Acme Packet Reports Record Results for Third Quarter of 201016:05 EDT Thursday, October 28, 2010 BEDFORD, Mass. (Business Wire) -- Acme Packet, Inc. (NASDAQ: APKT), the leader in session border control solutions, today announced record results for the third quarter ended September 30, 2010 and raised its business outlook for 2010. Results for the Third Quarter of 2010 Total revenue for the third quarter of 2010 was $56.6 million, compared to $36.3 million in the third quarter of 2009 and $53.3 million in the second quarter of 2010. Net income for the third quarter of 2010 was $10.5 million, or $0.15 per share on a diluted basis, compared to $3.6 million, or $0.06 per share on a diluted basis in the third quarter of 2009 and $9.7 million, or $0.14 per share on a diluted basis, in the second quarter of 2010. Net income on a non-GAAP1 basis for the third quarter of 2010 was $13.6 million, or $0.20 per share on a diluted basis, compared to $5.7 million, or $0.09 per share on a diluted basis, in the third quarter of 2009, and $12.4 million, or $0.18 per share on a diluted basis, in the second quarter of 2010. A reconciliation of GAAP to non-GAAP1 results, and a statement as to the use of non-GAAP1 financial measures, is included at the end of this press release. Results for the First Nine Months of 2010 Total revenue for the first nine months of 2010 was $161.0 million compared to $100.2 million in the same period last year. Net income for the first nine months of 2010 was $28.5 million, or $0.43 per share on a diluted basis, compared to $8.0 million, or $0.13 per share on a diluted basis, in the same period last year. Net income on a non-GAAP1 basis for the first nine months of 2010 was $35.6 million, or $0.55 per share on a diluted basis, compared to $14.5 million, or $0.24 per share on a diluted basis, in the same period last year. A reconciliation of GAAP to non-GAAP1 results, and a statement as to the use of non-GAAP1 financial measures, is included at the end of this press release. Company Raises Business Outlook for 2010 The Company today raised its full year business outlook for 2010. The Company's outlook is based on the current indications for its business, which may change at any time.     Business Outlook for Year Ending December 31, 2010Revenue and Share Count in Millions Issued July 29, 2010   Issued October 28, 2010 Total revenue $214-$218   $220-$221 Total revenue growth rate Approximately 53% Approximately 56% GAAP diluted EPS $0.55-$0.57 $0.59-$0.60 GAAP diluted EPS growth rate Approximately 100% Approximately 113% Non-GAAP1 diluted EPS $0.72-$0.74 $0.76-$0.77 Non-GAAP1 diluted EPS growth rate Approximately 109% Approximately 119% Diluted share count   68.0   68.0 The Company expects net income on a non-GAAP1 basis to differ from net income on a GAAP basis in 2010 as it is expected to exclude estimated stock-based compensation expense of approximately $10.1 million, or $0.15 per share on a diluted basis, and amortization of acquired intangible assets of approximately $1.1 million, or $0.02 per share on a diluted basis. A reconciliation of the Company's expected GAAP to non-GAAP1 business outlook, and a statement as to the use of non-GAAP1 financial measures, is included at the end of this press release. Company to Host Live Conference Call and Webcast The Company's management team plans to host a live conference call and webcast at 5:00 p.m. eastern daylight savings time today to discuss the financial results as well as management's outlook for the business. The conference call may be accessed in the United States by dialing (800) 230-1092 and using access code “APKT”. The conference call may be accessed outside of the United States by dialing +1 612.288.0337 and using access code “APKT”. The conference call will be simultaneously webcast on the Company's investor relations website, which can be accessed at www.ir.acmepacket.com. A replay of the conference call will be available approximately two hours after the call by dialing (800) 475-6701 and using access code 173257 or by accessing the webcast replay on the Company's investor relations website. 1A reconciliation of GAAP to non-GAAP results, and a statement on the use of non-GAAP financial measures, is included at the end of this press release. About Acme Packet Acme Packet, Inc. (NASDAQ: APKT), the leader in session border control solutions, enables the delivery of trusted, first-class interactive communications—voice, video and multimedia sessions—and data services across IP network borders. Our Net-Net family of session border controllers, multiservice security gateways and session routing proxies supports multiple applications in service provider, enterprise and contact center networks—from VoIP trunking to hosted enterprise and residential services to fixed-mobile convergence. They satisfy critical security, service assurance and regulatory requirements in wireline, cable and wireless networks; and support multiple protocols—SIP, H.323, MGCP/NCS, H.248 and RTSP—and multiple border points—service provider access and interconnect, and enterprise access and trunking. Over 10,000 Acme Packet systems have been deployed by more than 1,180 customers in 105 countries. They include 92of the top 100 service providers in the world and 11 of the Fortune 25. For more information, contact us at +1 781.328.4400, or visit www.acmepacket.com. Acme Packet, Inc. Safe Harbor Statement Statements contained herein that are not historical fact (including those in the section “Company Raises Business Outlook for 2010”) may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may relate to, among other things, expected financial and operating results, expected growth rates, future stock-based compensation and amortization expenses, and to future business prospects and market conditions. Such forward-looking statements do not constitute guarantees of future performance and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those anticipated. These include, but are not limited to: the amount of stock-based compensation awarded; the applicable Company stock price used to determine stock-based compensation; difficulties expanding the Company's customer base; difficulties leveraging market opportunities; difficulties providing solutions that meet the needs of customers; poor product sales; long sales cycles; difficulty developing new products; difficulty in relationships with vendors and partners; higher risk in international operations; difficulty managing rapid growth; difficulty managing the Company's financial performance; the ability to hire and retain employees and appropriately staff operations; the Company's cash needs; and the impact of new accounting pronouncements and increased competition. Additional factors that could cause actual results to differ materially from those projected or suggested in any forward-looking statements are contained in the Company's recent filings with the Securities and Exchange Commission, including those factors discussed under the caption “Risk Factors” in such filings.   Acme Packet, Inc.Condensed Consolidated Statements of Income(in thousands, except share and per share data)(unaudited)         Three Months Ended September 30, Nine Months Ended September 30,   2010     2009   2010     2009 Revenue: Product $45,328 $ 27,726 $129,452 $ 75,020 Maintenance, support and service   11,286   8,621   31,548   25,175 Total revenue   56,614   36,347   161,000   100,195   Cost of revenue (a) (b): Product 7,903 5,178 22,886 15,280 Maintenance, support and service   2,556   1,773   6,964   3,903 Total cost of revenue   10,459   6,951   29,850   19,183   Gross profit   46,155   29,396   131,150   81,012   Operating expenses (a) (b): Sales and marketing 17,012 13,703 50,062 37,647 Research and development 8,896 7,271 26,235 20,513 General and administrative 3,906 3,253 10,785 9,674 Merger and integration-related costs   -   -   -   1,102 Total operating expenses   29,814   24,227   87,082   68,936   Income from operations 16,341 5,169 44,068 12,076   Other income, net   189   28   354   150   Income before provision for income taxes 16,530 5,197 44,422 12,226   Provision for income taxes   6,065   1,617   15,895   4,195   Net income $10,465$3,580$28,527$8,031   Net income per share: Basic $0.17 $ 0.06 $0.46 $ 0.14 Diluted $0.15 $ 0.06 $0.43 $ 0.13   Weighted average number of common shares used in the calculation of net income per share: Basic 62,772,466 58,143,857 61,371,085 56,622,433 Diluted 68,426,272 62,927,591 67,114,486 60,904,244                   (a) Amounts include stock-based compensation expense, as follows: Cost of product revenue $202 $ 125 $557 $ 381 Cost of maintenance, support and service revenue 279 154 737 415 Sales and marketing 2,006 1,261 5,339 3,537 Research and development 1,254 934 3,551 2,537 General and administrative 847 322 1,761 848   (b) Amounts include amortization of acquired intangible assets, as follows: Cost of product revenue 379 208 1,137 347 Sales and marketing 45 21 120 30 Research and development 11 23 48 33   Acme Packet, Inc.Statement on Use of Non-GAAP Financial Measures andReconciliation of Non-GAAP Net Income and Non-GAAP Net Income Per Share(in thousands, except per share data)(unaudited)Statement on Use of Non-GAAP Financial Measures: The Company uses the financial measures “non-GAAP net income” and “non-GAAP net income per share” to supplement its consolidated financial statements, which are presented in accordance with accounting principles generally accepted in the United States (“GAAP”). The presentation of non-GAAP net income and non-GAAP net income per share is not meant to be a substitute for “net income” or “net income per share”, presented in accordance with GAAP, but rather should be evaluated in conjunction with net income and net income per share. The Company's management believes that the presentation of non-GAAP net income and non-GAAP net income per share provides useful information to investors because these financial measures exclude stock-based compensation expense which is a non-cash charge, as well as amortization of acquired intangible assets and merger and integration-related costs associated with the Company's acquisition of Covergence Inc. in April 2009. By excluding stock-based compensation expense, amortization of acquired intangible assets, and merger and integration-related costs, management can compare the Company's operations to prior periods and to the operations of other companies in its industry who may have materially different unusual charges. Management does not consider any of stock-based compensation expense, amortization of acquired intangible assets, and merger and integration-related costs to be part of the Company's operating activities or meaningful in evaluating the Company's past financial performance or future prospects. Management believes that excluding these items is useful to investors because it is more representative of ongoing costs and therefore more comparable to historical operations. Non-GAAP net income and non-GAAP net income per share are primary financial indicators that the Company's management uses to evaluate the Company's financial results and forecast anticipated financial results for future periods. Management also uses these non-GAAP measures to make financial and operational decisions as these numbers exclude non-operational activities. These non-GAAP measures should not be considered measures of the Company's liquidity. The Company's definition of “non-GAAP net income” and/or “non-GAAP net income per share” may differ from similar measures used by other companies and may differ from period to period. Management may make other adjustments for expenses and gains that it does not consider reflective of core operating performance in a particular period and may modify “non-GAAP net income” and/or “non-GAAP net income per share” by excluding these expenses and gains.   Reconciliation of Non-GAAP Net Income and Non-GAAP Net Income Per Share for the Three Months Ended September 30, 2010, June 30, 2010 and September 30, 2009 and the Nine Months Ended September 30, 2010 and September 30, 2009 (Unaudited):     Three Months EndedNine Months EndedSeptember 30,2010   June 30,2010   September 30,2009 September 30,2010   September 30,2009 Reconciliation of non-GAAP net income:       Net income $10,465 $ 9,729 $ 3,580 $28,527 $ 8,031 Adjustments: Stock-based compensation expense, net of taxes 2,826 2,352 1,923 7,231 5,313 Amortization of acquired intangible assets, net of taxes 274 281 164 838 267 Merger and integration-related costs, net of taxes   -   -   -   -   903 Non-GAAP net income $13,565$12,362$5,667$36,596$14,514   Reconciliation of non-GAAP net income per share: Net income per share, basic $0.17 $ 0.16 $ 0.06 $0.46 $ 0.14 Adjustments: Stock-based compensation expense, net of taxes 0.05 0.04 0.04 0.12 0.09 Amortization of acquired intangible assets, net of taxes - - - 0.02 0.01 Merger and integration-related costs, net of taxes   -   -   -   -   0.02 Non-GAAP net income per share, basic $0.22$0.20$0.10$0.60$0.26   Net income per share, diluted $0.15 $ 0.14 $ 0.06 $0.43 $ 0.13 Adjustments: Stock-based compensation expense, net of taxes 0.05 0.04 0.03 0.11 0.09 Amortization of acquired intangible assets, net of taxes - - - 0.01 - Merger and integration-related costs, net of taxes   -   -   -   -   0.02 Non-GAAP net income per share, diluted $0.20$0.18$0.09$0.55$0.24     Reconciliation of Expected Non-GAAP Net Income and Non-GAAP Net Income Per Share for Year Ending December 31, 2010 (Unaudited):   Year Ending December 31, 2010Low End   High End   Revenue$220,000$221,000   Reconciliation of non-GAAP net income: Net income $40,000$40,500 Adjustments: Stock-based compensation expense, net of taxes 10,00010,000 Amortization of acquired intangible assets, net of taxes   1,100   1,100 Non-GAAP net income $51,100$51,600   Reconciliation of non-GAAP net income per share: Net income per share, basic $0.65$0.65 Adjustments: Stock-based compensation expense, net of taxes 0.160.16 Amortization of acquired intangible assets, net of taxes   0.02   0.02 Non-GAAP net income per share, basic $0.83$0.83   Net income per share, diluted $0.59$0.60 Adjustments: Stock-based compensation expense, net of taxes 0.150.15 Amortization of acquired intangible assets, net of taxes   0.02   0.02 Non-GAAP net income per share, diluted $0.76$0.77     Acme Packet, Inc.Other Operational Data(in thousands, except per share data)(unaudited)     Three Months EndedNine Months EndedSeptember 30,2010   June 30,2010   September 30,2009 September 30,2010   September 30,2009 Other operational data:       Depreciation and amortization $2,065 $ 1,908 $ 1,529 $5,826 $ 3,789 Capital expenditures $4,479 $ 3,300 $ 1,449 $10,546 $ 3,786     Acme Packet, Inc.Condensed Consolidated Balance Sheets(in thousands)(unaudited)     September 30,2010 December 31,2009 Assets Current assets: Cash and cash equivalents $110,642 $ 90,471 Short-term investments 126,380 39,990 Accounts receivable, net 30,289 25,604 Inventory 6,279 4,372 Deferred product costs 2,501 3,400 Deferred tax asset 1,567 1,567 Other current assets   10,065     2,710   Total current assets 287,723 168,114 Long-term investments - 44,526 Property and equipment, net 15,661 6,437 Acquired intangible assets, net 9,923 11,228 Deferred tax asset, net 15,622 15,622 Other assets   818     799   Total assets $329,747   $246,726     Liabilities and Stockholders' Equity Current liabilities: Accounts payable $3,971 $ 3,895 Accrued expenses and other current liabilities 10,980 9,261 Deferred revenue   29,708     31,506   Total current liabilities   44,659     44,662     Deferred revenue   1,530     1,841   Deferred rent   1,612     -     Stockholders' equity: Common stock 70 65 Treasury stock, at cost (37,522) (37,522 ) Additional paid-in capital 242,005 188,871 Other comprehensive income (loss) 55 (2 ) Retained earnings   77,338     48,811   Total stockholders' equity   281,946     200,223   Total liabilities and stockholders' equity $329,747   $246,726       Condensed Consolidated Statements of Cash Flow(in thousands)(unaudited)         Three Months Ended September 30, Nine Months Ended September 30, 2010 2009 2010 2009 Cash provided by operating activities $9,715 $4,142 $32,749 $29,339 Cash (used in) provided by investing activities ($4,590) ($1,427) ($53,772) $2,074 Cash provided by financing activities $14,984 $463 $41,194 $1,665 Investor Relations:Acme PacketBrian Norris, +1 781-328-4790bnorris@acmepacket.comorMedia and Analyst Contact:CHEN PRChris Carleton, +1 781-672-3115ccarleton@chenpr.com