Ribbon Communications Inc. (RBBN) Q4 2010 Earnings Report, Transcript and Summary

Good afternoon, and thank you for standing by. Welcome to the Sonus Networks Fourth Quarter and Full Year 2010 Financial Results Conference Call. [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 introductions. Please go ahead, Mr. Murphy.

Thank you, Lindsay, and good afternoon, everyone. Welcome to Sonus Networks' fourth quarter results conference call. Thank you for joining us today. With me on the call this afternoon are Ray Dolan, our Chief Financial Officer; Rajiv Laroia, our Chief Technology Officer; and Wayne Pastore, our Chief Financial Officer. Before we get started, 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 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 of future events or financial performance will be achieved. For a discussion of important risks or uncertainties 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 describes in our Form 10-K 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 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, www.sonusnet.com, under the heading Financial Information and subheading Quarterly Results. A recording of this telephone call will be available until March 14, 2011. The instructions for accessing this recording and a replay of the webcast will be available on the Sonus Networks Investor Relations website. Please visit www.sonusnet.com, About Us, Investor Relations, for details. I would now like to turn the call over to our CEO, Ray Dolan. Please go ahead, Ray.

Thank you, Fran. Good afternoon, and welcome to our fourth quarter earnings call. I'm very pleased to start our call today by telling you that the Sonus team posted the strongest revenue quarter since Q4 2008, and the fourth highest quarter in Sonus's history. I asked the team to focus on executing better when I arrived in mid-October. And they delivered on several fronts and it shows in our results. The execution, innovation and focusing on customers will be recurring themes as we move forward together. Let me briefly touch on our numbers, and Wayne will go into much more detail. Revenue for Q4 was $83 million, up from $42.7 million in Q3 2010, and up from $68.7 million in Q4 2009. For fiscal year 2010, revenue was $249.3 million, up $21.8 million from fiscal 2009 and $4.3 million above the upper end of our guidance. Our NBS revenue for the year came in slightly greater than $24 million, which is essentially flat to 2009. While this is lower than the expectations that may have been set, I am pleased to report that we saw increased interest across multiple customers and a meaningful contribution to our bookings in Q4 from the NBS-9000 and the NBS-5200. Regarding our NBS 5200 product, we have booked 12 orders today with an additional 20 active evaluation agreement outstanding and more in process. It is noteworthy that of the 12 booked orders, half of these went from "to order receive" within the 90-day cycle. These results give us confidence that we should see greater acceleration in our NBS-5200 going forward. Before handing the call over to Wayne for detailed discussion of our results, I'd like to take a couple of minutes to talk about the team at Sonus and my current views about our product position in the industry. First, I'm grateful for the support and welcome I've received from the entire team at Sonus. I'm very impressed with the talent we have, the energy our team has been demonstrating and the spirit of innovation that is alive and thriving. This is the fire that helps Sonus capture market leadership and transporting TDM voice networks to IP voice, and it would be the foundation for our expansion into adjacent markets going forward. I'd like to discuss recent changes in our leadership team. First, late last year, we announced Guru Pai's departure as our COO for personal reasons. Since then, Guru's team has reported directly to me, and I have used this opportunity to get closer to all areas of the business. Recently, we announced the appointment of Rajiv Laroia to our senior leadership team. In his role as Chief Technology Officer, Rajiv will help us accelerate key areas of our current roadmap, as well as define our future technology direction. Meanwhile, I'm continuing to search for an executive to lead our worldwide sales team, and I hope to have that position filled within the next 60 days. You'll have an opportunity to hear from our entire leadership team, including a discussion of our planned strategic initiatives at our Investor Day, which is currently planned for early June. We'll reach out to you as soon as the dates are being finalized. I spoke briefly about the culture of innovation at Sonus. Let me elaborate a bit more on how we see our business evolving. Sonus has historically helps transform large TDM voice networks to VoIP for our carrier customers and enable them to manage the flow of this IP traffic through a centralized policy and routing engine. Sonus continues to innovate around this architecture, what we call distributed execution with centralized control. First, we innovated by adding the NBS functionality on the GSX gateways and has resulted in the NBS-9000 product. This helped the company transformed from a VoIP infrastructure provider to a hybrid VoIP and session border control provider. Research from IDC suggests that the combined markets for media gateways and soft switches will experience modest growth from just under $2 billion today to approximately $2.3 billion in 2014. The NBS-9000 is at the heart of this transformation because it allows customers to migrate to all IP voice networks at their own pace and according to their own business needs. As the markets procure IP-to-IP interconnection became more real, Sonus innovated again with the ConnexIP platform by creating the first application on the ConnexIP platform, which we call the NBS-5200. This second-generation SBC supports IPv6, integrates media transcoding and it scales without degradation under attack. Research from Infonetics suggests that the SBC markets is still in its early phases and will grow from approximately $300 million annually in 2010, to around $540 million annually by 2014. I expect these numbers will be raised again in the near future. The NBS-5200 was available for the last two quarters in 2010, and early results look promising. I can tell you firsthand that our customers really like this product and what it can do beyond the first-generation SBCs on the market. The innovation hasn't stopped there. This quarter, we announced voice entry, our second application that leverages our ConnexIP platform. By augmenting the functionality of an SBC, to protect against telephony denial of service attacks, we have shown how flexible SBC implementations can be repurposed to capture additional market opportunities. Moving forward, as circuit switch voice transitions to VoIP in an LD network, our current leadership and credibility in VoIP naturally positions us to capture a good share of that market as it matures. With respect to guidance for 2011, we expect our total revenue to be in the range of $265 million to $285 million. We expect at least modest revenue growth from all our product lines and our NBS revenue growth to be at least $40 million. In conclusion, I'd like to reiterate three key messages. First, I want to thank the entire Sonus team for their execution in the fourth quarter and delivering the results we are now announcing to you today. Second, our traction with the NBS-5200 gives me the confidence that we'll deliver strong results in 2011. And third, and finally, I'd like to welcome Rajiv to our leadership team, and I look forward to introducing a new VP Worldwide Sales in the near future as well. Thank you for your time today, as well as your continued support. And now I'll let Wayne take you to the details of our financials.

Thank you, Ray, good afternoon, everyone. Before I review our financial results, please note that our results can vary significantly from quarter to quarter. So as always, we encourage you to evaluate us on the longer-term basis. Now let me recap our results. Revenue for the fourth quarter is $83 million, up from $42.7 million in Q3 2010, and up from $68.7 million in Q4 2009. Both our overall and product-only book-to-bill for the quarter were above one. Our NBS book-to-bill was also over one. During the fourth quarter, we booked orders for NBS-5200 product from 11 additional customers. AT&T was our only customer in Q4 that contributed greater than 10% of total revenue. Our top five customers represented approximately 50% of revenue during the quarter, down from 52% in Q3 2010 and down from approximately 58% in the Q4 2009. We reported revenue from 103 customers in the fourth quarter, including eight new customers. This compared to 100 customers in Q3 and 87 customers in Q4 2009. Looking at revenue geographically, domestic revenue accounted for 72% of revenue in Q4 2010, versus 74% in Q3 and 65% in Q4 2009. Our domestic to international mix continue to be consistent with our historical trends. We currently believe that this mix will continue in the near term. However, please note the timely deployment schedules and the completion of longer-term projects will affect the geographic mix quarter to quarter. Before I go into further details on our financials, I'd like to point out that the following non-GAAP numbers that exclude stock-based compensation, amortization of intangible assets and restructuring charges. Reconciliations to GAAP can be found in our Investor Relations website. Overall gross margin for the fourth quarter was 64.4% of revenue, compared to 56.9% in Q3, and 66.9% in Q4 2009. Product gross margin for the fourth quarter was 67.7% compared to 63.4% in Q3 and 75% in the same period last year The sequential growth in product gross margin was mainly attributed to the operating leverage realized from the higher Q4 2010 product revenue. The product gross margin dropped year-over-year was mainly the result of a higher than normal gross margin in Q4 '09, recognized from the BT/AGCF project. Service gross margins for the fourth quarter were 58.1% compared to 51.5% in Q3, and 49.2% in Q4 2009. The improvement, both sequentially and year-over-year, is also mainly attributed to the operating leverage realized from the higher Q4 2010 service revenue. Total operating expenses for the fourth quarter were $38.4 million, down $0.5 million from Q3, and up from $35.3 million in Q4 2009. Included in the current quarter expenses are approximately $1 million of incremental executed separation costs and depreciation expense related to our headquarter relocation. Looking at our headcount, we ended the quarter with 968 employees compared to 962 employees at the end of Q3, and 879 for the comparable period a year ago. Now looking at our balance sheet, we ended the fourth quarter with total cash, cash equivalent, marketable securities and long-term investments of $408.4 million. Cash and investments decreased $5 million from the prior quarter. The decrease in cash and investments was primarily attributable to our capital expenditures related to our ongoing R&D initiatives and our facility relocation. For the year, we generated cash flow operations of approximately $13 million. Total deferred revenue was $85.6 million, down from $91.8 million in Q3, and down from $100 million in Q4 of last year. While our total deferred revenue decreased for the period, after taking into account the $15 million reduction from AT&T, deferred revenue from other customers actually increased. Now I'd like to provide some guidance into 2011. We expect total revenue to range between $265 million to $285 million. Our 2011 non-GAAP gross margin is expected to be within the target range of 59% to 63%. Total non-GAAP operating expenses are expected to be in the range of $143 million to $147 million. We expect to grow headcount for the year to approximately 1,075 with the majority of investments within our customer facing resources, as well as our research and development team. For Q1 2011, we expect non-GAAP operating expenses to be between $36 million and $38 million. We expect our ending Q1 2011 cash and investments to be approximately $400 million. Based on share count for Q1 2011, should be approximately 277 million shares. We expect to spend between $2 million and $4 million of CapEx in Q1, with majority of the expenditures related to our research and development efforts. Before I hand the call back over to Fran, I'd like to take a moment to thank the entire Sonus team for job well done this year. Our strong focus and execution through a period of transition allowed us as the company to achieve our financial targets, successfully launch a new product and set the stage for strong 2011. Thank you all. With that, let me turn it back to Fran.

Thank you, gentlemen. Lindsay, will you please provide our callers with the instructions on how to ask the questions?

[Operator Instructions] Our first question will come from the line of Nicole Greenfield with Credit Suisse.

This is Nicole Greenfield on behalf of Paul Silverstein. I have two questions. The first is on SBCs, and in particular, the contribution of the 5200 versus the 9000, if you can talk about that, and also, employee turnover, has that settled down and what's the annualized rate of that turnover?

Nicole, this is Ray Dolan. On the second one, we're not going to quote it a turnover, but the turnover is slowing down. I don't expect it to stop completely. But I'm pleased with the stability of the team as it exists now and going forward. So we're working on those issues and I'm comfortable that the team going forward is stable. With regard to the breakout between the 5200 and the 9000, we gave you the numbers of the folks that are in trial and the bookings. So that's pretty much where we're going to disclose at that point in time.

Nicole, this is Wayne. So we disclosed $24 million for the year for both products.

So can you disclose if the 5200 is de minimis? Is it less than $1 million, or you won't disclose that?

We're not going to disclose the actual amount, but we will say that the majority of the revenue did come from the 9000 as opposed to the 5200.

Our next question comes from the line of George Notter with Jefferies. George Notter - Jefferies & Company, Inc.: On the NBS-5200, I guess, I'm hoping I can get a sense for what kinds of customers you guys have won there. And we've seen a couple of announcements certainly, but I think you said you had bookings from 11 different customers. It sounded like 12 specific orders or individual orders, but can you just tell us, are those carriers? Are those enterprises? I mean is there a certain profile of customer you seem to be having success with?

Yes, George. This is Ray Dolan. It is both carriers and enterprise. And we've had success in both cases. In order for us to get the kind of success we want with the enterprise sector, we're going to have to do a lot more channel development work and we're doing that now. And I think it will lead to substantial lift in our results over time in 2011, but we've had product traction and account traction in both of those categories. And they're in our bookings. George Notter - Jefferies & Company, Inc.: And when you look at the 5200 platform, I mean, do you feel comfortable with where the product is right now? I mean is it logical to assume that we'd see other form factors or versions of the 5200 to address specific market niches? Or what can you tell us about the strategy with the 5200 platform going forward?

Well, first, I can tell you that from our call last time, I told you that early indication was that the 5200 was solid and the third-party research validates that. And so it addresses a very scalable, high density market very well. We're also looking at ways to address the lower density enterprise market. We're doing that both ourselves and in collaboration with potential partners. And if we have more to talk about there, we will disclose that. But it's a great platform for us to launch from and it wouldn't be challenging for us to make sure that we can address everything from the top to bottom of the enterprise. And I think we're very well suited to the carrier sector now. George Notter - Jefferies & Company, Inc.: And then going forward, will you break out the revenue stream from the NBS-9000 versus the 5200 or will it just be one combined number?

We'll probably report it as one combined number. That's how customers are actually running networks. They're buying networks as they evolve and they're buying a blend, so we'll try to report it as an SBC market rather than a product level market.

Our next question comes from the line of Catharine Trebnick with Avian Securities.

Could you please elaborate on your carrier and your enterprise channel? When I met with you at Mobile World Congress, you had discussed the fact that you knew that you would not be the main supplier based on the size of the company. Any changes in that thought? And then how many enterprise customer channel partners have you lined up-to-date?

So Catharine, we haven't announced any enterprise channel partners and when we have them, we'll announce them. So we're doing a lot of work there, but until we have something that we can announce, we won't pre-announce that. With regard to how the world is going, which is really a subject matter of discussion a lot of people are curious, especially in areas like the Mobile World, where RFPs are issued at the $5 billion and $10 billion multiyear levels. Yes, I don't believe that Sonus right now is positioned to be a prime in that market. I don't think that's probably a surprise to too many people on this all. But we are very well-positioned to partner with all of the people that tend to win those pieces of business. And it's based on our existing experience in product line and the carrier grade VoIP market and it will extend beyond that as we continue to innovate. So nothing's changed there.

Nothing's changed there. So is it safe to say that 2011, you'll be moved to an Alcatel-Lucent, or from someone else's sell-through channel to AT&T.

I'm not going to comment on any specific customer. You can talk to customers about their spend patterns and their purchase patterns, but there are lot of operators in the world that want to skinny down the number of times they work with, knowing though that all they're really doing is organizing their networks underneath the prime and there's going to be a lot of other subcontractors or suppliers underneath that. We're very comfortable dealing directly with operators and the enterprise, and we're very comfortable dealing through large OEMs.

Our next question comes from the line of Subu Subrahmanyan with Sanders Morris. Subu Subrahmanyan - Sanders &: Two questions. First on the guidance. Can you talk about the base business that was your IP business [ph], how you're thinking about that in terms of growth opportunities as maybe by customer segment or geography for 2011, and for kind of longer term opportunity there? And then for the NBS-9000 with the 5200, they are pretty different applications but are there kind of software pieces that you're able to leverage off of the NBS-9000, which is giving you some growth on the 5200 side?

The first is on guidance and how we look at our base business, I think was your question. And I think we have opportunities in all the areas that you said new segments potentially and new geographies. We are still largely a North American and Asia Pac company, and while I don't think in the short term, as Wayne's comments indicated that, that will change long-term. I think we have tremendous opportunity in other regions. In order to do that, I think, we're going to have to develop channels to get there because right now most of our results in that category are driven by our direct sales force and there almost completely correlated to the number of folks we have in those geos. So that's how I want you to think about our current guidance, but it is a big market. I think there is a pretty substantial opportunity around the world in that sector. I think your second question, you cut out a little bit, was in the, in the NBS-9000 and the 5200, are there software opportunities to leverage between those two platforms. Was that the question? Subu Subrahmanyan - Sanders &: Yes, and if there's any kind of commonality to customers or some of the guys who are buying the 9000 using 5200 for a different application and any kind of profile of the 5200 customers, are there any kind of typical Tier 1 kind of carriers or is it someone more Tier 2, would be helpful.

No, it's both Tier 1 and Tier 2. A lot of our development in 9000 landed in the development of the 5200. So we leveraged a lot of the mature software base of the 9000. It was developed over probably 12 years in the beginning when we leveraged what we wanted to create the 5200. So first of all, it starts with a substantial software commonality in the code. And second, yes, it creates a very good opportunity for us to talk to our large customers about migrating first through the hybrid product of 9000, as we talked about in our comments earlier. And then allowing 5200s to be spread in some cases around the edge of the networks and create a very complementary network architecture. But it's all basically an NBS or a session border control philosophy. That answer your question? Subu Subrahmanyan - Sanders &: Yes, it does, and as a final question. First quarter, how should we think about that, the full year number? But the first quarter, how should we think about revenues?

So I don't want to guide to a quarter, but I did try to look at our historical seasonality over the last five years on average. And even though they were some ships in it, for example, last year's first quarter was very high, if I were to look back five years in our historical seasonality, I don't see this year being anything different. We're going to try hard to do that because unfortunately, many of our last five years were back-end loaded, including 2010. But I don't see any new trends in 2011 that would suggest to you that our profile financially is going to be all that different. Of course, we're going to work very hard to build backlog and pipeline and revenue recognition as early as we can in the year and continue to grow our business. But that was our thinking from the standpoint of seasonality.

And our next question comes from the line of Alex Henderson with Miller Tabak. Alex Henderson - Miller Tabak & Co., LLC: I was wondering if you could give us a little bit of read on what portion of the customers from the SBC lines are buying both the 9000 and the 5200? And if we were to look out to the full year 2011, is it reasonable to think that the 5200 becomes a solid 25%-plus of SBC sales? Or am I thinking about it wrong in that context?

Alex, this is Ray. The customers, the large carrier customers that have NBS-9000s are absolutely buying both. I'm not going to talk about the specific results that we have, but there's definitely mix of 5200 and 9000 in a lot of networks out there. The enterprise is the mixture of large enterprise that may or may not choose both for their reasons, but they end up functioning like carriers or smaller enterprises that will probably just buy the individual box. I think, over time, you'll see a mixture. And that's why we think we're very well positioned between those two Session Border Controller products to handle that migration over time. I think you're saying, is it fair to say that the 5200 will probably land at about 25% of our NBS sales in 2011. That's probably a reasonable assumption, but a lot has to play out here. A lot has to play out as far as the percentage contribution from the enterprise. And that has to play out in our channel development process, which is yet to play out. But we're working very hard on that and my goal would certainly be consistent with your comments. Alex Henderson - Miller Tabak & Co., LLC: Just if I could follow-up, as the 5200 ramps, at what threshold of revenue does it take to get to sort of corporate average margins on the gross level? How should we be thinking about where you are in getting that product up to reasonable margin performance?

Well, I think the margins are very reasonable today. And I think you're going to get even better as session densities increase, because sometimes people deploy initial configurations that are less than what they maybe in a mature developed configuration. So one, I'm satisfied with our SBC margins now. And I think they're only going to get better. Of course, the world's going to become more competitive and so a lot of shifts will occur over time, but that's how I would characterize it. Wayne, do you have some thoughts?

Yes. I'll just add one point. In 2010, we guided our gross margin range from 58% to 62%. Seeing what we're seeing for next year 2011, we've up ticked that range from 59% to 63%. So we are seeing some improvement in the margin as we move in to 2011. Alex Henderson - Miller Tabak & Co., LLC: And the reason for that is?

Is with product mix.

It appears that we have time for one more question, which would come from the line of Ari Bensinger with Standard & Poor's. Ari Bensinger - S&P Equity Research: My question relates to the business model. It seems like you guys are gaining efficiencies through controlling operating expenses even though sales are growing, and I'm wondering where the majority of that efficiency is going to come from which line item?

This is Wayne. We've talked about on previous calls, and looking into the business this year, we've done a lot of work around squeezing operational efficiencies out of the infrastructure side of the house, which really allows us to re-invest in the R&D and sales and marketing. So going to 2011, I see that trend continuing when you see reductions in G&A and the infrastructure costs allowing us to spend some of those dollars in R&D and sales and marketing.

[Operator Instructions] We have a follow-up question from the line of Catharine Trebnick with Avian Securities.

Ray, one of the things that you had said in your comments earlier is that the company turnover has stabilized. Could you address pretty much the enthusiasm or if you see a lift in enthusiasm? I think your results for the fourth quarter might even reflect some of that.

So the question, Catharine, is could we talk about the overall enthusiasm of the team?

Yes.

Well, I find the team to be very engaged, very excited about our future, and I think it's appropriate for them to be that way because we what is still here and we certainly -- we've lost talent in the past over 12-year period. But what is here is a very qualified team that led the transformation of large TDM networks to VoIP in the first place. So they're world class in understanding the complexity of trans-coded VoIP, which of course is narrowband and it's largely in the core of wired networks. And so sometimes people think that's not a very exciting effective place to be, but this team is really excited about our opportunities. They really take that discipline and see if we can get closer to the edge as opposed to being stuck in the core, getting beyond fixed and into the converged fixed in wireless networks and to get beyond understanding narrowband VoIP and into some broadband applications. So there's a huge opportunity to grow in a lot of those dimensions and all the people that are here excited about being part of that future at Sonus. So folks are engaged and hoping that we can crank the revenue line item, which is up, where all of our operating leverage will come from as we hold a lot of our costs as close to steady as we can and grow the business.

And then any discussion more on taking more of the -- absorbing more engineering functions in North America as opposed to India?

No, I don't have any thoughts on that at this point, spending a lot of time looking at the efficiency of our global development organization. We have substantial commitments, not only in Bangalore, but here in Westford, in Richardson Texas, in Freehold, New Jersey, in Swinden and parts of Eastern Europe and we're looking at those efficiencies. Part of the things I'll ask Rajiv to look at is ways to use those centers as ways to attract additional talents around the world and get us to higher levels of productivity. So we have more to think about that and say about that. We'll talk about it in future calls.

Our next question comes from the line of Alex Henderson with Miller Tabak. Alex Henderson - Miller Tabak & Co., LLC: Just a clarification. One was on the headcount. I couldn't quite get the number that you gave on that. I wasn't sure whether it was 1,075 or 1,175?

So, this is Wayne. We're expecting to grow headcount next year to approximately 1,075. Alex Henderson - Miller Tabak & Co., LLC: And then second, as you're looking at the third to fourth quarter, obviously the third quarter was a pretty rough quarter and fourth quarter was pretty spectacular quarter. Can you talk a little bit about how much of the spike in the fourth quarter came out of business that was pushed out of 3Q and into 4Q and try to normalize those numbers a little bit? What would be more of a normalized kind of fourth quarter baseline?

So Alex, this is one of the hardest question I had to answer last quarter, looking into this quarter and we restated our guidance, which was obviously, a wide range. I can't necessarily quantify exactly the amount of business. But they were several customers, at least a handful, that I could probably point to and say they should have closed, but for issues in Q3 and clearly closed in Q4. So we may have borrowed back a little bit in our fourth quarter from some of that and maybe you could interpolate and connect the dots there. And a lot of things fell our way in this quarter that could be from what would have normally occurred the next quarter. It's very hard to tell. So what we have agreed to do is just go out and do as much business as we can, focus on bookings, roadmaps, strategic relationships with large operators, large enterprise and channels that can get us to scale and the rest of the enterprise sector and let the volumes fall where they may. And so we've issued guidance for next year, as you've heard 265 to 285. We'd expect the seasonality to be about the same and we'll go back to work and see if we can beat all those numbers as best as we can. But for now, those are our best estimates, both seasonality and numbers that we can give you as visibility into our business as I see it. Alex Henderson - Miller Tabak & Co., LLC: The reason I ask is if I take the first half run rate which was $36 million in product sales per quarter and I look at the dip in the third quarter and then jump in the fourth quarter and say, okay, that's probably better to look at it in a half basis, you did basically 36.7 every quarter all year. I mean it's fairly stable revenue numbers over the course of those four quarters. So I'm thinking that if I have seasonality off of the fourth quarter, I ought to be thinking about it off a $37 million kind of product number. Is that the right way to think about it? As opposed to thinking about it as seasonality off of a $54 million number?

I don't quite, Wayne, do you have anything yet? I don't want to guide up or down off of that number at this stage.

No, I was just going to reconfirm with how you said it, Ray. One of our problems, Alex, is we are, as we say, a lumpy business quarter to quarter, so it's very hard to kind of think in those trends that you're bringing up. So that's why we gave the annual guidance. We gave the guidance in Q3, that's where we ended up. We feel very comfortable on our number 2011, but there are going to be lumpy quarters and it's kind of hard to kind of even that out and kind of pick on it from a customer by customer level.

And our next question comes from the line of George Notter with Jefferies. George Notter - Jefferies & Company, Inc.: I guess I wanted to ask you about the competitive environment in the Session Border Controller space and if you look at the deals that you guys have won, the 11 customers, were those situations where you are head-to-head competitive with Acme Packet. And then separately, I guess I'm trying to figure out what motivated those customers to choose Sonus over Acme or GenBand or other Session Border Controller companies if indeed those deals were competitive?

So George, this is Ray. Yes, many of those cases were competitive with a cross-section of SEC players. Hard to say in all of their minds, but one -- the things that we talked about, I think, the real issue to customers is the fact that in the early days of the SBC market, low session densities and the scalability issues weren't that big of a deal. And I think, over time, it's becoming more and more of a big deal. It’s certainly amongst carriers and large enterprise and I think it's becoming that way and within the enterprise sector. The other thing that's been a big differentiator for us is our ability to handle policy across networks, which is important certainly for carriers and it's important increasingly for the enterprise. And our PSX, which is both a standalone product and an onboard component of our 5200 is a pretty big differentiator for us and is one of the reasons that people chose us. And I think our economics are compelling. So we need to be in the ballpark on all of those issues and those are some of the competitive dynamics that we saw.

And our next question comes from the line of Peter Reed with CL King.

Just one point of clarification. I believe you said NBS grows either by $40 million or to $40 million in 2011. We're talking about a $24 million base in 2010. Can you just clarify that? Are we talking about going to $40 million or to $64 million?

It would be going to $40 million target.

And our next question comes from the line of Paul Silverstein with Credit Suisse. Paul Silverstein - Crédit Suisse AG: Ray, how much of a quarter do you have covered going in, out of bookings, from the previous quarter?

Paul, you're asking how much of Q4 was already booked? Paul Silverstein - Crédit Suisse AG: Well, not just Q4, but when you look at Q1, and I recognize you're not giving guidance for Q1. So put aside a specific quarter, if you could just give us some sense of how much of your revenue is done out of turns and how much it looked like Q4 and how much was covered before you came into the quarter.

I don't have a specific number to give you, Paul. I will say that I'm pleased that we, absent the AT&T take down, as Wayne talked about in his comments, we improved our backlog, for lack of a better term, across a broad set of our customers going into 2011. So I feel like I have greater visibility into 2011 than we did going into Q4 2010, but not sensationally. I want to continue to focus on that and get greater and greater visibility as we continue to focus on bookings and orders and let the revenue recognition fall where it may. But we've really started to crank the velocity engine and we need to crank it substantially more than that in order to hit our growth targets. So that's how I would answer that. I don't have a specific percentage number that I have in my mind, George, but I'll try to think through that going forward. Paul Silverstein - Crédit Suisse AG: One more if I may, and I apologize if you said this earlier, but how much of your NBS business or can you give us some sense for what percentage of NBS or customers are not hitting, just doing a pure IP deployment, as opposed to hybrid environments, where the 9000 has done well? Are there any customers just taking the 5200?

Well, a lot of our existing customers had the 9000 already so even though they may just order 5200, it's designed into a complex network of both. The customers that are in the enterprise, some of them are just taking 5200. Paul Silverstein - Crédit Suisse AG: Are any carriers or any carrier networks just 5200 that don't already have the 9000?

No, I don't -- I can't think of any off the top of my head. Paul Silverstein - Crédit Suisse AG: But the enterprise I assume are just the 5200 as opposed to the 9000?

Actually, some of the enterprise were a combination as well. But I don't mean to imply that they were carriers out there that just buying, but none of them are just buying the 5200. A lot of them, we already have strong relationships with them with the 9000. So it's the 5200 sale as part of the complex network design sale and it works for them and it allows them to continue to migrate over to the all IP-to-IP network transition.

Our next question is a follow-up from the line of Alex Henderson with Miller Tabak. Alex Henderson - Miller Tabak & Co., LLC: I just wanted to go back and visit a couple of the metrics that we talked about last quarter. You had indicated last quarter that you'd seen a pretty nice increase in the number of leads that you were chasing for the SBC line. In fact, I think if you'd said that the 5200 alone had seen a jump from seven to 14 companies that were in trial. Can you give us a sense of what portion, I guess, we know what portion actually converted, but what portion of those are still outstanding or whether the trials ended in a different scenario, i.e. didn't accept? What was your take rate against those trials? And then second, can you give us any indication of how many people are currently in trial now? I think seven to 14 was pretty impressive but where are we now?

I think Wayne's comments earlier were that we've got 20 and it's growing. There are a number of that are in process. I can give you a couple of metrics. We only have one canceled trial. We had several that booked -- the trials booked within the quarter. And we had 12 total booked for the year. So we are adding velocity of both the number of people that are looking at it, and we're shortening the length of that assessment and the conversion timeframes as well. Alex Henderson - Miller Tabak & Co., LLC: I think you said you had 11 customers that did bookings, so that sounds like your hit rate was pretty high among the 14 that had been trialing. Is that the right metric to be using, 11 against 14?

Yes, Alex, that's pretty accurate to say that. Alex Henderson - Miller Tabak & Co., LLC: And so theoretically, did you actually lose one or did the customer that ceased the trial stop the trial for other reasons? Did it go to a competitor?

No, it's just stopped for other reasons. Alex Henderson - Miller Tabak & Co., LLC: So you actually haven't experienced any losses, competitive losses against this product line then?

Correct.

There appear to be no further questions at this time.

Thank you, Lindsay. That does conclude this evening's financial results conference call took. We would like to thank you all again for joining us. We appreciate your interest in Sonus Networks. Lindsay, would you please provide our callers again with the replay instruction.