Sonus Networks (SONS) Acquires Taqua in $20M+ Deal; Reaffirms Outlook

September 26, 2016 5:27 PM EDT

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Sonus Networks, Inc. (Nasdaq: SONS) announced its acquisition of Taqua, LLC, a leading supplier of IP communications systems, applications and services to mobile and fixed operators, in an all-cash transaction. The acquisition closed on September 26, 2016.

There will be a conference call hosted by Ray Dolan, President and CEO, and Susan Villare, interim CFO, on Tuesday, September 27, 2016, at 8:30 a.m. (ET) to discuss the highlights of this transaction.

Overview of Taqua

  • Taqua was founded in 1998 and enables the transformation of software-based service provider networks to deliver next-generation voice, video and messaging services, including Voice over Internet Protocol (VoIP), Voice over Wi-Fi (VoWiFi) and Voice over Long-Term Evolution (VoLTE).
  • Taqua has over 400 next-generation IP Voice systems deployed worldwide, supporting over 4 million subscribers.
  • Taqua has approximately 80 employees and is headquartered in Richardson, TX, with research and development facilities in Acton, MA; Hyannis, MA; San Jose, CA; and Richardson, TX.

Historical Financial Results of Taqua

  • Total revenue was $28.3 million and $25.2 million for the fiscal years ended December 31, 2015 and 2014, respectively.
  • Total revenue was $16.8 million for the trailing twelve months ended June 30, 2016.
  • Total gross margin was 72.7% and 68.7% for the fiscal years ended December 31, 2015 and 2014, respectively.
  • Total gross margin was 61.0% for the trailing twelve months ended June 30, 2016.
  • GAAP operating expenses were $21.4 million and $17.2 million for the fiscal years ended December 31, 2015 and 2014, respectively.
  • Non-GAAP operating expenses1 were $19.1 million and $16.0 million for the fiscal years ended December 31, 2015 and 2014, respectively.
  • GAAP operating expenses were $21.0 million for the trailing twelve months ended June 30, 2016.
  • Non-GAAP operating expenses1 were $18.7 million for the trailing twelve months ended June 30, 2016.
  • GAAP operating loss was $0.8 million for the fiscal year ended December 31, 2015; GAAP operating income was $0.1 million for the fiscal year ended December 31, 2014.
  • Non-GAAP operating income1 was $1.5 million and $1.3 million for the fiscal years ended December 31, 2015 and 2014, respectively.
  • GAAP operating loss for the trailing twelve months ended June 30, 2016 was $10.8 million.
  • Non-GAAP operating loss1 for the trailing twelve months ended June 30, 2016 was $8.5 million.

1) Please see the reconciliation of Non-GAAP and GAAP financial measures in the press release appendix.

Taqua Forecast for Q416 on a Stand-Alone Basis

  • Total revenue is projected to be between $4 million and $5 million.
  • The impact on GAAP income (loss) per share is projected to be between ($0.04) and ($0.02).
  • The impact on Non-GAAP income (loss) per share1 is projected to be between ($0.02) and $0.00.

1) Please see the reconciliation of Non-GAAP and GAAP financial measures in the press release appendix.

Strategic Drivers of the Taqua Acquisition

  • The acquisition is expected to accelerate Sonus' mobile strategy by adding a Virtualized Mobile Core (VMC) Platform and an IP Multimedia Subsystem (IMS) Service Core.
    • Taqua's VMC combines standard functions required for VoLTE/VoWiFi solutions. Sonus provides both the critical SBC and the Diameter Edge/Core Router. This combination of products provides a complete solution for the evolving VoLTE/VoWiFi markets.
  • The acquisition is expected to expand Sonus' fixed portfolio by adding a Class 5 Softswitch (called T7000) for Network Transformation projects and a Multimedia Controller used in IP Peering applications (called T7100), both of which are complementary to Sonus' current product offerings.
  • The acquisition is well-aligned with Sonus' growth strategy and network transformation initiatives.
  • The acquisition is expected to strengthen Sonus' position within key large customer RFPs.

Transaction Details

  • Initial cash consideration of $20 million paid at the time of close.
  • Potential for additional cash payments if certain annual revenue thresholds are exceeded.

Quotes

Raymond P. Dolan, President and CEO of Sonus, commented, "The acquisition of Taqua adds to the top line opportunities for the current Sonus product portfolio in both the fixed line and mobile markets. Taqua's Virtual Mobile Core (VMC) is particularly compelling, as it allows Sonus to increase penetration in the VoLTE and VoWiFi markets as those markets emerge and then ultimately converge based on a single, unified core network architecture."

Dolan continued, "We are thrilled to welcome a talented Taqua team, which is widely regarded in the marketplace for outstanding innovation and customer focus. Together we will continue our leadership in software-based solutions allowing service providers and enterprises to enable a broad suite of cloud-based applications to communicate seamlessly across an all-IP, end-to-end network."

Advisors

Bowen Advisors served as Sonus' financial advisor and Wilmer Cutler Pickering Hale and Dorr LLP served as Sonus' legal advisor. Q Advisors LLC served as Taqua's financial advisor and Bryan Cave LLP served as Taqua's legal advisor.

Sonus Reconfirms its Q316 Guidance as Provided on July 27, 2016

The Company's guidance is based on current indications for its business, which are subject to change. Gross margin, operating expenses and diluted earnings per share (loss per share) are presented on both a GAAP and non-GAAP basis. A reconciliation of the non-GAAP to GAAP guidance and a statement on the use of non-GAAP financial measures are included at the end of this press release.

Q316 Guidance

Total Company Revenue

$63 million to $65 million

GAAP Gross Margin

65% to 65.6%

Non-GAAP Gross Margin1

68% to 68.5%

GAAP Operating Expenses

$44.6 million to $45.6 million

Non-GAAP Operating Expenses1

$38.5 million to $39.5 million

GAAP Loss per Share

($0.07) to ($0.06)

Non-GAAP Diluted Earnings per Share1

$0.08 to $0.09

Basic Shares

49.6 million

Diluted Shares

50 million

1) Please see the reconciliation of Non-GAAP and GAAP financial measures in the press release appendix.

Conference call details: Date: September 27, 2016Time: 8:30 a.m. (ET) Dial-in number: 800 670 1536 International callers: +1-303 223 4386

The Company will offer a live, listen-only Webcast of the conference call via the Sonus Networks Investor Web site at http://investors.sonusnet.com/events.cfm where supporting materials, including a presentation, have been posted.

An archived version of the broadcast will be available on the same website shortly after the conclusion of the live event. A replay of the telephone conference call will be available following the conference call until October 11, 2016, and can be accessed by calling 800-633-8284 or +1-402-977-9140 for international callers. The reservation number for the replay is 21818629.



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