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Sonus Networks, Inc. (SONS)
UBS Global Technology Conference Transcript
November 14, 2012 3:30 PM ET
Ray Dolan - Chief Executive Officer
Mau Castonguay - Chief Financial Officer
Amitabh Passi - UBS
Amitabh Passi - UBS
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Thanks Amitabh. Yeah. For the record, it’s Mau Castonguay, I did it right, Mau?
Okay. Well, its late in a day here in New York. So thanks for all those attending in person for those out on the internet for the next 15 or 30 minutes or so. I’ll do my best articulate what I believe is really compelling story in a second and now going on third year of my participation at Sonus.
We are rapidly rewiring the business to being a growth oriented business around SBC’s. And in this third year on my tenure we will move beyond just growth into the SBC space and into the realm of profitability and operating cash flow based on non-GAAP basis profitability.
So I think we put up the Safe Harbor statement here everybody in the room and we’ll move beyond that. So summarizing our investment thesis is as follow. We have a very strong market opportunity in a growth market that is growing 21%, currently at $600 million growing to $1 billion in three years.
We are gaining share and the prove points are in our results. They are not just aspirations they are in results for SBC and I’ll talk to you about that going forward. Most, if not all of those results has been in [SP] side and we are moving into enterprise sector as well, which will increase the share of that addressable market that we are expose too and it ultimately we’ll succeed again.
Our recent acquisition of NET gives us an unmatch SBC portfolio from one to 60,000 sessions. We’ll talk a lot more about that in the relationship with Microsoft Lync.
And the bottom line investment thesis is the 2013 is our year, where we move to more than 50% of our product revenue being SBC related and then we drive beyond that to market -- margin expansion in the product side to service side, full year non-GAAP EPS positive and operating cash flow positive.
So I went -- its there. Starting with SBC market growth, so the TAM is about a $1 billion in 2015, it’s currently about $600 million, which is about two-third service provider and about one-third enterprise, and it will grow by 2015 to be about 60/40 service provider enterprise.
So the enterprise market is growing slightly faster than the mean, and the category growth rate four year CAGR is about 21%. So very healthy CAGR and in 2012 at the mid-point of our guide we will have grown at three times the industry CAGR. So we are gaining share.
The top five drivers of SBC adoption are down at the bottom of the slide, its SIP trunking, interconnect and enterprise UC, the fourth and fifth are lagging behind that considerably but they are emerging a strong drivers of future growth which is really evolving or UC over LTE and residential VoIP.
We have spent two years and we’ll spend another year or so transforming almost every aspect of Sonus. When I joined we were media gateway company. We are rapidly become SBC company.
We are evolving our go-to-market strategy from complex product sold largely direct to the service provider to whole product transactionally related plug and play product that can be sold both to and through service provider to the enterprise, and through the channel, and we are moving beyond voice as an app into the complex world of UC.
The important line on that slide is the last one. This will be our year 2013 where we move from operating losses to profitability on a non-GAAP annualized basis.
Let me explain the NET deal, we announced in June and closed in August, the acquisition of network equipment technology, it’s a long standing company that had grown up in the gateway business, principally the government side and it worked into a low end SBC product business attached to the Microsoft Lync strategy.
We purchased the company in August, August 27th I think we closed. We -- they driving the SIP trunking market on the low end as I said and this expands our product portfolio brings it forward on the low end at least 12 months to 18 months faster then we would have been able to do organically and we paid about $42 million all in for the acquisition, so little less then one time total revenue. So let me, I’ll get into the SBC portfolio graph in just a second on few slides.
So this next slide is our 2012 standalone and then consolidated with NET on a full year basis pro forma SBC guidance and that will be an 87 million SBC total revenue at the mid-point of our guidance which is 60% year-over-year total revenue growth, 80% year-over-year product revenue growth.
So we were doing great at the standalone business, and we had the opportunity to tuck in SPC revenue on the low end. We had commented, as I said from the heritage of high-end complex service provider direct sales.