Sonus Soundings Optimistic for Now - TheStreet



shares rose Tuesday after the company hit a lowered quarterly target and said it had cleaned up its bookkeeping practices.

The Chelmsford, Mass., Internet-phone equipment maker has operated for more than a year under a cloud of accounting concerns after errors were discovered in the timing of its revenue booking. Sonus now says it has fixed the practices that led to the trouble and installed better controls.

The company is still not out of the woods, though. Sonus is being sued by a group of shareholders, and the company is the subject of an investigation by the

Securities and Exchange Commission

. The telecom industry is also undergoing a massive consolidation, which promises to suspend some network-equipment buying decisions. Meanwhile, Sonus says the new-and-improved financial controls still fall short of Sarbanes Oxley guidance as of year-end.

Even so, Wall Street cheered Sonus. In midmorning trading Tuesday, Sonus shares rose 19 cents, or 4%, to $4.55.

"As we continue to focus on growing the company, we are equally focused on improving our financial controls and infrastructure," CEO Hassan Ahmed said in a press release. "We are pleased to have timely filed our Form 10-K for 2004 and to have completed the assessment of internal control over financial reporting under the new Sarbanes-Oxley 404 requirements."

In February 2004, Sonus shares tumbled when the company fired several nonexecutive managers for unethical behavior. The revenue-timing issue broadened into an accounting scandal, which caught the attention of regulators. Adding to the fun, the company was delisted from the Nasdaq temporarily, for failure to file its financial reports on time.

After a lengthy audit, Sonus restated numbers in August that dated back three years. The biggest adjustment was an increase in deferred revenue to about $90 million from $34 million originally reported.

Sonus and its auditors also found several areas where the company lacked adequate controls to oversee things like employee conduct and sales authentication, as well as poor communication channels.

The company has made several changes in its business practices, according to its annual report filed Tuesday. Among the moves, Sonus says it started an ethics training program for employees, requires employees to sign a code of conduct annually and hired a cost accountant to assess inventory.

Sonus sells advance phone-switching gear that allows calling over the Internet. The company's customers include


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For the fourth quarter ended in December, Sonus posted net income of $6.3 million, or 2 cents a share, on sales of $45.1 million. Those numbers are slightly down from the $6.9 million profit and $46.4 million revenue in the year-ago period.

Earlier this month, Sonus warned that sales would come in well below the $50 million analysts were looking for. The news knocked the share price down 21% at one point in after-hours trading.