Sonus and GENBAND to Combine to Create a Global Leader in Real-Time Communications Software Solutions

PRESS RELEASE: Sonus, a global leader in securing cloud and real-time communications, and GENBAND™, a leading provider of carrier and enterprise network transformation and real-time communications solutions announced a definitive agreement under which the two companies will combine to create a leader in next-generation communications networking, with increased scale and market reach across products, customers and geographies.

Sonus and GENBAND shareholders will each own approximately 50% of the combined company. Based on the closing price of Sonus’ common stock on May 22, 2017 of $7.79 and estimated net cash at the time of closing, the transaction values the combined company at an enterprise value of approximately $745 million.

The transaction combines Sonus’ software-based leadership position in real-time communication virtualization, cloud-based session initiation protocol (SIP) and 4G/voice-over LTE solutions and security initiatives with GENBAND’s network modernization, unified communications, and mobility and embedded communications solutions. Together, Sonus and GENBAND will be better positioned to enable network transformations to IP and cloud-based networks for communication service providers and enterprise customers worldwide, with a broader and deeper global sales footprint, increased ability to invest in growth, more efficient and effective R&D, and a comprehensive real-time communications product offering.

The two companies’ combined 2016 revenue and EBITDA would have been approximately $680 million and $50 million, respectively, on a combined basis which excludes synergies and is prior to any impact from purchase accounting. The transaction is expected to be substantially accretive to Sonus’ earnings per share in 2018. The combined company is expected to realize annual cost synergies of $40 million to $50 million by the end of 2018 and to drive solid cash flow from operations in the first year after closing. Following the full impact of expected annualized synergies, the combined company is expected to generate at least $100 million in annual EBITDA, with fiscal year 2020 EBITDA projected to be approximately $140 million.

Management Comments

“Together, Sonus and GENBAND create a market leader in real-time communications with enhanced capabilities to support our customers’ move to cloud-based solutions,” said Raymond Dolan, President and Chief Executive Officer of Sonus. “The transaction is expected to generate significant near- and long-term value for shareholders, who we believe will benefit from their ownership in a combined company with increased scale and resources to invest in and accelerate each company’s growth initiatives. This is a strategically and financially compelling transaction for Sonus and we are confident that together with GENBAND we will achieve our growth initiatives faster and more fully than either company could do on its own.”

Mr. Dolan continued, “GENBAND has an outstanding reputation in the market with a talented team and products that are highly complementary to Sonus. We are excited to combine forces to provide enhanced reliability, performance and functionality for customers’ real-time communications needs.”

David Walsh, Chief Executive Officer and Chairman of GENBAND, said, “We are delighted to combine with Sonus at a time when the world’s largest service providers and enterprises accelerate the modernization and transformation of their networks. Like Sonus, GENBAND has transitioned its business to support this industry shift and we have seen improving profitability over the last couple of years and into 2017. With this combination, we believe our complementary product portfolios and expanded global footprint will allow us to even better respond to the evolving needs of customers. Our heritage and culture fit perfectly together and the combined talent going forward is second to none. This is truly an ideal combination.”

Transaction Details

Under the terms of the agreement, Sonus and GENBAND will combine under a newly formed holding company. Each Sonus shareholder will receive one share of common stock in the combined company for each existing Sonus share they own. The combined company will issue approximately 50 million shares of common stock to GENBAND’s equity owners as well as $22.5 million of consideration in the form of an unsecured note. Upon closing of the transaction, Sonus and GENBAND shareholders are each expected to own approximately 50 percent of the combined company on a fully diluted basis. The combined company will have an estimated net cash position of $40 million to $45 million at the time of close, which is expected to increase meaningfully in fiscal 2018 as the company realizes synergies.

The transaction has been unanimously approved by the Boards of Directors of both companies, and is expected to close in the second half of 2017, subject to Sonus and GENBAND shareholder approval, listing of the combined company’s common stock on Nasdaq, Hart-Scott-Rodino review, and other customary closing conditions.

Management and Board

The Chief Executive Officer of the combined company will be Mr. Dolan. Mr. Walsh will oversee the Kandy business, a division of the combined company and currently GENBAND’s cloud communications platform as a service (CPaaS) for global service providers and enterprises. Mr. Walsh will also assist with the integration of the businesses. Daryl Raiford, Chief Financial Officer of GENBAND, will serve as Chief Financial Officer of the combined company. The remainder of the leadership team will be named from the current leadership of both companies, and will be announced prior to closing.

The Board of Directors of the combined company will have five representatives designated by GENBAND and four representatives designated by Sonus. Sonus’ designees will include Richard Lynch, current Chairman of Sonus and former Chief Technology Officer of Verizon, who will serve as Chairman, and Mr. Dolan. The full board composition will be announced in the near future.

Strategic Benefits

Complementary Strengths and Strategies: Both companies have pursued complementary strategies to enable network transformation for their customers. Sonus has concentrated on providing next generation cloud-based SIP and 4G/VoLTE solutions by providing network layer control, security, interworking, policy, and session management for the delivery of real-time communications.

GENBAND’s strategy is centered on seamlessly supporting its robust and long-term customer base of carriers and enterprises to modernize their network to IP with a broad product portfolio that includes soft switches, media gateways, and application servers, and leveraging that IP infrastructure with a rapid service creation capability. The combined company will have little product overlap and will be well-positioned to deliver comprehensive solutions to service providers and enterprises migrating to a virtualized all-IP world.

Expanded Reach and Geographic Footprint: Together, the combined company will have a global sales footprint in 27 countries. 67% of the combined 2016 revenues from the two companies were generated in the U.S. and Canada, 18% in EMEA, 11% in APAC and 4% in CALA. Together, Sonus and GENBAND will have a global presence, serving nearly every major Tier-1 communications service provider.

Complementary Growth Initiatives: Both companies have established growth initiatives that are highly complementary. GENBAND’s Kandy initiative enables service providers and other market participants to embed voice, video, messaging, chat, presence and more into any business process or application, enhancing outcomes for business, consumer and Internet of Things deployments.

The Kandy CPaaS allows customers to rapidly create new revenue streams for customers/partners. Sonus’ new offering is a cloud security and analytics platform for real time flows and digital services. This security offering provides end-to-end visibility and analytics enabling network-wide flow control, threat detection and mitigation. These combined growth initiatives aim to create the path for customers/partners to quickly and securely launch new real-time communications offerings.

Sonus Reconfirms its Q2 2017 and Full Year 2017 Outlook

Sonus reconfirms its 2017 second quarter and full year outlook, as previously provided on April 26, 2017. Diluted earnings per share and loss per share are presented on both a GAAP and non-GAAP basis. A reconciliation of the non-GAAP to GAAP outlook and a statement on the use of non-GAAP financial measures are included at the end of this press release.

Sonus intends to update its guidance to include GENBAND following the close of the transaction, which is expected to occur in the second half of 2017.