Starent Networks, Corp. Reports Third Quarter 2009 Financial Results

Starent Networks, Corp. (Nasdaq: STAR), a leading provider of infrastructure solutions that enable mobile operators to deliver multimedia services, today reported financial results for the third quarter ended September 30, 2009. Net revenues for the third quarter of 2009 were $86.0 million, compared to net revenues of $66.1 million for the third quarter of 2008. Net revenues for the nine months ended September 30, 2009 were $237.5 million, compared to $183.5 million for the same period in 2008.

Net income for the third quarter of 2009 was $15.1 million, or $0.20 per diluted share, compared to net income of $19.6 million, or $0.26 per diluted share, for the third quarter of 2008. Third quarter 2009 results included $6.3 million of non-cash stock-based compensation expenses compared to $4.5 million in the third quarter of 2008. Net income for the nine months ended September 30, 2009 was $43.1 million, or $0.57 per diluted share, compared to $43.0 million, or $0.58 per diluted share, for the same period in 2008. The results for the first nine months of 2009 included $15.9 million of non-cash stock-based compensation expenses compared to $12.4 million in the same period of 2008.

Excluding the impact of stock-based compensation and a one-time tax benefit recorded in third quarter 2008, non-GAAP net income for the third quarter of 2009 was $19.2 million, or $0.25 per diluted share, compared to non-GAAP net income for the third quarter of 2008 of $17.5 million, or $0.24 per diluted share. Non-GAAP net income for the nine months ended September 30, 2009 was $54.0 million, or $0.71 per diluted share, compared to non-GAAP net income of $48.8 million, or $0.66 per diluted share, for the same period in 2008.

Starent Networks recently announced that they agreed to settle all legal disputes with UTStarcom, Inc. Under the settlement, Starent Networks will make a one-time payment to UTStarcom in the amount of $3.5 million, which is reflected in the operating expenses for the third quarter. Included in the settlement is a perpetual royalty-free license to UTStarcom patents and the dismissal of two pending litigations in the United States District Courts for the Northern District of Illinois (filed on May 8, 2007) and the Northern District of California (filed on February 16, 2005).

On October 13, 2009, Cisco and Starent Networks announced a definitive agreement for Cisco to acquire Starent Networks. The agreement was approved by the board of directors at both companies and is expected to close during the first half of calendar year 2010 subject to customary closing conditions and regulatory reviews. Prior to the close, Cisco and Starent Networks will continue to operate as separate companies.

In light of the acquisition announcement, Starent Networks will not host a conference call in conjunction with its third quarter results and will not be updating prior financial guidance for the full year 2009 or providing financial guidance for any future periods.

About Starent Networks

Starent Networks, Corp. is a leading provider of infrastructure solutions that enable mobile operators to deliver multimedia services to their subscribers. Starent Networks has created solutions that provide mobile operators with the functions and services needed for access, mobility management and call control in their networks. Through integrated intelligence and high performance capabilities, Starent Networks’ solutions also enhance subscriber management, billing and session policy enforcement. The company’s products are capable of supporting a wide range of mobile wireless networks, such as CDMA2000, UMTS/HSPA, LTE, WiFi, and WiMAX. Starent Networks’ products have been deployed by over 100 mobile operators in 45 countries. Additional information about Starent Networks is available at www.starentnetworks.com.

Forward Looking Statements

Any statements in this press release about future expectations, plans and prospects for Starent Networks, including statements about the expected timetable for consummation of the merger and its benefits, constitute forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. These statements contain the words "believes," "anticipates," "plans," "expects," "will" and similar expressions. Actual results may differ materially from those currently anticipated due to a number of risks and uncertainties that are subject to change based on factors that are, in many instances, beyond Starent Networks' control. Risks and uncertainties that could cause results to differ from expectations include: uncertainties as to the timing of the merger; uncertainties as to how Starent Networks stockholders will vote their shares with respect to the merger; the risk that competing offers will be made; the possibility that various closing conditions for the transaction may not be satisfied or waived, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transaction; the effects of disruption from the transaction making it more difficult to maintain relationships with employees, customers, suppliers, other business partners or governmental entities, other business effects, including the effects of industry, economic or political conditions outside of Starent Networks' control; transaction costs; actual or contingent liabilities; or other risks and uncertainties discussed in documents filed with the U.S. Securities and Exchange Commission (the “SEC”) by Starent Networks, including factors discussed in the "Risk Factors" section of Starent Networks' Annual Report on Form 10-K for the year ended December 31, 2008, and other documents Starent Networks periodically files with the SEC. In addition, the forward-looking statements included in this press release represent Starent Networks' views as of the date of this press release. Starent Networks anticipates that subsequent events and developments will cause its views to change. However, while Starent Networks may elect to update these forward-looking statements at some point in the future, it specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing Starent Networks' views as of any date subsequent to the date of this press release.

Non-GAAP Financial Measures

In addition to disclosing financial measures prepared in accordance with Generally Accepted Accounting Principles (GAAP), this press release and the accompanying tables contain non-GAAP financial measures. For a description of these non-GAAP financial measures, including the reasons why management uses each measure, and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section of the accompanying table titled "Use of Non-GAAP Financial Information" as well as the related table that follows it.

IMPORTANT ADDITIONAL INFORMATION WILL BE FILED WITH THE SEC

Starent Networks has filed with the SEC and plans to mail to its stockholders a Proxy Statement in connection with the transaction. The Proxy Statement will contain important information about Starent Networks and the transaction and related matters. Investors and security holders are urged to read the Proxy Statement carefully when it is available.

Investors and security holders will be able to obtain free copies of the Proxy Statement and other documents filed with the SEC by Starent Networks through the website maintained by the SEC at http://www.sec.gov.

In addition, investors and security holders will be able to obtain free copies of the Proxy Statement from Starent Networks by contacting Starent Networks Investor Relations at 978-863-3743.

Cisco and Starent Networks, and their respective directors and executive officers, may be deemed to be participants in the solicitation of proxies in respect of the transactions contemplated by the merger agreement. Information regarding Cisco's directors and executive officers is contained in Cisco's Annual Report on Form 10-K for the year ended July 25, 2009 and its proxy statement dated September 17, 2009, which are filed with the SEC. Information regarding Starent Networks' directors and executive officers is contained in Starent Networks' Annual Report on Form 10-K for the year ended December 31, 2008 and its proxy statement dated April 7, 2009, which are filed with the SEC. As of September 30, 2009, Starent Networks' directors and executive officers beneficially owned approximately 15,204,815 shares, or 21 percent, of Starent Networks' common stock. In addition, Starent Networks has entered into retention agreements with its executive officers, which are described in a Current Report on Form 8-K filed by Starent Networks with the SEC on June 11, 2009, and certain of the officers are entering into employment agreements with Cisco, which will become effective as of the closing of the transaction. A more complete description of these agreements and the interests of the officers and directors is available in the proxy statement.

Additional Information and Where to Find It

In connection with the proposed acquisition and required stockholder approval, Starent Networks has filed with the SEC a preliminary proxy statement and will subsequently file a definitive proxy statement. The proxy statement will be mailed to the stockholders of Starent Networks. Starent Networks' stockholders are urged to read the proxy statement and other relevant materials when they become available because they will contain important information about the acquisition and Starent Networks. Investors and security holders may obtain free copies of these documents (when they are available) and other documents filed with the SEC at its website at http://www.sec.gov. In addition, investors and security holders may obtain free copies of the documents filed with the SEC by Starent Networks by going to Starent Networks' Investor Relations page on its corporate website at http://ir.starentnetworks.com.

A copy of this press release can be found on the investor relations page of Starent Networks’ website at http://ir.starentnetworks.com.

Starent®, ST40, and the Starent Networks logo are either registered trademarks or trademarks of Starent Networks, Corp. in the United States and/or other countries.

Starent Networks, Corp.
Condensed Consolidated Balance Sheets
(in thousands)
				September 30,			December 31,
				2009			2008
Assets				(unaudited)
Current assets:
	Cash and cash equivalents			$	407,456		$	369,351
	Accounts receivable				53,836			53,689
	Inventories				56,476			48,734
	Deferred tax assets, net				6,924			3,449
	Prepaid expenses and other current assets				7,830			4,709
		Total current assets			532,522			479,932
Property and equipment, net					38,541			29,632
Deferred tax assets, net					15,967			9,699
Other assets					10,910			8,011
Restricted cash					821			943
		Total assets		$	598,761		$	528,217
Liabilities and stockholders' equity
Current liabilities:
	Accounts payable			$	13,753		$	9,042
	Accrued expenses and other current liabilities				24,802			23,359
	Accrued income taxes				14,180			1,945
	Current portion of deferred revenue				129,505			141,726
		Total current liabilities			182,240			176,072
Deferred revenue, net of current portion					7,737			10,959
Other long-term liabilities					2,762			2,985
Stockholders' equity:
	Common stock				72			70
	Additional paid-in capital				396,397			371,655
	Retained earnings (accumulated deficit)				9,553			(33,524	)
		Total stockholders' equity			406,022			338,201
		Total liabilities and stockholders' equity		$	598,761		$	528,217

Starent Networks, Corp.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
					Three Months Ended							Nine Months Ended
					September 30,							September 30,
					2009				2008			2009				2008
					(unaudited)							(unaudited)
Revenues:
Product					$	73,160			$	55,450		$	202,119			$	156,497
Service						12,810				10,611			35,372				26,960
Total revenues						85,970				66,061			237,491				183,457
Cost of revenues:
Product						10,100				10,151			29,711				28,697
Service						6,405				4,107			16,957				11,823
Total cost of revenues						16,505				14,258			46,668				40,520
Gross profit						69,465				51,803			190,823				142,937
Operating expenses:
Research and development						16,892				13,750			47,478				38,594
Sales and marketing						18,677				17,894			52,009				52,918
General and administrative						10,569				6,129			23,946				17,215
Total operating expenses						46,138				37,773			123,433				108,727
Income from operations						23,327				14,030			67,390				34,210
Other income, net						1,582				632			3,074				5,676
Income before income tax (expense) benefit						24,909				14,662			70,464				39,886
Income tax (expense) benefit						(9,787	)			4,926			(27,388	)			3,131
Net income					$	15,122			$	19,588		$	43,076			$	43,017
Net income per common share:
Basic					$	0.21			$	0.28		$	0.61			$	0.62
Diluted					$	0.20			$	0.26		$	0.57			$	0.58
Weighted-average shares outstanding used in computing
net income per common share:
Basic						71,418				69,683			70,720				69,328
Diluted						76,356				74,192			75,752				74,343
Stock-based compensation included in the lines above:
Cost of revenues					$	596			$	376		$	1,488			$	1,070
Research and development						2,379				1,594			5,766				4,701
Sales and marketing						1,927				1,457			4,923				3,750
General and administrative						1,404				1,115			3,764				2,909
					$	6,306			$	4,542		$	15,941			$	12,430

Use of Non-GAAP Financial Information

To supplement our condensed consolidated financial statements presented on a GAAP basis, Starent Networks uses non-GAAP measures of operating results, net income and net income per share, which are adjusted to exclude stock-based compensation expense and the related income tax effect and certain income tax adjustments. We believe these adjustments are appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to our current period GAAP results are made with the intent of providing both management and investors a more complete understanding of Starent Networks' underlying operating results and trends and our marketplace performance. The non-GAAP results are an indication of our baseline performance that are considered by management for the purpose of making operational decisions. In addition, these adjusted non-GAAP results are the primary indicators management uses as a basis for planning and forecasting future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income or basic and diluted net income per share prepared in accordance with generally accepted accounting principles in the United States. Non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles and are subject to limitations.

Starent Networks, Corp.
Reconciliation of GAAP to Non-GAAP Items
(in thousands, except per share data)
					Three Months Ended								Nine Months Ended
					September 30,								September 30,
					2009				2008				2009				2008
					(unaudited)								(unaudited)
Gross profit
	Total revenues				$	85,970			$	66,061			$	237,491			$	183,457
	Total cost of revenues					16,505				14,258				46,668				40,520
	Gross profit				$	69,465			$	51,803			$	190,823			$	142,937
	Adjustments to reconcile to Non-GAAP gross profit:
	Stock-based compensation					596				376				1,488				1,070
	Non-GAAP gross profit				$	70,061			$	52,179			$	192,311			$	144,007
Operating expenses:
	Research and development				$	16,892			$	13,750			$	47,478			$	38,594
	Sales and marketing					18,677				17,894				52,009				52,918
	General and administrative					10,569				6,129				23,946				17,215
	Total operating expenses				$	46,138			$	37,773			$	123,433			$	108,727
	Adjustments to reconcile to Non-GAAP operating expenses:
	Stock-based compensation included in:
	Research and development				$	2,379			$	1,594			$	5,766			$	4,701
	Sales and marketing					1,927				1,457				4,923				3,750
	General and administrative					1,404				1,115				3,764				2,909
	Non-GAAP operating expenses:
	Research and development				$	14,513			$	12,156			$	41,712			$	33,893
	Sales and marketing					16,750				16,437				47,086				49,168
	General and administrative					9,165				5,014				20,182				14,306
	Non-GAAP operating expenses				$	40,428			$	33,607			$	108,980			$	97,367
Income from operations					$	23,327			$	14,030			$	67,390			$	34,210
	Adjustments to reconcile to Non-GAAP income from operations:
	Stock-based compensation (1)					6,306				4,542				15,941				12,430
	Non-GAAP income from operations				$	29,633			$	18,572			$	83,331			$	46,640
Income tax (expense) benefit :
	Income tax (expense) benefit				$	(9,787	)		$	4,926			$	(27,388	)		$	3,131
	Adjustments to reconcile to Non-GAAP income tax
	expense:
	Income tax effect (2)					(2,244	)			-				(4,982	)			-
	Income tax benefit (3)					-				(6,622	)			-				(6,622	)
	Non-GAAP income tax (expense)				$	(12,031	)		$	(1,696	)		$	(32,370	)		$	(3,491	)

					Three Months Ended								Nine Months Ended
					September 30,								September 30,
					2009				2008				2009				2008
					(unaudited)								(unaudited)
GAAP net income					$	15,122			$	19,588			$	43,076			$	43,017
Adjustments to reconcile to Non-GAAP net income:
Stock-based compensation (1)						6,306				4,542				15,941				12,430
Income tax effect (2)						(2,244	)			-				(4,982	)			-
Income tax benefit (3)						-				(6,622	)			-				(6,622	)
Non-GAAP net income					$	19,184			$	17,508			$	54,035			$	48,825
Non-GAAP net income per common share					$	0.25			$	0.24			$	0.71			$	0.66
Weighted-average shares used in computing
net income per common share:
Diluted						76,356				74,192				75,752				74,343

(1)		Adjustment for stock-based compensation expense. Stock-based compensation expense is a non-cash expense accounted for in accordance with the fair value provisions of Statement of Financial Accounting Standards No. 123(R) (SFAS 123(R)). While stock-based compensation is a large component of our expense, we believe investors prefer to exclude the effects of stock-based compensation expense in order to compare our financial performance with that of other companies and between time periods.
(2)		Income tax effect of excluding stock-based compensation. There was no adjustment for the comparable period in 2008.
(3)		Income tax benefit from the 2008 tax valuation allowance release. This refers to the recognition of an income tax benefit from the reversal of our tax valuation allowance on U.S. deferred tax assets that was no longer deemed necessary.  There was no adjustment for the 2009 period.