Good afternoon, and thank you for standing by. Welcome to the Sonus Networks' Second Quarter 2011 Financial Results Conference Call. At this time, I would like to remind everyone that today's call is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Fran Murphy, Vice President of Finance at Sonus, for opening remarks and introduction. Please go ahead.

Thank you, David, and good afternoon, everyone. Welcome to Sonus Networks' Second Quarter 2011 Results Conference Call. We thank you for joining us today. With me on the call this afternoon are Ray Dolan, our Chief Executive Officer; and Wayne Pastore, our Chief Financial Officer. Todd Abbott, our Senior Vice President of Worldwide Sales, is also here to help address your questions at the end of our prepared remarks. Before we get started, I'd 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 Sonus Networks' future 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 neither promises nor guarantees, and instead, are predictions based on management's current beliefs and involve various risks and uncertainties, such 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 or future events or financial performance will be achieved. For a discussion of important risks or uncertainties that cause -- that could cause actual events or financial results to vary from these forward-looking statements, please refer to our recent filings with the SEC, including the risk factors described in our Form 10-K for the year ended December 31, 2010, and Form 10-Qs for the quarters ended March 31, 2011 and June 30, 2011. 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. So we may elect to update or revise forward-looking statements at some point, we specifically disclaim any obligation to do so, unless required by law. And finally, please note that during our call, we will be referring to certain GAAP and non-GAAP financial measures. A reconciliation of the non-GAAP to comparable GAAP financial measures is available in the Investor Relations section of our website at www.sonusnet.com. A recording of this call and the instructions for accessing it are available on the Sonus Networks' Investor Relations website. For more details on our IR outreach plan for the second half of 2011, please feel free to contact me at your convenience. I would now like to turn the call over to our CEO, Ray Dolan. Please go ahead, Ray.

Thank you, Fran. Good afternoon, everyone and welcome. Let me briefly touch upon our numbers, and then Wayne will go into more detail. Revenue for Q2 was $51.8 million, down from $67.3 million in Q1, and down from $61 million in Q2 of last year. The decrease in revenue, both sequentially and year-over-year is mainly a result of orders that we expected to recognize as revenue in this quarter, but have slipped into the third quarter. Our SBC revenue for the quarter was $7.7 million, up from $2.3 million in Q1 and down from $9.4 million in Q2 of last year. It's interesting to note that for the first time since launching the 5200, customer bookings for this product represented over 50% of our total SBC bookings. While this data point may fluctuate quarter-to-quarter due to the spending patterns of some of our large 9000 customers, we're encouraged by the trend and expect that over time, the 5200 will remain an increasingly material part of our bookings and revenue. While I acknowledge that our revenue trajectory has yet to develop a healthy linearity, I would like to start this call with a clear message. We remain committed to delivering on our full year revenue guidance and are confident in our ability to grow our business. We recognize that we'll need to deliver stronger-than-normal revenue growth in the second half, but we've entered the second half with the visibility and the momentum required to reach our guidance range of $265 million to $280 million of revenue with $40 million coming from our SBC products, as previously guided. Our confidence in the strong second half is based on our forecasted new bookings, the general historical strength of our business in the fourth quarter, and importantly, our backlog where we have already scheduled…

Thank you, Ray, and good afternoon, everyone. Before I begin, please remember that our financial results can vary significantly from quarter-to-quarter. So as always, we encourage you to evaluate us on a longer-term basis. Now let me recap our results. Total revenue for the second quarter was $51.8 million, down from $67.3 million in Q1 2011, and down from $61.2 million in Q2 of last year. Revenues from our SBC products were $7.7 million, up from $2.3 million in Q1 2011, and down from $9.4 million in Q2 of last year. While our total book-to-bill and our total product book-to-bill were both below 1, our SBC product book-to-bill was greater than 1. Two customers contributed greater than 10% of revenue in the second quarter. These customers were AT&T and Qwest Communications. Our top 5 revenue customers represented approximately 46% of revenue in this quarter, down from 72% in Q1, and up from 43% in Q2 of last year. We reported revenue from 98 customers in the second quarter. This compared to 96 customers in the first quarter and 93 customers in Q2 2010. Looking at revenue geographically, domestic revenue accounted for 78% of revenue in Q2 versus 36% in Q1 and 68% in Q2 of last year. While these percentages can fluctuate on a quarter-to-quarter basis because of the timing of revenue recognition, the current quarter percentage in domestic revenue is consistent with our historical activity. Before I go into further details on our financials, I'd like to point out that the following are non-GAAP numbers that exclude stock-based compensation and amortization of intangible assets in both 2010 and 2011. Total gross margin for the second quarter was 58.8% of revenue, compared to 40.3% in Q1 and 63.8% in Q2 2010. Product gross margin for the second quarter was 67.7%,…

Thank you, Wayne. In closing, the team and I are very excited about our opportunity to grow the company. This is, first and foremost, about having the right team and talent in the organization. In addition to the solid foundation we have today, I'm excited about how we've been able to bring back the principal architects of our SBC, policy and access growth engines to Sonus, along with many other talented people. You should expect this trend to continue. Second, we are instituting greater discipline within the company around forecasting cross-functional collaboration. These actions should improve the predictability and linearity of our results. Third, our new SBC product, the 5200, is gaining traction with service providers and enterprises with a healthy funnel of activity. We are excited about the traction we are seeing with our SBC business and what this means our growth going forward. And last but not least, our visibility and momentum entering the second half gives us the confidence that we can deliver on the expectations we set with you for the year. Thank you very much for your time today, as well as your continued support. Fran, please transition us to the Q&A portion of the call.

Certainly, Ray. David, would you please provide our callers with the instructions on how to ask a question?

[Operator Instructions] Our first question comes from the line of Paul Silverstein from Crédit Suisse. Paul Silverstein - Crédit Suisse AG: Ray and Wayne, is it fair to assume that the $40 million projection for SBC for this year that the bulk of that is some $30 million-plus will likely be the 9000 platform at this point? Related -- probably more important question is can you give us some incremental sight, you shared with us the second Fortune 25 customer. I think you mentioned 2 tier 1 trials for the 5200. Any incremental insight you can share with us regarding traction on the new platform? And then I've got a follow-up question.

Sure, Paul. The first question is really the split in the 5200 and 9000. And I think it's going to be more 5200 than your question indicates. We're really not breaking that number out. But I would say to you that the 5200 is going to be the healthier portion of our revenue this year, and we maybe even thought of going in. And we're excited about that. Second part of your question, I think was the Fortune 25 customer, yes, we booked the second Fortune 25 financial industry sector customer. It validates the model Todd indicated that, that was eminent when we met in New York. And we're excited that the booked that and we booked that through a tier 1 service provider, so it validates the channel model. And we're beginning to see some positive effects from that. But I want to stress early days, okay? And the third part of your question I think was just how do we see the take up, in general, is that right, Paul? Paul Silverstein - Crédit Suisse AG: Correct.

We're seeing the take-up to be very, very positive. In fact, we're seeing companies go direct into implementation, not even going through trials from time-to-time. I wanted, as I did before, I wanted to say to you it's early. I'm not trying to declare victory by a long shot, but we're seeing an acceleration of interest. We're seeing an improvement in our internal ability to execute. And we're seeing increased interest in the service provider willingness to step up and be a channel into opportunities. Those are the opportunities -- I don't mean to cut you off, Paul. But those are the opportunities that we were fundamentally designed into and the service provider partnered with us during the process. We are short of having created a sustainable standalone service provider channel model. I don't want to indicate that, but that's something that we're also working through. It's a longer lead time item, but it's one and the same. It's a commitment to the channel, in general. Paul Silverstein - Crédit Suisse AG: Ray, on -- 2 questions related to channel and personnel. One on the channel, how many channel partners do you have at present? Can you give us any indication of the quality of those channel partners? And secondly, I'm trying to understand your comments about the rehires, in general and in particular, I think you all said the principal architect of the SBC. I'm assuming you're referring to the 5200. And I'm trying to understand whether this was a good thing or a bad thing relative to -- and I understand you haven't been there long, but I guess we've heard in the public comments and private conversations various things that would cut in different ways in terms of folks who've been there previously and working on those products. And I'm trying to understand the message. I trust you'd argue it’s a good thing. But I'm just not sure relative to historical commentary how we should view do this.

Okay. I'll give you my -- I'll answer the second question first, Paul, because it's a little longer. And I may defer to Todd to just talked about channel activity, which is the first part of your follow-up. I do, as you suggest, indicate that this is a good thing. I am personally involved in all of the significant rehires. And I believe it was a very good thing, particularly, the folks that are involved in our growth engines, which I would describe as the SBC access and policy, kind of in that order. I don't think there's any hair on it, so maybe you're talking about individuals that I'm not aware. If there's something that I worry about is, I want to make sure we don't bring the long-term past voice-only architecture heritage of the business, and get too heavily weighted there. We chose the path on doubling down on the trunking business in the past, and we're not doubling down from a personnel point of view in that regard. But we're bringing in some very sharp talent. In some cases, talent has been exposed to the video sector or the policy sector and other startups since they've left. And when they come back, they've come back with an even richer set of skills than when they left. So I'm very pleased with the types of rehires that we've gotten back. And they augment what I believe is already a pretty strong team to start. I don't want to dismiss that at all. Did I answer your question? Paul Silverstein - Crédit Suisse AG: Yes. Maybe more probably -- more appropriate for me to take it offline, my apologies. But on the channel?

Yes, go ahead, Todd.

On the channel, we've got about a dozen on a global level. We're basically holding off from the recruitment stage, and in fact, towards bringing in the additional ones on at this point, only because until we're really ready from the channel revenue standpoint of process, quote to cash process, and if you will, from a channel perspective, as well as products that really are ready from the channel readiness standpoint, it would be premature to go out and recruit. So we've got a portfolio today. They tend to be -- they tend to come in, driven by a couple of key transactions that were then hand holding through the process until we simplify our processes to be more channel-oriented. We'll start that recruitment process as we roll out a channel program, which I indicated would be in the beginning part of next year.

And our next question comes from the line of George Notter. George Notter - Jefferies & Company, Inc.: I guess, I wanted to ask about the shift out in revenue from Q2 to Q3. How much revenue was shifted out? And what motivated that shift out? And I'd love to know also if you've indeed taken that revenue for pro forma revenue recognition already here in Q3.

Yes. So George, this is Ray. I put it in the general range of about $10 million. I'd rather not be too specific. Nothing motivated shifting it out. It was just blocking and tackling issue. And I'm disappointed in it, but I don't believe it's a fundamental issue. We've got some long-term execution issues that we're working on. And there's nothing at all involving the customer, nothing negative other than the timing issue. So that addresses the size and whether there was a motivation to it. By the way, we have not scored it, but I don't think it will be a challenge this quarter, in Q3 -- in any cases of the revenues. George Notter - Jefferies & Company, Inc.: Got it, okay. And then just stepping back and talking about the SBC business, can you talk about customer cycles now? It sounds like you're getting more traction with the NBS5200. One point I think we talked about, the idea that you're trying to formulate more of a networking strategy around the NBS platform and rather than selling sort of the point solutions and the idea was that, that was stretching out sort of the sales cycle. Now it seems like you're more enthusiastic about the outlook in that business. Can you talk about what the sales cycle looks like? How does it change? Is it getting shorter again? Or how are you working through those issues?

I think, as the 5200 gets more validated in the market, the sales cycle does become much shorter because there is validation points, there's references, proof points of the quality of the product and the solution. So the sales cycle does -- it now is able to play into a much shorter sales cycle point product kind of segment to the market. We're still going through a lot of the larger systems sales, those tend to be multimillion and more complex, and a drive to our value prop, so there's still going to be the element of the portfolio of activity around that. But we are a seeing much greater take-up rate relative to some of the point product sales, which gives us some of the confidence going into the second half.

[Operator Instructions] Our next question comes from the line of Subu Subrahmanyan.

Two questions. First, going back to the comments about push out, can you characterize that as from the product mix perspective, were there some NBS revenues in that push out revenue? And can you, in general, talk about the level of bookings for NBS? I know you said book-to-bill is greater than 1, if you're going to combine particularly this [ph]. And if your lead customers, At&T and Qwest are buying the NBS products?

Subu, the first question was the push out, and then can you restate it? I apologize. I got the second too.

Yes. The push out -- if there was any NBS as part of the push out? And any quantification of that $10 million. Approximately how much was NBS?

I'd say it was -- one, it was a small push out. And it was really driven just by certification and acceptance type of things and very simple straightforward issues. But now, there wasn't a meaningful part of the NBS in that piece. As to whether or not our 2 biggest customers, AT&T and Qwest are buying the NBS, we're not going to get into that level of detail. There was one in the middle, Subu, I apologize. What was that one?

Just any kind of quantification of levels of the book-to-bill, NBS was greater than 1, any quantification you can provide? Or how many customers -- any kind of numbers you could wrap around NBS for this quarter would be helpful.

No. We really aren't go beyond book-to-bill of 1 or more. I would just say that we looked hard at that funnel, that's why we have confidence we'll hit our $40 million. We've got to prove that with proof points in Q3 and Q4, and when we'll be back down at that point.

Sure. And can you just talk what the base business needs [indiscernible] that's not as much as -- how you view that? Is it still your view of kind of a stable business? Where you guys are gaining share? What kind of dynamics you've seen there?

Well, we stated when we're together in June that we thought that would be a flat to slight growth business. I still believe we can achieve that. In fact, we see the year probably ending up being flat to a very small growth in our business x SBCs. If you do the math, we just got a big lightning bolt over our heads. So whether or not, where it's going in 2012, we're taking a good hard look at that, especially given all the feedback from folks that gave us on that day in June. And we'll get back to you. But at this point, I don't see anything falling off the cliff. If we change our view of flat to slight up, we'll get back to you on that one when we issue guidance for 2012.

And our next question comes from the line of Todd Koffman. Todd Koffman - Raymond James & Associates, Inc.: Can I just get a clarification? You said in the June quarter, it was about $10 million worth of business that slipped down into the second half. You stated that was session border control business?

No, it was largely not, Todd. Todd Koffman - Raymond James & Associates, Inc.: Okay. And then, you give some color around the bookings for the NBS. I think you said it was more than 50% of the total session border control bookings. Can you give us some sense of how big your session border control bookings are?

Yes, I understand. We can't do that, Todd. What I'm trying to indicate, and I do want to caveat it with its early days is that we're moving just beyond the hybrid model and into the 5200 model as well, and we're getting very good take up there. So that will be lumpy as we get a big 9000 order, which I said in our prepared remarks at the front. But we're very pleased with the proportion of 5200 interest that we're getting. It's going to give us a much more linear run rate. It's a much more straightforward product to sell and a much lumpier. And over time, it'll be much more channel friendly. Todd Koffman - Raymond James & Associates, Inc.: One quick follow-up. And you called out 2 new tier 1 service provider trials, are those service providers historically legacy customers of Sonus?

No.

Our next question comes from the line of Alex Henderson. Alex Henderson - Miller Tabak + Co., LLC: So you guys have a long history of really great quarters, followed by some pretty horrific quarters, followed by often very good quarters. And clearly, the guidance that you've offered up here for the back half of the year, after 2 fairly rough quarters, would suggest 2 really great quarters. My concern is that, that is not a projectable, sustainable rate, but rather a spike due to a couple of customers or some specific deployment. Can you give us some sense of whether you think that the back half rate of run -- revenues is a sustainable run rate or whether you think that, that's reflective of some pent-up demand that's going to blow off in the back half of the year, and then slide back down to more normalized levels in the first half. I just -- it seems like clearly, the $10 million shift out is related to -- some of that should have been in the first half, but the rest of it sounds still pretty aggressive in terms of ramp.

So Alex, one, I understand. And then as I addressed in my remarks, I would love to be able to project a more linear set of results, and we'll get there. To your question, will we be on a run rate of those 2 quarters going into next year, it's premature for me to say for sure. I would say probably not projectable x4, I mean, we're not issuing guidance at that level. But we would like to come back to the end of Q3 and give you some sense as to what we think we're on a run rate business. And particularly, we'd like to be able to break that out and verify that we're not on that kind of run rate for the SBC business. So that we can give you some indication not only the entire business, but an indication where our growth engines are. So we're working hard on that. We understand your concern. Frankly, the results will speak for themselves at that time, but we'll try to address that issue at that time, if we can, for you. Alex Henderson - Miller Tabak + Co., LLC: A couple of bookkeeping things. The ending share count, if you had been profitable, would have been what?

The ending share counts? Alex Henderson - Miller Tabak + Co., LLC: Yes. You had a loss of your share counts, not fully diluted. We don't...

Shares are about -- they're about 278 million shares, and there's not much of a shift from diluted to basic. Alex Henderson - Miller Tabak + Co., LLC: Okay. So it's not much of them, okay. And then second question, just to round out the sort of issues that are out there. Japan, there are several people talking about service provider infrastructure in Japan where the service providers are focused on rebuilding brick and mortar as opposed to new networks because of what happened over there. You've got a number of major customers in that geography. What are you hearing on that piece? And what are your assumptions on that piece? And how much of Japan is in the guidance for back half?

So I don't think it's a material new business is in the guidance for the back half. So all of that would be in the rearview mirror, Alex. And I don't believe our exposure to Japan is all that great, that it's going to go up and down. Remember, it's lumpy in its own nature. So I don't see, at this point in time, for us to correlate Japan, new network construction or lack thereof, impacting our results in the foreseeable future. So we're really exposed to 3 or 4 large service provider networks, and they're doing just fine. Alex Henderson - Miller Tabak + Co., LLC: You'd indicated the -- and last question, I'll free the floor. You'd indicated there earlier in the year that you had a tier 1 service provider that was buying the gear for deployment within their own network as opposed to in managed services. Is that part of the strength in the back half of the year expectations?

I don't think so. We have a number of tier 1 service providers that are testing and ramping their own use, as well as, as a channel. But no, it's not driving something in the back half of the year at this early stage.

I think there's not any one particular customer that we're banking on relative to reach in the guidance. It's more of a sustainable set of customers and market development that's going to drive it.

And our next question comes from the line of Ted Moreau.

So if we think back to last quarter, you had the big Bahamas Telecom project came through. And now you've got the push outs for this quarter. So I'm just kind of curious, is there any like major projects that you've got out there that are either at risk of timing or major projects that could pull through sometime in the next 2 quarters to help us feel through this lumpiness?

So Ted, this is Ray. Is there upside and downside in major projects in our backlog and in our forecast? Yes, there are things that are outside of our control for sure. We are already working hard on our internal execution, but yes, we are no less or more susceptible to things pushing out than anybody else. And we've worked hard to look at where we think those lie both individually and probabilistically, overall. And that's -- all of that thinking is in our guidance. I don't -- I can't think of anything, in particular, that I would point to for you.

Okay, fair enough. And I think you mentioned that 2/3 of your second half revenue has been booked. I think I caught that correctly. What's the normal rate?

So the normal -- how much the normal visibility or say, booked revenue that we'd have going out of 180 days? I would say about probably historically, about right. I think the percentage of backlog as well as bookings funnel and then book-to-ship revenue that's to going to appear in our forecast is close enough to our historical norms that we feel comfortable with.

Okay. And then did you give how much revenue was recognized? Or did you recognize any revenue on the 5200? Did you give that number at all?

We didn't give the number, but we did -- we did recognize revenue on the 5200.

Okay. And was that in the millions or was it below that --

I'll just leave it at that. We did book the revenue in the 5200s, and we'll report the category, as everybody else does, and what I tried to indicate in my prepared comments is that we’re very excited about the balance at this point in our SBC, and the shift in balance towards more linear products and faster time to revenue and more channel ready is all very favorable to the company. I'll just leave it at that.

Our next question comes from the line of Jonathan Keith [ph].

I just want to start off with just a couple quick clarification questions. One, you had said the $10 million push out, that was from one customer. And then second, you had talked about you initiated some processes to improve the forecasting and projections of your business plan and your guidance. I guess, when will that be completed? I guess, Ray, you're the one who had talked about that.

Yes, Jonathan. I had talked about it in my prepared comments, it's really a function of having brought on sales executive almost like 90 days ago and really beginning to drive that process far better than I could with my background. Let me answer your first question first. Were there one or more customers in the push out? There are multiple customers in that push out, okay? So it's -- that's just one. With regard to the sales processes and forecasting capabilities, I think Todd's joining has been just tremendous for our organization, helping us really climb towards a great organization in the sales processes. It's everything from managing the funnel, knowing what we're committing to in each of our theaters and hitting our commitments, and then also managing the backlog and things that have been booked as they scored a revenue, so people owning the accounts from bookings all the way to revenue scoring. I don't want overstate that all of a sudden, everything's going to get linearized. There's some linearity that's within our control and there's some that's in the basic architecture of service provider spending, and the complexity of the trunking business. But to the extent that we can get more predictable, we'll be able to deliver more predictable results for you. So I think most of those processes have been put in place. It's just a matter of organizational learning and rigor, and we're been focused on that right now.

So that should be -- I guess, it sounds like you're wrapping that up in terms of the organizational rigor, and you should have that process all in place for this quarter.

I would say that this process change take multiple quarters. I mean, we spent the last quarter putting a lot of these cross-functional processes in place. But there's a learning curve that any organization goes through in making -- in implementing these kind of processes. So I would say that we've started the journey. We've made good progress in the first quarter. We'll get better this quarter and get progressively better. But my experience is these take multiple quarters to really develop the discipline and skill set to be able to run really efficiently.

Okay, great. That makes sense, that helps, all right. And I guess my real question is for the second half, in terms of spending from the carriers, are you seeing the traditional seasonality, with the CapEx for us in Q4? Or has that shifted from the past? Or do you think that with what you have there it's such a small part of their CapEx spending that it's not as susceptible to any changes in the CapEx spending?

At this point, we don't think we're going to be affected by any big shifts from our CapEx spend. We got a pretty good line of sight relative to where we are think the spends are going to be, where the projects are. We always enter a quarter with an element of judgment based upon what might be some flush that will become a little bit bigger at the end of the year. I would say this year, we're going into the second half with a much stronger level of visibility to the transactions that we've got to close in revenue. So we're not banking on any significant flush at the end of the year.

And ladies and gentlemen, it appears we have time for one last question, and that will come from the line of Greg Mesniaeff.

Can you guys talk a little bit more about the enterprise opportunity for the NBS product line? And how you see that ramping up? What kind of visibility you have on the second half of the year? And also, whether you have any plans to introduce any variants of the product, more designed or targeted for the enterprise customer base.

So we began a coverage model in enterprise about a -- like 1.5 years ago. It's a long sales cycle into the enterprise especially for us, given that when we started, we didn't have broadened -- we really still don't have broad brand recognition in that segment, having historically been a service provider-oriented company. So the investment has absolutely a bit paid off in the development of a nice funnel of activity. As we said, we booked 2 large Fortune 25 customers on large systems-based deployments of SBC, and other elements of our solution. We've got a funnel that is continuing to build. And we're going to continue to invest and expand the coverage into the enterprise space. I would tell you that the enterprise market is very, very early in its penetration. Up to this point, it's been really all about it SIP trunk consolidation, which is really been about driving cost savings on the number of trunks. That model typically requires you to be a large multi-site enterprise account for the ROI to be there. So it's been a very limited market to date. As the SIP service models begin to get deployed from a service provider standpoint and enterprise is beginning to experiment more with use of SIP -- of the SIP architecture, you're going to see a much greater level of greater of penetration over time, both from the U.S. standpoint and globally, because the penetration globally is even less than it is in the U.S. So in our minds, this is a very early stage development of the market. There's going to be plenty of growth both for additional cost savings-driven decisions, as well as, as customers begin to deploy some of the SIP-based services models throughout their enterprise. So it's very, very early, very, very early. And for us, it's going be a all about a coverage model extending into the enterprise, the development of the channel. And to your last question, making sure that we're continuing to fill up the product line with enterprise and channel-ready products, which means taking our high-end and scaling it down as we've talked about at the Analyst Day. We'll talk more about those product plans they come to fruition. Those are the things you'll see in 2012.

Great. At this point in time, we are at the end of our allotted scheduled time. And we would like to conclude this evening's conference call. We would like to thank you, all, again for joining us. We appreciate your interest in Sonus Networks. David, would you please provide our callers with the replay instructions again?

With that, we'll conclude our conference call today. I have not been provided with any replay information, so we'll go ahead and close the call.

Okay. David, it is included on our website, so thank you very much for your time.