Ladies and gentlemen, good morning and thank you for standing by. Welcome to Sonus Networks fourth quarter and full year, 2008 final results conference call. (Operator Instructions) As a reminder, this call is being recorded. Today is February 26, 2009. I would now like to turn the conference over to David Roy at Sonus. Please go ahead Mr. Roy.

Thank you, Mara, and good morning everyone. My name is Dave Roy, and I handle investor relations for Sonus. With me on the call this morning are Richard Nottenburg, our President and Chief Executive Officer and Rick Gaynor, our Chief Financial Officer, who will both address you shortly. Also with me today is Guru Pai, who joined Sonus in December as Senior Vice President of Sales and Services, Business Development, and Strategy. Earlier this morning we issued a press release announcing our results for the fourth quarter and full year, 2008. The text of this release, along with the accompanying income statement, balance sheet, and operating statistics, as well as a reconciliation of the most directly comparable gap financial measures, to any non-gap financial measures used during this call, and for certain prior periods, are available on the investor relations section of our website. Before Richard offers his opening remarks, I would like to remind you that during this call we will make projections or forward looking statements regarding items such as future market opportunities and the company’s financial performance. These remarks about the company’s expectations, plans, and prospects constitute forward looking statements for purposes of the safe harbor provisions under the private securities litigation reform act of 1995. These projections or statements are just predictions, and involve risks and uncertainties, so that actual events or financial results may differ materially from those we have forecasted. As a result, we can make no assurances that any projections of future events or financial performance will be achieved. For discussion of important risk factors that could cause actual events or financial results to vary from these forward looking statements, please refer to the risk factors section of our most recent annual report (inaudible) which is on file with the FCC as of this morning. Any forward looking statements represent our views only as of today, and should not be relied upon as representing our views as of any subsequent date. While we may elect to update forward looking statements at some point, we specifically disclaim any obligation to do so, unless required by law. During this call we will be referring to non-gap financial measures. These non-gap measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-gap financial measures to the most directly comparable gap measures is available in the investor relations section of our website. I would now like to turn the call over to our CEO, Richard Nottenburg. Rich?

Thank you David and good morning everyone. Thank you for joining us on the call today. 2008 was a challenging year. By now we all see the magnitude and the scope of the global economic downturn. The consensus is that this downturn is going to be deeper and longer in duration than many of us envisioned last year. Our customers are not immune and some have adjusted spending to manage the impact on their business, due to their higher cost to capital, and their reduced spending by their consumer and business customers. The continued downturn will cause our revenue to decline substantially in 2009. In our Q3 call, I outlined the three guiding principles for managing our business through the current economic environment. First: right-sizing and realign the business to the market opportunity. Here we’ve already undertaken some restructuring actions and accelerated our move to lower cost geographies. These actions will produce net cash savings of approximately $9 million dollars per year. Second: aggressively managing our balance sheet. Balance sheet strength is an important factor to customers on our industry as they plan multi-year network projects. With $388 million in cash and liquid investments with no debt, we have the resources to support our strategy and improve our market position. Third: focusing a larger percentage of our R&D investment on innovation to build category leadership in the IP session management space. To this end we are investing nearly $20 million in 2009 in our Network Border Switch platform and proprietary network tools and services to drive network transformation for our customers. While we have made progress in each of these areas, we have plans to do more work during 2009 to ensure we continue expand our portfolio, products and services, and position the company for profitable growth by building position…

Thank you, Rich, and good morning everyone. Before I begin, you may have noticed a new voice on the call. Dave Roy joined Sonus at the beginning of January as our Vice President of Investor Relations. With more than 22 years of experience managing investor relations in a number of high tech companies, Dave will lead our (inaudible) program and work towards continually improving our communications with all of you. And welcome, Dave. Please note that throughout my discussion I will reference both gap and non-gap financial information. There is a reconciliation of gap to non-gap information in the investor relations section of our website. Please also note that our financial results can vary significantly from quarter to quarter, such as in Q4, so we encourage you to evaluate us in a longer term annual basis. As we discussed in our Q3 call, we had committed to a plan to sell our Zynetics subsidiary in the 3rd quarter, 2008, and we finalized the sale this past November. In accordance with (inaudible) the results of operations of Zynetics have been reclassified and reported as discontinued operations, and our statements of operations for 2007 and 2008. So they will be excluded from my discussion of the results of continuing operations. There are a couple of exceptional items in Q4 which I will discuss to provide better insight into our operating performance for the quarter. First: during Q4 we concluded a large multi-year project with T-systems in Germany, and recognized direct revenue from the project of approximately $21.3 million, which carried an unusually low gross margin profile. As we had indicated on our previous conference call, we expected to record this unusual transaction within the next year. And the fourth quarter was the period in which all requirements were met and the revenue…

Thank you Rick. Before I move on to the rest of the business, let me add to Rick’s comments on our improved financial controls. Controls are very important to me, and I want to offer my thanks to all the Sonus employees who worked diligently over the last year to achieve what we have to this point, and for their ongoing commitment to make us even better. During 2008, we made good progress in our market. We continued to expand our footprint in customer networks with a number of design wins that underscores the value of the Sonus portfolio. We grew our install base, and one business with tier-1 international customers, such as Belgium Com ICS (ph), Colt, and TalkTalk Communications throughout the year. We accomplished this by staying focused on our core business to provide customers with proven, integrated solutions that simplify carrier-grade voice networks, while reducing their total cost of ownership, and improving their ability to realize greater ARPU. We continue to build a company that is distinctly more market-focused today than it was a year ago. Since I joined Sonus in June, we have been assessing the market opportunity, determining our strengths and weaknesses, and identifying where we provide the greatest value to our customers. We believe that through our core routing, session management, and media capabilities, Sonus has the potential to become the leading infrastructure supplier in the session management space. Today, we see carriers and operators needing to connect; any-to-any network, and any-to-any media, using multiple protocols in both TDM and IP domains, all in a secure and policy-driven environment. Our customers are addressing this need with the Sonus Network border switch, as part of a secure, IP pairing solution. As we continue to invest and strengthen our solution offering, the combination of this technology,…

Thank you Richard. Operator, could you please provide our callers with the instructions on how to ask a question.

(Operator Instructions). Your first question is from the line of Paul Silverstein with Credit Suisse. Please proceed with your question.

Good morning. If I could ask two questions; first off, I think you mentioned it on the call, but I just want to confirm that there aren’t any additional customers in the nature of the two systems situation that would result in significantly lower gross margin down the road. Is that a one off or are there other—

That is correct Paul, that’s what we said.

Okay.

You know, mixed bag, we get some high or some low, but we’ve no outliers of the nature of this particular deal.

Okay. Secondly, to extend your focusing more and more on the network border switch, and your comment about $20 million of investment, can you give us some metrics so that we can track this business as it grows? What is the departure point? I know you all have been in the business for a while, you’ve got 30 to 50 customers, and can you give us the customer count? Can you give us where revenues are at, either quantitatively or qualitatively? Some—so we could track this on an ongoing basis?

Sure Paul, thanks for your question, and the net—the $20 million is really around—if you’ll think of it in the broad—take a big picture view, it’s really around out IP pairing solution. I think the network border switch is an element in that solution, but I think what we need to do, and we’ll come back to you with on some of the subsequent calls, is we’ll come back to you with some metrics, that I think the investment community can use to track our progress in this area. So let us come back to you with some of those metrics as we get further down the road with the investment, and some of the proof points that I think that you’re looking for.

Rich, is it fair to conclude that at this point, the NBS is still not greater than 10% of total revenue?

You know, I don’t want to—we don’t really break these things out, and I really don’t want to do that for a lot of reasons, which you could understand, but what I’d like to do is be able to tell you that look, we were making a substantial investment here, obviously it’s targeted, to some extent, to our existing customers, but we’ve got a lot of interest around IP pairing, specifically, not just with wiring (ph), but also with wireless carriers. So we’d like to paint the whole picture for you, and we’d like to kind of paint this picture over the next couple of quarters and (inaudible) on subsequent calls.

All right, if I could ask one last question if I may. We all recognize over our Q-macro (ph) economic environment, which we’re operating, that being said, there was an announcement the other day of an award—it didn’t go to you guys—but can you give us some sense of what the activity is out there, and whether there are new projects that you do expect to be awarded this year, or whether every thing’s essentially ground to all?

Well I know the announcement you’re referring to, and I think that it’s obviously referring to the LT announcement. I think the following thing is true here. We are participating already—we already participate with wireless carriers, and we’re coming at the market—if you look at it, we’re coming to market with our IP pairing solution. I think that’s a very good way for Sonus to use its domain expertise around session management, around media transcoding, around being able to interconnect to sparing networks, and playing that space. I think as time goes on, I think you’re going to see that there are a substantial number of opportunities that we have that we are responding to, and we’re going to get our fair share of that business. So I think that if you look at how LT is going to be won out there, LT is being won primarily from the radio access network side, and we really don’t play in the radio access network. I think that we’ve got a good, fair share of opportunities in wireless. I think we’ve got a good strategy in place around IP pairing, and I think that we’ve got an excellent opportunity space there as this thing rolls out.

Hi Paul, this is Guru, just let me add to Rich’s comments. A part of the metric side of the pace and volume of RFB activity, which we—while—and it stayed relatively on the same plane as it has in prior quarters. What is interesting is how much of those are feasible, will actually turn into actual opportunities, is something that we don’t have a lot of visibility into right now.

Okay, next question please? Oh, Paul did you have another one?

No, I’m good, thank you.

Thanks Paul.

Our next question comes from the line of Subu Natarajan Subrahmanyan (ph) with SMH, proceed with your question. Natarajan Subrahmanyan – SMH: Thank you, I have two questions. First, just on the annual revenue side, I know you’re not providing specific guidance, but I think you made a comment that break even, it’s now about $250 million. The big point of the range of OpEx and gross margin, and this year, you could have an operating loss of—I just wanted to understand is the central scenario at this point—understanding that there’s a range of outcomes—that the company will make an operating loss, as it operated (inaudible), but what kind of central scenario do you expect for the year. And then my second question was around emerging markets, you talked in the past about opportunities in emerging markets, and potential partnerships to address that opportunity, and I just wanted to get an update on that front.

Okay, I’ll handle the first piece, and then I’ll hand it over to Guru to handle the emerging markets question. So let me just repeat some of the data points that we gave. We did indicate that we thought $250 million was about our operating break-even point. We did also indicate that we did expect to have an operating loss this year. So while we’re working hard to get our cost infrastructure down. We don’t think we’re going to be able to get all the way there during the course of this year. I don’t know if that helps you Subu. We did say that revenues would be down substantially year-over-year, and that’s a hard thing for us to measure, and we’re going to have to keep a close eye on that as we go forward. But right now, what’s happened with the cost infrastructure, we’re realigning our resources, and then we’ll have to kind of monitor it as we go through the year.

Subu, before I let Guru answer the second part of the question, let me just amplify something Rick said. I think you have to at what our strategy for 2009 is, and what the strategy for 2009 is, how are we going to—how is this company going to look—what is it going to look like as we exit the year? And I think when we exit the year, we’re going to have the right cost structure, and we’re going to exit with a strong, competitive position. That’s what we’re doing here, and I think that’s how you should track us throughout the year. We’re going to give you updates on every quarterly call; give you some metrics by which you could measure, but that’s the overall strategy.

Yeah, I think it’s—just one more comment on it is, we are prepared to have an operating loss this year with our current projections internally, but that is probably because of major investments which we’re making in certain areas, such in the network border switch platform. Approximately a $20 million in that platform alone this year, is a significant investment for us, but we think that that is a way to build a company that will generate long-term shareholder value. So we are prepared to stand some modest operating loss this year to be able to position the company for 2010 and beyond. And so with that, I’ll hand it over to Guru to handle the emerging markets question.

Hey Subu, the—we’ve established, and like Rick talked about—we’ve established fairly rigorous processes around validating what business makes sense for us. In emerging markets, the two criteria that are sort of the most important for me are what are our customer acquisitions and what are the support costs. Wherever those things makes sense, we will continue to pursue business as long as it’s (inaudible) meets our internal metrics. Natarajan Subrahmanyan – SMH: And if I could have one quick follow up on the cost structure versus the revenue side. Obviously, you’ll be working through the year to get the cost structure to the point where $250 million is your break even. Is that part of the reason you will, not for the full year, be able to have the benefit of debt and have an operating loss? Or do you expect the revenue itself to fall below $250 million, I guess is my question.

Well, we’re not giving specific range, but I think if you do the math Subu, you’ll figure out that with our current model—and the model will be subject to change—but we’re thinking that $250 is not achievable if we can’t get to operational break even in the year. We’re basically saying that when we say down substantially from the sort of $292 million adjusted range, $250 feels a little bit too high for our internal plan right now.

Yeah, and I think Subu, the other thing to kind of think about, and I think some of the analysts—one analysts pointed this out in one of the reports that issued in January, is that we’re affectively double-dipping on the R & D side. In other words, as we transition to lower cost geographies, we have to double up on some of our resources because we’ve got to train people into the transition, and so during this transition, you do have some of our—you have a little bit of dislocation in cost. What we’re doing is we’re taking advantage of 2009 as a rebuilding year, and we want to make that transition more securely, and obviously there will be a little bit of double-dipping going on there where we have to incur some extra costs. I think the other thing is—just to kind of amplify what Guru said is, if you think about the company, we have talked about the need to expand our—what I call our sales channel— so we’re not trying to push everything through our own SG&A footprint. I think to that extent—in that regard, you’re going to see a slight change in strategy here where we need to disaggregate some of our solutions set. And what I mean by that is that we need to be able to effectively present our products so that channel partners can basically, can effectively resell the products, and we’re in the process of doing that also. Therefore, there’s some investment around that. So I think 2009—to achieve some of that, what I call selling through channels which are basically not our direct channels, where we sell directly to carriers, we’ve got to make some investment to disaggregate our solutions to make it what I would call amenable too that type of scenario. Natarajan Subrahmanyan – SMH: Thank you very much for the clarification.

In the interest of time, can I ask each caller to limit themselves to one question.

Our next question comes from the line of Kenneth Muth with Robert W. Baird. Please proceed with your question. Kenneth Muth - Robert W. Baird & Co.: I just noticed on the balance sheet that the deferred revenues on the long-term basis were up about $18 million quarter-over quarter. Could you just give us any insights there, or is that kind of the British Telecom contract starting to come in?

Yeah, we do have—British Telecom is going into our deferred, long-term deferred right now. We have some other contracts that we’re working out way through. We are invoicing, we are getting paid, but we don’t—we haven’t hit all of the undelivered elements, so they will be accumulating into deferred revenue, and given where we are now, that effectively means they won’t score until 2010. Kenneth Muth - Robert W. Baird & Co.: Okay, and just a follow up, does that have any negative implication, or any implication at all for the gross margin profile in 2009? Or is that reflected in your current estimates?

No, I think it doesn’t impact the gross margin profile, although some of the deals will have some implication on our OpEx rate in 2009, because some of the costs to support those contracts are current year period expenses that we’re bearing, so it does have some drain on our operating earnings in 2009. Kenneth Muth - Robert W. Baird & Co.: Okay, thank you.

Our next question comes from the line of George Notter with Jefferies, please proceed with your question. George Notter - Jefferies & Co: If I do the math on AT&T, I think you said 27% of sales for the year, it looks like AT&T was around a million dollars in Q4, is that accurate? And then can you talk about the relationship going forward? I mean I understand the piece about deferring the 5.3 on an ongoing basis, but what’s the cause of no longer getting VSOE on services, and then at the same time, I mean AT&T historically has run at much higher revenue run rates. If the relationship’s not going to change, can we assume you’ll go back to those kinds of run rates going forward?

(Inaudible) there, yeah, I’m not—I don’t think your math works on this one George. AT&T while it’s below it’s (inaudible) percent threshold in Q4, we did indicate that if you added in the $5.5 million or so that we deferred out of the quarter because of the new (inaudible), it would have been a 10% customer, so you do some math there it’s definitely higher than $1 or $2 million, even in Q4 as scored. The other question on why did the accounting change? Well there are two or three factors, and I don’t want to go into all of the nuances of the accounting here, but the fundamental issues are we pulled together some legacy maintenance contracts with different elements of AT&T into a single contract. We renegotiated some terms of the contract in Q4, which is our annual maintenance contract renewal cycle for the most part, with most of our customers in that process, and the outcome of the negotiations of AT&T, there were certain terms in there that required us to change the accounting for that particular contract, and go the routable treatment (ph) on a go-forward basis. The relationship with AT&T stays very strong, and you shouldn’t read into that any fundamental change in the relationship. It’s a change in the contractual terms that have a ripple effect into accounting. So we’re still very happy with AT&T, and I think they’re very happy with us. In terms of overall health with AT&T, that’s more of a macroeconomic-type question, where AT&T is at account. We don’t go into many details there, but maybe Rich will want to comment.

Look, I appreciate the question, and I understand your concern. I think that AT&T, I think a lot of customers in the fourth quarter—there have been a lot of announcements in this space about reduce CapEx, reduce spending, you know, looking at 2009 through a different lens then you looked through at the 2008, and I think that this is just part of that macro environment. What our expectation is, is that if you think about the business in general, is that the transition from TDM to IP is a very—this is a long-term build out, and there’s still a lot of things that need to get done to pacatize (ph) both the core of the network and pacatize the edge, and I think that there’s still a lot of opportunity out there. But obviously, we’ve got to get—the overall economic environment has to change before we can get back on track where we need to be. George Notter - Jefferies & Co: Just directionally, is it fair to say that here in Q4 you produced these results despite a very small revenue contribution from AT&T in the quarter?

Small is relative George. No, I wouldn’t say it was—I think small than historical, I think just largely because of the economic environment. But still, as a percentage customer, it would have been a great (inaudible) 10% customer in the quarter if we hadn’t changed the accounting treatment. It’s still a meaningful account for us. George Notter - Jefferies & Co: Fair enough, thanks.

Next question please.

Our next question comes from the line of Troy Jensen with Piper Jaffray, please proceed with your question.

Hi guys, I’m just going to try to quick sneak in two short ones. The $20 million investment in R & D for the session management stuff, look at M & A side to get there quicker, and then just curious whether or not there’s going to be a better tail coming out of the T-systems business now that you’ve had the initial score.

I’ll take the first question. I think that one of the things that I looked at when I came in here, is I spent a lot of time looking at the intellectual property in the company, looking at a lot of the domain expertise, and one of the things that I realized is that we’ve got a very strong wealth of domain expertise, intellectual property. There’s been very significant R&D spend here over ten years. If you look at the investment that we’re doing this (inaudible). We’re really leveraging on a lot of things that we already have, and I think that this is most creative way to build the kind of product portfolio in the marketplace. I want to underscore, this is the most creative way. So we’re very internally focused right now, and on the other hand, if there was something very compelling, and it would have to be a compelling opportunity on the (inaudible) side, we’d look at it. But I’m very comfortable with the strategy we have, and the investment making in the portfolio, and I think that the returns that we’re going to get on this investment that we’re making, and then the time frame by which those returns would come. So I’m feeling good about that. That’s kind of my feeling about M & A activity right now.

I think the second part of the question was related to was there a tail on TSI?

Hey Troy, this is Guru. So I think the TSI was recently contemplated as a market entry strategy for Germany, and I think a lot of situations have changed, and I think in terms of follow on opportunities. We do have significantly smaller projects with better margin profiles for TSI, they’ve been working, but I think it’s safe to say from an overall perspective that the original charter from the market expansion in Germany will require rethinking on our part.

Okay, good luck on that gentlemen.

Operator we have time for one last questioner.

We have time for one last question, our last question comes from the line of Ted Jackson, with Cantor Fitzgerald. Please proceed with your question. Ted Jackson – Cantor Fitzgerald: Wow, the skin of the teeth. All the strategic ones were asked, could I ask a point question, and then one, just something on the balance sheet? I missed the settlement payment number that you’re going to see in the first quarter?

You should plan on $9.6 million in total. Ted Jackson – Cantor Fitzgerald: Thanks, and then just quickly on receivables and inventory. Receivables, as you commented, was up significantly, inventory actually was down pretty meaningfully. Can you just talk a little bit about where you expect receivables to go? I mean you would have been cash flow positive in the quarter if the receivables hadn’t jumped up like they had. So why is it up so much? It’s only (inaudible) a quarter, what can we expect in maybe the first quarter and beyond, and similar discussion on inventory. Thanks.

Yeah, I’m not going to project out accounts receivable. One of the reasons you see AR jump up traditionally in Q4 is most of our contract renewals are in Q4, so we invoice for those in the December time frame for the most part, so you will always see AR having a bit of a take off in the fourth quarter. In terms of inventory, you’ll see a drop in inventory. I think there’s two main—there’s probably multiple factors, but two main factors involved in that is one, the scoring of the TSI revenue. We have significant amount of inventory hung up in preferred COGS (ph), so that got relieved when we scored the overall revenue, so that was sort of an—you know, we internally look at revenue as on-hand, i.e. stuff that we keep in our manufacturing operation, sort of environment, and that stuff that we’ve shipped out to customers that’s at customer sites, but we haven’t scored the revenue yet. So when that scored, that brought our inventory balance down, and the other thing is that I think we’re just doing a generally better job with managing our inventory, particularly at period end, so I think we try to do better there. Ted Jackson – Cantor Fitzgerald: So receivables are just mainly service renewal contract.

That was the biggest mover in the quarter, yes. Ted Jackson – Cantor Fitzgerald: Great, thanks very much.

Okay, I want to thank everyone for joining us today. As is always the case, we’ll be available for any follow up questions you may have, just give us a call, and have a great day. Operator?

Ladies and gentlemen, this ends today’s conference call.