergency services.

Sonus also announced three additional service providers as new Sonus customers in the third quarter: RANGER Wireless, which offers a patented 611 roaming service that enables wireless operators to route roaming calls back to home calling centers; ANI Networks, Inc., which offers wholesale long distance voice service for facilities and non-facilities based communications providers; and Vistula Communications Services, Inc., which provides hosted and managed VoIP services to carriers, service providers and transit network operators throughout the world.

In the third quarter, Sonus, which announced the unveiling of its IMS architecture in June 2005, was honored with a 2005 Frost & Sullivan Award for Technology Innovation in recognition of its achievements in building the industry's most advanced IMS solutions. The award is presented to the company that has demonstrated technological superiority within its industry, reflecting Sonus' early focus on building and deploying carrier-class distributed architectures that enable network operators to leverage new efficiencies and to provide a solid framework for the delivery of innovative new subscriber-centric services.

Further reinforcing Sonus technology leadership, at Fall VON Sonus demonstrated a variety of services that leverage the Company's award-winning IMS platform, such as its pre-WiMAX wireless Voice over Broadband solution. Using Motorola's Canopy(TM) wireless broadband system with Sonus' wireless VoBB architecture, service providers are able to architect a carrier class network that meets the growing demand for wireless broadband services.

In tandem with Belkin Corporation, Sonus showcased a new ring tone service that leverages the seamless interoperability between the Sonus-branded line of Belkin's VoIP broadband phone adapters and Sonus' industry leading ASX(TM) Access Server. Sonus uses Session Initiation Protocol (SIP) to communicate with solutions from other market-leading vendors and has built one of the largest interoperability programs in the industry.

"This is an exciting juncture in the evolution of the telecommunications industry. Service providers globally are focused on deploying innovative network architectures that not only deliver cost-efficiencies, but also change the way consumers communicate. This is the industry dynamic that Sonus' solutions were designed to address. As a pioneer and industry leader, Sonus is well positioned to capitalize on the momentum in the market and continue to expand its business," concluded Ahmed.

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 comprehensive IP Multimedia Subsystem (IMS) solution, Sonus addresses the full range of carrier applications, including residential and business voice services, wireless voice and multimedia, trunking and tandem switching, carrier interconnection and enhanced services. Sonus' voice infrastructure solutions are deployed in service provider networks worldwide. Founded in 1997, Sonus 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, dated March 15, 2005, and the "Cautionary Statements" section of Sonus' Quarterly Report on Form 10-Q, dated August 8, 2005, both filed with the SEC, which identify 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; 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, Inc. The Sonus PSX Call Routing Server, ASX Call Management Server and the Sonus Insight Management System are all trademarks of Sonus Networks. All other company and product names may be trademarks of the respective companies with which they are associated.

*T SONUS NETWORKS, INC.
Condensed Consolidated Statements of Operations (In thousands, except per share data) (Unaudited)
Three Months Ended September June September 30, 30, 30, 2005 2005 2004
Revenues: Product $29,107 $41,339 $36,064
Service 16,550 16,754 10,698
Total revenues 45,657 58,093 46,762
Cost of revenues: Product 17,410 15,404 6,296
Service 6,073 5,651 4,173
Total cost of revenues 23,483 21,055 10,469
Gross profit 22,174 37,038 36,293
Gross profit %: Product 40.2% 62.7% 82.5%
Service 63.3% 66.3% 61.0% Total gross profit 48.6% 63.8% 77.6%
Operating expenses: Research and development 11,787 11,098 8,975
Sales and marketing 10,834 11,504 10,539
General and administrative 5,455 6,477 6,638
Stock-based compensation 11 4 91
Amortization of purchased intangible assets - - 601
Total operating expenses 28,087 29,083 26,844
(Loss) income from operations (5,913) 7,955 9,449
Interest expense (121) (121) (117)
Interest income 2,690 2,222 1,150
(Loss) income before income taxes (3,344) 10,056 10,482
(Benefit) provision for income taxes (640) 311 214
Net (loss) income $(2,704) $9,745 $10,268
Net (loss) income per share: Basic $(0.01) $0.04 $0.04
Diluted $(0.01) $0.04 $0.04
Weighted average shares outstanding: Basic 248,801 248,249 246,198
Diluted 248,801 250,651 251,707
SONUS NETWORKS, INC.
Condensed Consolidated Statements of Operations (In thousands, except per share data) (Unaudited)
Nine Months Ended September 30, September 30, 2005 2004
Revenues: Product $92,904 $92,896 Service 44,456 32,759
Total revenues 137,360 125,655
Cost of revenues: Product 39,657 24,151
Service 16,993 12,659
Total cost of revenues 56,650 36,810
Gross profit 80,710 88,845
Gross profit %: Product 57.3% 74.0%
Service 61.8% 61.4%
Total gross profit 58.8% 70.7%
Operating expenses: Research and development 33,902 26,826
Sales and marketing 31,365 26,034
General and administrative 18,732 17,210
Stock-based compensation 15 606
Amortization of purchased intangible assets - 1,801
Total operating expenses 84,014 72,477
Loss) income from operations (3,304) 16,368
Interest expense (370) (360)
Interest income 6,787 2,806
Income before income taxes 3,113 18,814
(Benefit) provision for income taxes (233) 598
Net income $3,346 $18,216
Net income per share: Basic $0.01 $0.07
Diluted $0.01 $0.07
Weighted average shares outstanding:
Basic 248,312 245,394
Diluted 253,221 252,776
SONUS NETWORKS, INC. Condensed Consolidated Balance Sheets (In thousands)
September 30, December 31, 2005 2004 (Unaudited)
Assets Current assets: Cash and cash equivalents $134,789 $121,931
Marketable debt securities 182,735 170,145
Accounts receivable, net 42,690 32,486
Inventory, net 30,288 28,346
Other current assets 12,637 10,891
Total current assets 403,139 363,799
Property and equipment, net 14,894 8,217
Long-term investments 7,363 21,029
Other assets 720 783
$426,116 $393,828
Liabilities and Stockholders' Equity Current liabilities:
Accounts payable $12,697 $8,654
Accrued expenses 14,489 18,240
Accrued restructuring expenses 193 186
Current portion of deferred revenue 80,968 65,105
Convertible subordinated note 10,000 - Current portion of long-term liabilities 45 30
Total current liabilities 118,392 92,215
Long-term deferred revenue, less current portion 32,392 25,960
Long-term liabilities, less current portion 538 613 Convertible subordinated note - 10,000
Total liabilities 151,322 128,788
Commitments and contingencies Stockholders' equity:
Common stock 252 250 Additional paid-in capital 1,055,548 1,049,142
Accumulated deficit (780,739) (784,085) Treasury stock (267) (267)
Total stockholders' equity 274,794 265,040 $426,116 $393,828
SONUS NETWORKS, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Three Months Ended September June September 30, 30, 30, 2005 2005 2004
Cash flows from operating activities: Net (loss) income $(2,704) $9,745 $10,268
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation 2,154 1,626 1,276
Tax benefit from stock options exercised (225) 225 -
Stock-based compensation 11 4 91 Amortization of purchased intangible assets - -
601 Changes in current assets and liabilities: Accounts receivable 19,372 (34,431) (3,492)
Inventory 258 710 (7,365) Other current assets (26) (367) 1,698 Accounts payable 715 1,994 2,473
Accrued expenses and restructuring expenses (3,374) 314 (3,950) Deferred revenue (1,501) 22,848 (5,017)
Net cash provided by (used in) operating activities 14,680 2,668 (3,417)
Cash flows from investing activities:
Purchases of property and equipment (3,898) (3,070) (2,015)
Maturities (purchases) of marketable securities, net 1,016 (2,917) (5,649)
Increase in restricted cash (591) - - Other assets 102 42 102
Net cash used in investing activities (3,371) (5,945) (7,562)
Cash flows from financing activities:
Sales of common stock in connection with employee stock purchase plan 2,203 -
925 Proceeds from exercise of stock options 996 461 704 Payments of long-term liabilities (10) (8) (40)
Net cash provided by financing activities 3,189 453 1,589
Net increase (decrease) in cash and cash equivalents 14,498 (2,824) (9,390)
Cash and cash equivalents, beginning of period 120,291 123,115 126,235
Cash and cash equivalents, end of period $134,789 $120,291 $116,845 *T