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Article by DailyStocks_admin    (07-09-08 08:03 AM)

The Daily Magic Formula Stock for 07/09/2008 is Acme Packet Inc. According to the Magic Formula Investing Web Site, the ebit yield is 18% and the EBIT ROIC is >100 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.

BUSINESS OVERVIEW

Overview

Acme Packet, Inc. is the leading provider of session border controllers, or SBCs, that enable service providers and enterprises to deliver secure and high quality interactive communications—voice, video and other real-time multimedia sessions—across defined border points where Internet Protocol networks connect, known as network borders. Service providers include wireline, wireless, cable and Internet telephony service providers. The Internet Protocol, or IP, is a standardized method of transmitting information, such as interactive communications, from one device, such as a personal computer, server, IP telephone and personal digital advisor, to another device over any type of physical private or public network, including the Internet. Our Net-Net products, which consist of our hardware and proprietary software, serve as a central element in unifying the separate IP networks. Our customers use our products to deliver next-generation interactive communications services, such as Voice over IP, or VoIP, with the same quality assurance and security as they historically have offered for voice services over their legacy telephone networks.

SBCs are deployed at the borders between IP networks, such as between two service providers or between a service provider and its enterprise, residential or mobile customers as more fully described below in the sections entitled "Industry Background," "The Need for a New IP Network Element," "Our Solution" and "Our Technology." SBCs are the only network element currently capable of integrating the control of signaling messages and media flows. This capability complements the roles and functionality of routers, softswitches and data firewalls that operate within the same network. Our Net-Net products support a broad range of communications applications at multiple network border points, providing key control functions in the areas of security, service reach maximization, service level agreement assurance, revenue and cost optimization and regulatory compliance, while also supporting next-generation service architectures such as IP Multimedia Subsystem, or IMS. IMS provides a blueprint for building a network capable of delivering IP-based voice, video and multimedia services to subscribers.

We began shipping our Net-Net products in 2002. Since that time, approximately 500 customers, consisting of both service providers and enterprises in 85 countries have purchased our products.

We sell our products and support services through approximately 45 distribution partners and our direct sales force. Our distribution partners include many of the largest networking and telecommunications equipment vendors throughout the world.

We were founded in 2000 under the name Primary Networks, Inc. and changed our name to Acme Packet, Inc. in January 2001. Our principal executive offices are located at 71 Third Avenue, Burlington, MA 01803. Our telephone number is (781) 328-4400. Our website address is www.acmepacket.com. Through a link on the Investor Relations section of our website, we make available the following filings after they are electronically filed with or furnished to the SEC: our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Exchange Act. All such filings are available free of charge.

Industry Background

Since the advent of IP, service providers have used two separate networks—the Public Switched Telephone Network, or PSTN, for voice communications and IP networks, both privately-based and the public Internet, for data applications and services. PSTN, also known as the voice or traditional telephone network, was created decades ago to provide seamless, reliable and secure global voice communications services. Users are accustomed to the high reliability and security of the PSTN, and have high confidence in utilizing it to share personal information and engage in activities such as banking and commerce. The PSTN is limited, however, in its ability to support high bandwidth video and other interactive multimedia services.

The Internet is a collection of IP networks that provides global reach for a broad range of information services such as e-mail, web browsing, electronic commerce and research. IP is a data-oriented protocol which provides communicable unique global addressing among computers. Internet service quality, while adequate for these types of information services, can vary significantly depending upon, among other factors, available bandwidth, how busy a particular web site may be, how many people are using the network at a particular time and the activity being performed. Although the Internet is capable of cost-effectively transmitting any form of traffic that is IP-based, including interactive voice, video and data, it transmits only on a best-efforts basis, because all forms of traffic have the same priority. The Internet, therefore, attempts to deliver all traffic without distinction, which can result in significantly varying degrees of service quality for the same or similar types of traffic transmissions. In addition, Internet communications, unlike those over the PSTN, are subject to disruptive and fraudulent behavior, including identity theft, viruses, unwanted and excessively large input data known as SPAM, unauthorized use, and attempts to circumvent or bypass security mechanisms associated with those services, known as hacking. Although Internet users have adopted many security measures to protect themselves, their networks and their websites, these measures currently are not adequate to provide highly secure, real-time interactive communications.

Evolution to a Converged IP Network

IP networks can be designed and operated more cost-effectively than the PSTN. In addition, IP networks are capable of delivering converged voice, video and data service packages to businesses and consumers. Service providers are seeking to provide these next-generation services to enhance their profitability by generating incremental revenue and by reducing subscriber turnover. Enterprises are searching for ways to unify their communications by seamlessly integrating voice, video, instant messaging and collaboration while reducing costs. Managing two distinct networks—the PSTN and an IP network—is not a viable economic alternative. As a result, service providers and enterprises have begun to migrate to a single IP network architecture to serve as the foundation for their next-generation services and applications. In order to successfully transition to a single IP network, however, they must maintain the same reliability, quality and security that have for decades exemplified their delivery of voice services.

Challenges of IP Networks in Delivering Session-Based Communications

IP networks were designed initially to provide reliable delivery of data services such as file downloads and website traffic that are not sensitive to latency, or time delay. If data packets are lost or misdirected, an IP network exhibits tremendous resiliency in re-transmitting and eventually executing the desired user request, which generally is an acceptable result for these types of data services. However, IP networks historically have not been capable of guaranteeing real-time, secure delivery of high quality sessions-based communications such as interactive voice and video.

A session is a communications interaction that has a defined beginning and end, and is effective only when transmitted in real-time without latency or delays. In order to enable a session-based communication, control of the session from its origination point to its defined end point is required. No single IP network extends far enough to enable that level of control, however, and the Internet lacks the fundamental quality of service and security mechanisms necessary to consistently deliver the security and quality of real- time multimedia communications that consumers and businesses require. In order to gain the trust of users, service providers and enterprises must be able to assure secure and high quality interactive communications across multiple networks.

The Need for a New IP Network Element

Managing Session-Based Communications

In order to provide secure and high quality interactive communications, IP networks must be able to manage and integrate the communication flows that comprise a session. Each session includes three sets of bidirectional communication flows:

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Session signaling messages, which are used to initiate, modify or terminate a session;

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Media streams, which are data packets containing the actual media being exchanged; and

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Media control messages, which are used to compile information used to report on quality of service levels.


A session is initiated using signaling messages. These messages establish a virtual connection between the participants' personal computers, IP phones or other IP devices. In addition, they negotiate the IP addresses used for the session's media streams and control messages as well as the algorithms, referred to as codecs, used to digitize analog voice and video. Various codecs are required for voice and video, and they involve trade-offs between quality and bandwidth efficiency. Once the call is initiated, media streams and control messages flow in both directions between participants. Signaling messages also are used to transfer a call, place a call on hold and terminate a session.

The management of session-based communications is complicated by the following characteristics of today's IP networks:

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The identities of the participants are difficult to ascertain and security needs are complex.

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The number of session signaling protocols, codecs and related standards continues to grow.

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Addressing schemes are not consistent or compatible across networks.

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Bandwidth and signaling element resources are finite.

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Interactive communications service provider business models and regulatory compliance requirements continue to evolve and require network flexibility.

Additionally, unlike typical data communications, not all session-based communications can be treated with the same priority. For example, a 911 call or a high quality enterprise video conference should take priority over a person calling into a reality TV program.

Limitations of Existing Network Elements

Successful session-based communications require tight integration between signaling and media control. However, existing network elements such as softswitches, IP Private Branch Exchanges, or IP PBXes, unified communication servers, routers and data firewalls do not provide the control functions required for session-based communications.

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Softswitches, IP PBXes and unified communication servers set-up interactive communication sessions using signaling protocols such as, Session Initiation Protocol, or SIP, H.323, Media Gateway Control Protocol, or MGCP, and H.248. There, session agents process only signaling messages while performing a variety of signaling-based functions, such as user registration, authentication, authorization and session routing based upon telephone numbers or SIP addresses. These session agents currently do not provide functions relating to, for example, media control for interactive communication sessions or protection against signaling-based denial of service and distributed denial of service, or DoS/DDoS, attacks. DoS/DDoS attacks prevent network equipment from receiving legitimate network traffic by overloading network equipment with unrequested information.

•
Routers make simple routing decisions for IP packets based upon IP addresses. Routers do not participate in call signaling, and therefore, are unable to recognize the multiple individual data packets that comprise a single voice call or multi-media session. Without signaling intelligence, routers currently are unable to perform key border control functions such as softswitch overload prevention or call routing based upon quality and cost requirements. Routers may use a number of quality of service technologies, such as Multi-Protocol Label Switching, or MPLS, Differentiated Services, or DiffServ, and Resource Reservation Protocol, or RSVP, to provide preferential treatment to certain IP packets. However, routers using these technologies are currently incapable of classifying all the communications flows associated with a single voice call and handling those communications flows correctly as a single entity. Without the ability to identify the multiple individual packets that compromise a session, control call signaling, or understand the access link capacity and utilization, the router is unable to make any call admission or rejection decisions. As a result, the router will continue to send packets along a path even though the session should have been rejected because the quality was insufficient for the requested session. When this overloading of a path occurs, not only is the quality of the session associated with that packet insufficient to support the session, but other sessions using that same path also will suffer degradation.

•
Data firewalls are the most common security element in IP networks. Firewalls work by allowing into the network only traffic that has been requested from inside the network and by presenting a single IP address for all of the personal computers, phones and other devices behind it. The firewall effectively blocks session-based communications because it does not allow incoming calls from unknown endpoints. Furthermore, firewalls are not capable of identifying and protecting against service overloads or DoS/DDoS attacks on other signaling elements such as the softswitch.

Our Solution

We provide a new category of network equipment called the session border controller, or SBC, to enable the delivery of secure and high quality interactive communications across multiple IP networks, including the separate IP networks that comprise wireline, wireless and cable networks. Prior to the advent of the SBC, IP network infrastructure equipment, such as those discussed above were able to initiate and route undifferentiated data, but lacked the ability to target specifically the management of interactive communications sessions. The development of the SBC, unlike many emerging networking products, was not catalyzed by standards bodies, but rather by the pragmatic needs of service providers and enterprises.

To date, SBCs have been deployed around the world principally to deliver VoIP services, or the routing of voice conversations over both private IP networks and the public Internet. We believe that there is a significant demand for SBCs that can assure delivery of secure and high quality real-time interactive communications across all IP network borders. Dell'Oro Group, a market research and consulting firm specializing in networking and telecommunications, projects that worldwide revenue for SBCs will increase from $215 million in 2007 to $1.1 billion in 2012.

SBCs are deployed at the borders of IP networks, such as between two service providers, referred to as an interconnect border, between a service provider and its enterprise, residential or mobile customers, referred to as access-backbone borders, or between a server provider's network and a data center, referred to as a data center border. Large enterprises also deploy SBC's between their IP network and their service provider's network and between their data centers and their employees. SBCs act as the source and destination for all signaling messages and media streams entering and exiting the network. To that end, SBCs complement rather than replace existing network and service infrastructure. At all borders, SBCs sit in front of session agents and make call acceptance or rejection decisions. This function protects the session agent from both malicious signaling attacks initiated by hackers and non-malicious overloads as well as ensures calls are only accepted when adequate network quality and softswitch resources are available. At many borders, SBCs sit alongside data firewalls. The data firewalls protect web and application servers and PCs from attacks while the SBC protects the session agent. SBCs augment the simple and different packet-by-packet routing decisions routers make. Unlike routers that make simple and different routing decisions on a packet by packet basis, SBCs are able to classify these flows as a single interactive communication session and make more intelligent routing decisions to use the best path across the network to ensure secure, high quality communications.

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Security. SBCs protect themselves, softswitches and other elements of the service delivery infrastructure, as well as customer networks, systems and relationships. They protect customer networks and session privacy, and provide DoS/DDoS protection from malicious attacks and non-malicious overloads.

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Service reach maximization. SBCs extend the reach of offered services by maximizing the different types of networks and devices supported. Support is provided for enabling sessions to traverse existing data firewall and cross network translation, or NAT, devices, bridging private networks using overlapping IP addresses and virtual private networks, or VPNs, mediating between different signaling, transport and encryption protocols, converting between incompatible codecs, and translating signaling-layer telephone numbers, addresses and response codes.

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Service level agreement assurance. SBCs play a critical role in assuring session capacity and quality. They perform admission and overload control to ensure that both the network and service infrastructure have the capacity to support a session with high quality. Additionally, they control the quality of network transport. SBCs also monitor and report actual session quality to determine compliance with performance specifications set forth in service level agreements between service providers or enterprises and their users.

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Revenue and cost optimization. SBCs can help service providers increase revenues and profits by protecting against both bandwidth and quality of service theft, by routing sessions to minimize costs, and by providing accounting and related mechanisms to maximize billable sessions.

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Regulatory compliance. SBCs support compliance with government-mandated regulations worldwide, including emergency services such as E-9-1-1 and lawful intercept, which involves law enforcement agencies' electronic surveillance of circuit and packet-mode communications as authorized by judicial or administrative order, such as the Communications Assistance for Law Enforcement Act, or CALEA.

Our SBCs utilize our proprietary technology to process session-based communications at network borders, and are designed to ensure that critical security and quality standards are met. Our key advantages include the following:

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Significant experience in service provider deployments. We have significant experience in production deployments of SBCs by large interactive communications service providers, including deployments at 24 of the top 25 and 82 of the top 100 wireline, wireless and cable service providers in the world, based on 2007 revenues. Our product functionality and quality have continually improved based on the knowledge about network challenges and complexities that we have acquired through deployments with approximately 500 customers across the globe.

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Breadth of applications and standards support. Our products are capable of processing the most widely used real-time interactive voice, video and multimedia communications sessions at wireline, wireless and cable IP network borders. We support a broad range of IP signaling protocols, such as SIP, H.323 and MGCP/NCS, transport protocols, encryption protocols, codecs, and addressing methods.

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Depth of border control features. We offer a deep set of session border control features for security, service reach maximization, service level agreement assurance, revenue and cost optimization, and regulatory compliance. In addition, our flexible product architecture facilitates rapid adoption of new control features required by emerging services, applications, business models and regulatory requirements.

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Responsive service and support. Our responsiveness to our customers' and distribution partners' new feature requirements and interoperability testing, as well as our commitment to swift problem resolution, has been critical in deployments of our products.

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Carrier-class platform. Service providers and enterprises operate complex, mission-critical networks that require security protection; high degrees of reliability, availability and maintainability, scalable performance and capacity, space and power-saving hardware design; and comprehensive network management. Products or platforms that satisfy these requirements are known as carrier-class. We have designed our products to be carrier-class.

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Proven interoperability. We have demonstrated the ability of our SBCs to interoperate with key products being deployed by major vendors for next-generation services, such as softswitches, IP PBXes, application servers, media gateways, media servers, policy servers and other communications infrastructure elements.

We believe that these key advantages of our products and services, together with their deployment by our approximately 500 customers, make Acme Packet the leading provider of SBCs.

Our Strategy

Our objective is to grow our market and technology leadership in the SBC market. Principal elements of our strategy include:

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Continue to satisfy the evolving border requirements of large service provides and enterprises. By continuing to work closely with large Tier-1 service providers and enterprises as they deploy and scale their services, we are well-positioned to gain valuable knowledge that we can use to expand and enhance our products' features and functionality. Our experience has demonstrated that new services, applications, business models and regulatory requirements will drive the need for supporting new interfaces, protocols and control features.

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Exploit new technologies to enhance product performance and scalability. Our purpose-built hardware platforms incorporate leading edge hardware and proprietary software technology. We will seek to leverage new technologies as they become available to increase the performance, capacity and functionality of our product family, as well as to reduce our costs.

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Invest in quality and responsive support. Our professional services team, dedicated to product quality and responsive support, ensures that our customers successfully deploy our products and efficiently transition their subscribers to a converged IP network infrastructure. As we broaden our product platform and increase our product capabilities, we will continue to provide comprehensive service and support targeted at maximizing customer satisfaction and retention.

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Facilitate and promote network interconnects among our customers. We facilitate and encourage business relationships and interconnections among our customers to extend the reach of their services and, consequently, to increase the value of their services to their customers. We expect that these interconnections, in turn, will lead to increased demand for both our customers' services and for our products.

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Leverage distribution partnerships to enhance market penetration. We have approximately 45 distribution partners, which provide us with access to additional customers and increase our market penetration. As we invest in training and tools for our distribution partners' sales,

systems engineering and support organizations, we expect the overall efficiency and effectiveness of these partnerships to increase, which will allow us to dedicate more of our resources to further penetrating the global market for our products and services.

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Actively contribute to architecture and standards definition processes. As the result of our breadth and depth of experience with actual production deployments of SBCs, we are poised to contribute significantly to organizations developing standards and architectures for next-generation IP networks, such as the Internet Engineering Task Force, 3GPP, ETSI, ATIS, MultiService Forum and PacketCable. We believe that the evolution of these standards and architectures will increasingly be driven by the realities learned from the pragmatic needs of service providers and enterprises, not by theories.


Our Technology

Our SBCs are designed specifically to make networks "session aware" by enabling them to recognize, manage and integrate the various communication flows that comprise a single session and then treat those media flows as a single session with the appropriate priority, security and routing among other different networks. Acme Packet Session Aware Networking, our technology architecture, enables the delivery of secure and high quality interactive communication sessions across IP network borders. Implemented by the tight integration of our Net-Net OS software and Net-Net hardware platforms, our technology combines five elements that make the network session aware:

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session routing policy;

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session signaling service;

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session media control;

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session monitoring and reporting; and

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session security service.

Session Aware Networking is designed to enable these five elements to share information dynamically. The session routing policy element collects the information necessary to guide the session signaling service in the selection of the optimal route across multiple IP networks. The media control element moves voice packets in compliance with security, quality of service, bandwidth and regulatory requirements. The session monitoring and reporting element updates the routing policy element with information about actual signaling element load, bandwidth availability and route performance. The session security service element protects the SBC, service infrastructure, customer networks and sessions among users of the services and applications.

We believe that the combination of these elements creates a comprehensive solution required to deliver secure and high quality interactive communications services across IP network borders.

Session routing policy. This software-based element defines and collects the information needed to make routing and related decisions. Session routing policy includes the following:

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Admission control, which determines whether session initiation requests should be accepted based upon signaling element availability and load, bandwidth availability and observed session quality;

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Routing, which determines the next signaling element on the network based upon multiple metrics, including source, destination, service provider preference, prefix, cost, time-of-day and time-of-week;

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Load balancing, which determines how sessions should be load balanced across multiple signaling elements on the network utilizing round-robin, hunt, least busy or proportional allocations;

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Number translations, which specifies how telephone numbers should be manipulated when being forwarded; and

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Call limiting, which limits number or rate of calls to prevent overloads from less valuable sources or destinations.

Session signaling service. This software-based element supports a broad range of signaling protocols such as SIP, H.323, MGCP/NCS and H.248. Based on information received from the session routing policy element, the signaling service element selects the best path through the network for each session. It selects the next signaling element in the network, such as user devices, softswitches, gateways and application servers, that each session should visit. To initiate the session, this element signals the next device along the path. If no acceptable path is available, the signaling service rejects the initiation request. It performs network address and port translations for addresses exposed in the signaling messages for security and bridging incompatible networks, strips previous routing information to hide customers or suppliers and adds or strips codecs to ensure codec compatibility. It also determines if the media flows should be released peer-to-peer between endpoints or relayed through the media control element. For relayed sessions, it passes address information for the next signaling element in the path to the media control element. The signaling service also performs protocol repair and interworking by, for example, converting one protocol into another. Lastly, this element is able to track sessions for reporting and billing purposes.

Session media control. Once the session is established, this hardware-based element controls the media flows that are not released peer-to-peer between endpoints. Media control performs network address and port translations for security and bridging incompatible networks. It relays media to support the ability to address the cross network address translation and firewall devices, applies quality of service markings such as DiffServ bits and virtual area network, or VLAN, tags, performs transcoding between codecs when needed, and polices bandwidth usage in order to prevent, for example, a 64-Kbps voice session from switching to 384-Kbps video without permission. Media control also can extract touch tones embedded in the media flows, replicate the media flows for lawful intercept when required, and detect and repair certain session faults based on limits for items such as call length and maximum idle time. For example, if a signaling message terminating a session is lost, the session media control element notices and terminates the errant connection, freeing resources for other use.

Session monitoring and reporting. This element compiles signaling and media performance information on a per session basis. Media quality measurements may include objective network attributes, such as delay, jitter and packet loss, or subjective measurements using mean opinion score algorithms. Signaling performance information includes signaling element availability, load and call completion ratios. The reported information is used in fault and performance management and in service level agreement reporting, and is input to subsequent routing and admission control policy decisions.

Session security service. This element exploits integrated hardware and software capabilities to secure the SBC, the service infrastructure and subscriber sessions with respect to signaling and media flows. Static and dynamic access control lists for signaling messages are enforced by the SBC's network processing subsystem to protect the signaling processor from DoS/DDoS attack and overload. DoS/DDoS attacks prevent network equipment from receiving legitimate media flows by overloading the network equipment with unrequested information. To avoid such attacks, subscriber endpoints must earn trust through successful registrations or calls to gain trusted access. For media flows, an SBC acts as a media firewall, permitting access for authorized sessions and blocking other traffic. All internal bandwidth consumed by all signaling and media flows are policed in hardware for optimum scalability in DoS/DDoS protection.

DoS/DDoS attack prevention entails blocking all attacks and overloads at the SBC. Many of the session routing policies described above prevent signaling and media overloads on the service infrastructure from legitimate subscribers. A hardware-based encryption engine can ensure confidentiality of both signaling and media flows for subscriber sessions.

CEO BACKGROUND

Keith Seidman , age 52, has served as our Chief Financial Officer since February 2001 and since the completion of our IPO has served as our Treasurer. Prior to joining Acme Packet, Mr. Seidman served as the Chief Financial Officer of Spotfire, Inc., an interactive, visual data analysis applications and services company. From September 1996 to September 1999, he served as Chief Financial Officer for Priority Call Management, Inc. From July 1991 to September 1996, Mr. Seidman served as Executive Vice President and Chief Financial Officer of Duracraft Corp., a consumer products company, where he helped plan and execute its IPO and its subsequent acquisition by Honeywell Inc. Mr. Seidman is a Certified Public Accountant. In February 2008, Mr. Seidman announced his plans to retire as soon as a new chief financial officer has been appointed and a successful transition has been made.

Dino Di Palma , age 40, has served as our Vice President Sales and Business Development since February 2001. Prior to joining Acme Packet, he served six years as Manager of Systems Engineering, Vice President of CALA Sales and Vice President Business Development at Sema Priority Call, Inc., a developer and marketer of open, distributed telecommunications solutions for next-generation public networks.

Seamus Hourihan , age 54, has served as our Vice President Marketing and Product Management since August 2001. Prior to joining Acme Packet, Mr. Hourihan was Vice President of Marketing for Pingtel, Inc., a provider of SIP products and technology, from November 1999 to July 2001.

Erin Medeiros , age 34, has served as our Vice President Professional Services since November 2005. Ms. Medeiros served as our Manager of Systems Engineering from June 2001 to October 2005. Prior to joining Acme Packet, Ms. Medeiros spent six years in systems engineering at Sema Priority Call, Inc.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

Acme Packet, Inc. is the leading provider of session border controllers, or SBCs, that enable service providers to deliver secure and high quality interactive communications—voice, video and other real-time multimedia sessions—across IP network borders. As of December 31, 2007, approximately 500 service providers in 85 countries have deployed our products. We sell our products and support services through our direct sales force and approximately 45 distribution partners, including many of the largest networking and telecommunications equipment vendors throughout the world.

Our headquarters are located in Burlington, Massachusetts. We maintain sales offices in Burlington, Massachusetts; Madrid, Spain and Tokyo, Japan. We also have sales personnel in Argentina, Australia, Belgium, Brazil, Canada, China, Croatia, France, Germany, Hong Kong, Italy, Korea, Malaysia, Mexico, the Netherlands, Peru, Russia, South Africa, Thailand and the United Kingdom and throughout the United States. We expect to continue to add personnel in the United States and internationally to provide additional geographic sales and technical support coverage.

Initial Public Offering

In October 2006, we completed an initial public offering, or IPO, of our common stock in which we sold and issued 9.7 million shares of our common stock, including 1.7 million shares sold by us pursuant to the underwriters' full exercise of their over-allotment option, at an issue price of $9.50 per share. We raised a total of $92.4 million in gross proceeds from the IPO, or $83.2 million in net proceeds after deducting underwriting discounts and commissions of $6.5 million and other offering costs of $2.7 million. Upon the closing of the IPO, all shares of convertible preferred stock outstanding automatically converted into 32.2 million shares of common stock.

Fiscal Year

Our fiscal year ends on December 31. Reference to 2007, for example, refers to the fiscal year ended December 31, 2007.

Revenue

We derive product revenue from the sale of our Net-Net hardware and the licensing of our Net-Net software. We generally recognize product revenue at the time of product delivery, provided all other revenue recognition criteria have been met, pursuant to the requirements of Statement of Position, or SOP, 97-2, Software Revenue Recognition , as amended by SOP 98-9, Software Revenue Recognition with Respect to Certain Transactions . For arrangements that include customer acceptance or other material non-standard terms, we defer revenue recognition until after delivery, and all other criteria for revenue recognition have been met.

We generate maintenance, support and service revenue from (a) maintenance associated with software licenses, (b) technical support services for our product software, (c) hardware repair and maintenance services, (d) implementation, training and consulting services, and (e) reimbursable travel and other out-of-pocket expenses paid to us by our customers.

We offer our products and services indirectly through distribution partners and directly through our sales force. Our distribution partners include networking and telecommunications equipment vendors throughout the world. Our distribution partners generally purchase our products after they have received a purchase order from their customers and do not maintain an inventory of our products in anticipation of sales to their customers. Generally, the pricing offered to our distribution partners will be lower than to our direct customers.

The product configuration, which reflects the mix of session capacity and requested features, determines the price for each SBC sold. Customers can purchase our SBCs in either a standalone or high availability configuration and can license our software in various configurations, depending on the customers' requirements for session capacity, feature groups and protocols. The product software configuration mix will have a direct impact on the average selling price of the system sold. As the market continues to develop and grow, we expect to experience increased price pressure on our products and services.

We believe that our revenue and results of operations may vary significantly from quarter to quarter as a result of long sales and deployment cycles, variations in customer ordering patterns, and the application of complex revenue recognition rules to certain transactions. Some of our arrangements with customers include clauses under which we may be subject to penalties for failure to meet specified performance obligations. We have not incurred any such penalties to date.

Cost of Revenue

Cost of product revenue primarily consists of payments to third party manufacturers for purchased materials and services, salaries and benefits related to personnel, provision for inventory obsolescence, and related overhead.

Cost of maintenance, support and service revenue consists primarily of (a) salaries and benefits related to professional services and technical support personnel, (b) billable and non-billable travel, lodging, and other out-of-pocket expenses, (c) related overhead, and (d) contract manufacturer services for repairs and warranty services.

Gross Profit

Our gross profit has been, and will be, affected by many factors, including (a) the demand for our products and services, (b) the average selling price of our products, which in turn depends in part on the mix of product configurations sold, (c) new product introductions, (d) the mix of sales channels through which our products are sold, and (e) the volume and costs of manufacturing of our hardware products.

Operating Expenses

Operating expenses consist of sales and marketing, research and development, and general and administrative expenses. Personnel-related costs are the most significant component of each of these expense categories. During the period from December 31, 2005 through December 31, 2007, we increased the number of our employees and full-time independent contractors by 99% from 164 to 327. We expect to continue to hire significant numbers of new employees to support our growth.

Sales and marketing expense consists primarily of (a) salaries and related personnel costs, (b) commissions, (c) travel, lodging and other out-of-pocket expenses, (d) marketing programs such as trade shows, and (e) other related overhead. Commissions are recorded as expense when earned by the employee. We expect absolute dollar increases in sales and marketing expense for the foreseeable future and to increase as a percentage of total revenue for the foreseeable future as we further increase the number of sales professionals and, to a lesser extent, increase our marketing activities with the intent to grow our revenue. However, we anticipate that sales and marketing expense will decrease as a percentage of total revenue in the long term.

Research and development expense consists primarily of (a) salaries and related personnel costs, (b) payments to suppliers for design and consulting services, (c) prototype and equipment costs relating to the design and development of new products and enhancement of existing products, (d) quality assurance and testing, and (e) other related overhead. To date, all of our research and development expense has been expensed as incurred. We intend to continue to invest significantly in our research and development efforts, which we believe are essential to maintaining our competitive position. We expect research and development expense to increase in absolute dollars for the foreseeable future and to increase as a percentage of total revenue in the near term. However, we anticipate that research and development expense will decrease as a percentage of total revenue in the long term.

General and administrative expense consists primarily of (a) salaries and personnel costs related to our executive, finance, human resource and information technology organizations, (b) facilities expenses, (c) accounting and legal professional fees, and (d) other related overhead. We expect general and administrative expense to continue to increase in absolute dollars for the foreseeable future as we invest in infrastructure to support continued growth and incur additional expenses related to being a publicly traded company, including increased audit and legal fees, costs of compliance with securities and other regulations, investor relations expense, and higher insurance premiums. However, we anticipate that general and administrative expense will decrease as a percentage of total revenue in the long term.

Stock-Based Compensation

Through December 31, 2005, cost of revenue and operating expenses included stock-based compensation expense to the extent the fair value of our common stock exceeded the exercise price of stock options granted to employees on the date of grant. Effective in the first quarter of fiscal 2006, we adopted the requirements of Statement of Financial Accounting Standards, or SFAS, No. 123(R), Share Based Payment . SFAS No. 123(R) addresses all forms of shared-based payment awards, including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. SFAS No. 123(R) requires us to expense share-based payment awards with compensation cost for share-based payment transactions measured at fair value. For the years ended December 31, 2007 and 2006, we recorded expense of $6.1 million and $867,000, respectively, in connection with share-based payment awards. Based on options granted in 2007 and 2006, a future expense of non-vested options of $19.6 million is expected to be recognized over a weighted-average period of 2.55 years.

Other Income (Expense), Net

Other income (expense) primarily consists of interest income earned on cash balances. We historically have invested our cash in money market funds. Other income (expense) also includes gains (losses) from foreign currency translation adjustments of our foreign subsidiaries. The functional currency of our foreign operations in Europe and Asia is the U.S. dollar. Accordingly, all assets and liabilities of these foreign subsidiaries are remeasured into U.S. dollars using the exchange rates in effect at the balance sheet date. Revenue and expenses of these foreign subsidiaries are remeasured into U.S. dollars at the average rates in effect during the year. Any differences resulting from the remeasurement of assets, liabilities and operations of the European and Asian subsidiaries are recorded within other income (expense).

Application of Critical Accounting Policies and Use of Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ significantly from these estimates under different assumptions or conditions. There have been no material changes to these estimates for the periods presented in this Annual Report on Form 10-K.

We believe that of our significant accounting policies, which are described in note 2 of the notes to our consolidated financial statements included in this Annual Report on Form 10-K, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.

Revenue Recognition

We recognize revenue in accordance with SOP 97-2, as amended by SOP 98-9, and Emerging Issues Task Force, or EITF, Issue No. 03-5, Applicability of AICPA Statement of Position 97-2 to Nonsoftware Deliverables in an Arrangement Containing More-Than-Incidental Software . We have determined that the software element of our product is "more than incidental" to the products as a whole. As a result, in accordance with EITF Issue No. 03-5, we are required to recognize revenue under SOP 97-2 and SOP 98-9.

In all of our arrangements, we do not recognize any revenue until we can determine that persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and we deem collection to be probable. In making these judgments, we evaluate these criteria as follows:

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Evidence of an arrangement exists. We consider a non-cancelable agreement signed by the customer and us to be representative of persuasive evidence of an arrangement.

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Delivery has occurred. We consider delivery to have occurred when product has been delivered to the customer and no post-delivery obligations exist. In instances where customer acceptance is required, delivery is deemed to have occurred when customer acceptance has been achieved. Certain of our agreements contain products that might not conform to published specifications or contain a requirement to deliver additional elements which are essential to the functionality of the delivered elements. Revenue associated with these agreements is recognized when the customer specifications have been met or delivery of the additional elements has occurred.

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Fees are fixed or determinable. We consider the fee to be fixed or determinable unless the fee is subject to refund or adjustment or is not payable within normal payment terms. If the fee is subject to refund or adjustment, we recognize revenue when the right to a refund or adjustment lapses. If offered payment terms exceed our normal terms, we recognize revenue as the amounts become due and payable or upon the receipt of cash.

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Collection is deemed probable. We conduct a credit review for all transactions at the inception of an arrangement to determine the creditworthiness of the customer. Collection is deemed probable if, based upon our evaluation, we expect that the customer will be able to pay amounts under the arrangement as payments become due. If we determine that collection is not probable, revenue is deferred and recognized upon the receipt of cash.

A substantial percentage of our revenue is generated by multiple-element arrangements, such as products, maintenance, professional services and training. When arrangements include multiple elements, we allocate the total fee among the various elements using the residual method. Under the residual method, revenue is recognized when vendor-specific objective evidence, or VSOE, of fair value exists for all of the undelivered elements of the arrangement, but does not exist for one or more of the delivered elements of the arrangement. Each arrangement requires us to analyze the individual elements in the transaction and to estimate the fair value of each undelivered element, which typically includes maintenance and services. Revenue is allocated to each of the undelivered elements based on its respective fair value, with the fair value determined by the price charged when that element is sold separately.

Maintenance and support services include telephone support, return and repair services, and unspecified rights to product upgrades and enhancements, and are recognized ratably over the term of the service period, which is generally 12 months. Maintenance and support revenue generally is deferred until the related product has been accepted and all other revenue recognition criteria have been met. Professional services and training revenue is recognized as the related service is performed.

Our products and services are distributed indirectly through distribution partners and directly through our sales force. Revenue arrangements with distribution partners are recognized when the above criteria are met and only when we receive evidence that the distribution partner has an order from an end-user customer. We typically do not offer contractual rights of return, stock balancing or price protection to our distribution partners, and actual product returns from them have been insignificant to date. As a result, we do not maintain reserves for product returns and related allowances.

Results of Operations

Comparison of Years Ended December 31, 2007 and 2006

The $23.1 million increase in product revenue was a result of an increase in the number of systems sold in 2007 which reflected the growth in the worldwide market for our products. This growth was realized through our indirect sales channels. Indirect product revenues increased $27.2 million, of which $20.6 million was attributable to our international customers and $6.6 million was attributable to our United States and Canadian customers. Direct product revenues decreased $4.1 million, of which $4.4 million was attributable to United States and Canadian customers partially offset by an increase of $300,000 from our international customers.

An increase in the average selling price of our systems due to changes in our product software configuration mix and an increase in the level of software license upgrades also contributed to the increase in product revenue in 2007. The product configuration, which reflects the mix of session capacity and requested features, determines the price for each SBC sold. Customers can license our software in various configurations, depending on the customers' requirements for session capacity,
feature groups and protocols. The product software configuration mix will have a direct impact on the average selling price of the system sold. Systems with higher software content (higher session capacity and a larger number of feature groups) will generally have a higher average selling price than those systems sold with lower software content.

The $5.9 million increase in maintenance, support and service revenue was attributable primarily to the $4.8 million increase in maintenance and support fees associated with the growth in our installed product base and a $1.1 million increase in installation and training revenue, including reimbursable travel expenses.

The $3.7 million increase in product cost of revenue was attributable to the increase in the number of systems sold in 2007.

The $1.1 million increase in cost of maintenance, support and service revenue was due to higher salaries, benefits and overhead associated with increases in support and training personnel, including a $245,000 increase in stock-based compensation expense.

Product gross margin increased by 1 percentage point, reflecting the increase in the average selling price of our systems as a result of the changes in product configuration mix reflecting systems sales with a higher software content as noted above, as well as reduced costs per system paid to our contract manufacturers. We expect our gross margin in the future to decrease, as we expect to experience increased price pressure on our products as the market for our products continues to develop and grow. We cannot predict our ability to continue to realize reduced per system costs because we cannot predict the pricing of component parts or the volume of orders to be placed in the future.

Gross margin on maintenance, support and service revenue increased by 2 percentage points as a result of an increase in maintenance, support and service revenue associated with the growth in our installed product base without a corresponding increase in costs. We expect cost of product revenue and cost of maintenance, support and service revenue each to increase at approximately the same rate as the related revenue for the foreseeable future. As a result, we expect that gross profit on product revenue and gross profit on maintenance, support and service revenue will each increase, but that the related gross margin will decline slightly for the foreseeable future.

Of the $11.6 million increase in sales and marketing expense (a) $7.0 million was attributable to higher salaries, commissions and benefits associated with a 26% increase in sales and marketing personnel, primarily sales and technical sales support staff, on a worldwide basis, (b) $2.0 million was attributable to an increase in stock-based compensation expense, (c) $1.5 million was attributable to an increase in travel expense resulting from the growth in the number of sales personnel and (d) the balance was attributable to increased expenses associated with expanded marketing programs, including trade shows and overhead associated with increases in sales and marketing personnel. We expect sales and marketing expense to continue to increase in absolute dollars and to increase as a percentage of total revenue for the foreseeable future as we expand our sales force to continue to increase our revenue and market share. However, we anticipate that sales and marketing expense will decrease as a percentage of total revenue in the long term.

Of the $7.1 million increase in research and development expense, $3.9 million was attributable to higher salaries and benefits associated with a 34% increase in the number of employees working on the design and development of new products and enhancement of existing products, quality assurance and testing. The increase in research and development expense also reflected (a) an increase of $1.8 million in stock-based compensation expense, (b) an increase in depreciation expense of $717,000 associated with our investment in equipment to support new product development and (c) an increase of $284,000 for outside consulting services. The addition of personnel and our continued investment in research and development were driven by our strategy of maintaining our competitive position by expanding our product offerings and enhancing our existing products to meet the requirements of our customers and market. We expect research and development expense to increase in absolute dollars for the foreseeable future and to increase as a percentage of total revenue on the near term. However, we anticipate that research and development expense will decrease as a percentage of total revenue in the long term.

Of the $4.2 million increase in general and administrative expense, (a) $919,000 was attributable to higher salaries and benefits related to a 37% increase in general and administrative headcount, (b) $836,000 was attributable to an increase in stock-based compensation expense, (c) $827,000 was attributable to an increase in facilities costs, including rent, utilities and depreciation expense, associated with the overall increase in our employee headcount, (d) $570,000 was attributable to higher insurance premiums associated with being a publicly traded company and (e) $360,000 was attributable to increased legal, accounting and professional fees. We expect general and administrative expense to continue to increase in absolute dollars for the foreseeable future as we invest in infrastructure to support continued growth and incur additional expenses related to being a publicly traded company, including increased audit and legal fees, costs of compliance with securities and other regulations, investor relations expense, and higher insurance premiums.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations

Comparison of Three Months Ended March 31, 2008 and 2007

The $5.3 million increase in product revenue was primarily the result of an increase in the number of systems sold in the three months ended March 31, 2008, which reflected the growth in the worldwide market for our products. This growth was realized through both our direct and indirect sales channels. Indirect product revenues increased $3.3 million, of which $1.8 million was attributable to our international customers and $1.5 million was attributable to United States and Canadian customers. Direct product revenues increased $2.0 million, of which $2.7 million was attributable to customers in the United States and Canada, partially offset by a decrease of $751,000 in direct product revenues from our international customers. An increase in the average selling price of our systems due to changes in our product software configuration mix, and an increase in the level of software license upgrades, also contributed to the increase in product revenue for the three months ended March 31, 2008. The product configuration, which reflects the mix of session capacity and requested features, determines the price for each SBC sold. Customers can license our software in various configurations, depending on the customers' requirements for session capacity, feature groups and protocols. The product software configuration mix will have a direct impact on the average selling price of the system sold. Systems with higher software content (higher session capacity and a larger number of feature groups) will generally have a higher average selling price that those systems sold with lower software content.

The $1.3 million increase in maintenance, support and service revenue was attributable to the $1.0 million increase in maintenance and support fees associated with the growth in our installed product base and to a lesser extent, the $239,000 increase in installation, professional services and training revenue, including reimbursable travel expenses.

The $519,000 increase in cost of product revenue was attributable to the increase in the number of systems sold during the three months ended March 31, 2008, as well as an increase in salaries, benefits and overhead associated with an increase in manufacturing personnel.

The $94,000 increase in cost of maintenance, support and service revenue was due to higher salaries, benefits and overhead (including stock-based compensation expense) associated with increases in support and training personnel partially offset by decreased costs associated with our warranty programs.

Product gross margin increased 2 percentage points, resulting from the increase in the average selling price of our systems as a result of the changes in product configuration mix reflecting systems sales with higher software content as noted above. An increase in the level of software license upgrades also contributed to the increase in product gross margin. We expect our gross margin in the future to decrease, as we expect to experience increased price pressure on our products as the market for our products continues to develop and grow. We cannot predict our ability to continue to realize reduced per system costs because we cannot predict the pricing of component parts or the volume of orders to be placed in the future.

Gross margin on maintenance, support and service revenue increased by 4 percentage points as a result of an increase in maintenance, support and service revenue associated with the growth in our installed product base without a corresponding increase in costs.

We expect cost of product revenue and cost of maintenance, support and service revenue each to increase at approximately the same rate as the related revenue for the foreseeable future. As a result, we expect that gross profit on product revenue and gross profit on maintenance, support and service revenue each will increase, but that the related gross margins will decline slightly for the foreseeable future.

Of the $2.8 million increase in sales and marketing expense, (a) $1.8 million was attributable to higher salaries, commissions and benefits associated with a 24% increase in sales and marketing personnel, primarily sales and technical sales support staff, on a worldwide basis, (b) $538,000 was attributable to an increase in stock-based compensation expense, (c) $110,000 was attributable to increased depreciation expense and (d) the balance was primarily attributable to increased expenses associated with expanded marketing programs and travel expenditures, including trade shows and overhead associated with increases in sales and marketing personnel. We expect sales and marketing expense to continue to increase in absolute dollars and to increase as a percentage of total revenue for the foreseeable future as we expand our sales force to continue to increase our revenue and market share. However, we anticipate that sales and marketing expense will decrease as a percentage of total revenue in the long term.

Of the $912,000 increase in research and development expense, $1.0 million was attributable to higher salaries and benefits associated with a 31% increase in the number of employees working on the design and development of new products and enhancement of existing products, quality assurance and testing. This increase was partially offset by a decrease in stock-based compensation expense of $194,000 related to the recapture of expense associated with stock options which were forfeited prior to being vested. The balance of the increase in research and development expense was attributable to other operating expenses including outside services and depreciation expense. The addition of personnel and our continued investment in research and development were driven by our strategy of maintaining our competitive position by expanding our product offerings and enhancing our existing products to meet the requirements of our customers and market. We expect research and development expense to increase in absolute dollars for the foreseeable future and to increase as a percentage of total revenue in the near term. However, we anticipate that research and development expense will decrease as a percentage of total revenue in the long term.

Of the $611,000 increase in general and administrative expense (a) $303,000 was attributable to increased audit and legal fees associated with being a publicly traded company, (b) $146,000 was attributable to higher salaries and benefits related to a 13% increase in general and administrative headcount, (c) $142,000 was attributable to fees related to our current search for a new chief financial officer, and (d) the balance was attributable to a net increase in other miscellaneous general and administrative expenses. We expect general and administrative expense to continue to increase in absolute dollars as we invest in infrastructure to support continued growth and incur additional expenses related to being a publicly traded company, including increased audit and legal fees, costs of compliance with securities and other regulations, investor relations expense, and higher insurance premiums.

The $1.6 million increase in income from operations resulted from a $6.0 million increase in gross profit offset in part by a $4.4 million increase in total operating expenses.

Interest income, net, consisted of interest income generated from the investment of our cash balances. The decrease in interest income reflected lower average interest rates for the three months ended March 31, 2008 partially offset by higher cash balances as a result of increased cash from operating activities.

Other expense consisted of foreign currency translation and transaction gains and losses, as well as other miscellaneous income and expenses.

Provision for Income Taxes

For the three months ended March 31, 2008 and 2007, our effective tax rates were 39% and 38%, respectively. We currently expect to realize recorded deferred tax assets as of March 31, 2008 of approximately $4.6 million. Our conclusion that such assets will be recovered is based upon its expectation that our future earnings will provide sufficient taxable income to realize recorded tax assets. While the realization of our net recorded deferred tax assets cannot be assured, to the extent that future taxable income against which these tax assets may be applied is not sufficient, some or all of our net recorded deferred tax assets would not be realizable. Approximately $1.7 million of the deferred tax asset recorded as of March 31, 2008 is attributable to benefits associated with stock-based compensation charges. Under the guidance of SFAS No. 123(R), no valuation allowance has been recorded against this amount. However, in the future, if the underlying awards expire with an intrinsic value less than the fair value of the awards on the date of grant, some or all of the benefit may not be realized.

Liquidity and Capital Resources

Resources

Since 2005, we have funded our operations principally with cash provided by operations, which was driven by growth in revenue. In October 2006, we completed an IPO of our common stock in which we sold and issued 9.7 million shares of our common stock, including 1.7 million shares sold by us pursuant to the underwriters' full exercise of their over-allotment option, at an issue price of $9.50 per share. We raised a total of $92.4 million in gross proceeds from the IPO, or $83.2 million in net proceeds after deducting underwriting discounts and commissions of $6.5 million and other offering costs of $2.7 million.

CONF CALL

Brian Norris

With me on the call this evening is Andy Ory our President and Chief Executive Officer, Keith Seidman our Chief Financial Officer and Seamus Hourihan our Vice President of Marketing and Product Management. Today after the market closed we issued our first quarter 2008 earnings result press release which will be the focus for this evenings call.

Before we begin I would like to remind you that statements made during this call that are not historical facts maybe 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 among other things to our position in the session border controller market, our expected financial and operating results, including expected revenue and earnings per share for full year fiscal 2008 on both a GAAP and non-GAAP basis, our ability to build and grow Acme Packet, the benefits of our products and our ability to achieve our goals, plans and objectives.

Such forward-looking statements do not constitute guarantees of future performance and are subject to a variety of risks and uncertainties that could cause our actual results to differ materially from those anticipated. A discussion of these risks, uncertainties and additional factors that could cause actual results to differ materially from those projected or suggested in any forward-looking statements is contained in our recent filings with the SEC including those factors discussed under the caption risks factors in such filings.

Investors should not place under reliance on such statements which are current only as of the day they are made and we disclaim any obligation to update them. All result and projections we review this evening are on a non-GAAP basis; almost otherwise and explicitly described as GAAP. During this call we will be referring to non-GAAP earnings and non-GAAP net income and non-GAAP net income per share which are non-GAAP financial measures that exclude stock based compensation expense for all periods presented.

A copy of our earnings press release along with the accompanying income statement, balance sheet and operating specifics, as well as the reconciliation of non-GAAP financial measures to the most directly comparable GAAP measure is available on the Investor Relations section of our website at www.ir.acmepacket.com.

At this time I would like to turn the call over to Andy.

Andrew Ory

We are delighted to be reporting another strong quarter highlighted by record revenue, solid earnings growth and record cash flow from operations. This marks our 10th consecutive quarter of reporting both sequential and year-over-year revenue growth which we believe is further evidence of both our expanding market leadership and the growing value our solutions provide in the next generation network of service providers, enterprisers and contact centers.

First quarter revenues were a record $31.7 million, an increase of 26% year-over-year. Our growth in the first quarter was fueled by the addition of nearly 2000 new customers and deepening deployments within our existing customer base. Revenues in the US and Canada grew by 22% sequentially and 37% compared to the first quarter of last year. Our presence among the top 100 tier service providers continued to expand. Our solutions are now at 84 of the top 100 service providers in the world up from 75 such customers a year ago.

Our leadership among the very largest tier 1’s is even stronger. We now serve the need of 29 of the top 30 service providers in the world. We added several new enterprise and contact centre customers in the first quarter across multiple industries. These are markets that we continue to view as strategic to our success in 2009 and beyond. Channel revenues increased by 34% compared to the first quarter of last year which we believe continues to validate the importance of our solutions in our partnered success.

We delivered gross margins of 82%, up from 79% in the first quarter of last year. We believe this expansion reflects the strength of our core value proposition to our customers who are actively adopting next generation network based on our IP. We were able to drive much of our top line growth and gross margin expansion directly to the bottom line.

Operating margin increased to 27%, up from 25% in the first quarter of last year. Non-GAAP net income increased to $6.1 million, an increase of 21% compared to the first quarter of last year. Non-GAAP EPS increased to $0.09, up 13% compared to the first quarter of last year. We also generated over $13 million in cash from operations. We ended the first quarter with $144.8 million in cash that’s up $8.3 million from the $136.4 million in cash we had on hand at the end of fiscal 2007.

Our ending cash position is net of the approximately $4.2 million we used to buy back stock under our recently announced stock repurchase program. We are seeing momentum build across our business. We see a lot of exciting things developing and feel very good about our leadership position in this market place.

We are also optimistic about the nature of the strategic discussions we are having with our customers and prospects and are encouraged also by the level of activity in the market place. For these reasons, we are reaffirming our previous outlook which calls for a full year revenue growth a 26% to 30% in 2008 with sequential growth in each quarter of the year and full year non-GAAP earnings of $0.38 to $0.42 per share.

For a closer look at the numbers I will turn the call over to Keith.

Keith Seidman

We are pleased to be reporting solid first quarter results which reaffirm our growth plans for the full year. Tonight, I will walk through the financial highlights from the first quarter and then share with you our outlook for 2008.

As a remainder all results and projections that we review this evening are on a non-GAAP basis unless otherwise and explicitly described as GAAP. All earnings per share amounts are on a diluted basis. I will begin with our first quarter results. Revenues grew to a record $31.7 million in the first quarter up 26% compared to the first quarter of 2007. Our top line performance reflected strong year-over-year growth both internationally and domestically.

Product revenues grew to $26.5 million in the first quarter up 25% year-over-year. This growth was primarily due to an increase in the quantity of systems sold and the increase in the average selling prices due to change in the product software configuration mix and an increase in the level of software license upgrade. Maintenance support and service revenues grew to $5.2 million up 33% year-over-year reflecting growth in our installed customer base as well as increases in installation, professional services and training revenue.

Composition of our first quarter revenues was 55% indirect and 45% direct. Two channel partners each accounted for 10% or more of our total first quarter revenue; Alcatel Lucent and Nokia Siemens networks which in the aggregate represented 33% of our total revenues for the quarter. Alcatel Lucent and Nokia Siemens Networks like many of our distribution partners represent dozens of end user customers with whom we do not have a direct commercial relationship. Additionally one direct customer in North America represented slightly more than 10% of our first quarter revenue.

Geographically 55% of our revenues came from the United States and Canada and 45% came from our international customers. Gross margin was 82% reflecting a favorable product configuration mix as well as the high level of software content including software upgrades. Total operating expenses in the first quarter was $17.6 million reflecting growth in head count in all functional areas, higher variable compensation expense related to our top line growth and higher public company costs.

Operating margin increased to 27% in the first quarter compared to 25% in the first quarter of last year. Operating earnings increased 34% from the first quarter of 2007. Total other income was $1.3 million compared to $1.5 million in the first quarter of last year reflecting the impact of lower interest rates despite our increased cash balances.

Pre-tax income was $9.7 million up 24% compared to the first quarter of last year. Our effective tax rate on a non-GAAP basis in the first quarter was approximately 37.5%. Net income for the first quarter on a non-GAAP basis with $6.1 million or $0.09 per share compared to $5 million or $0.08 per share in the first quarter of last year. Net income on a GAAP basis was $5 million or $0.08 per share compared with $4.3 million or $0.06 per share in the first quarter of last year.

Non-GAAP net income differs from GAAP net income as it excludes stock based compensation charges net of tax of approximately $1 million or $0.01 per share in the first quarter of 2008 and approximately $700,000 or $0.02 per share in the first quarter of last year. Headcount at the end of the first quarter was 343 compared to 327 at the end of 2007 and 275 at the end of the first quarter 2007.

Now let’s take a look at the balance sheet. We ended the first quarter with cash and cash equivalents of $144.8 million up $8.3 million from the end of the fourth quarter 2007. We generated $13 million in cash from operations in the quarter. During the first quarter we announced that our Board of Directors approved a $20 million common stock repurchase program. During the first quarter we repurchased approximately 563,000 on nearly 1% of our total offset in shares at an average purchase price of $7.51 per share.

Day Sales Outstanding or DSO decreased to 81 day at March 31 from 86 day at December 31 primarily reflecting a lower revenue contribution from our indirect partners and international customers which tend to have longer payment terms in our domestic and direct customers. Inventory at the end of the first quarter was $6.7 million a level which we continue to be comfortable with given our broadening product portfolio and growing customer base.

Finally differed revenue at the end of the first quarter was $12.8 million up 28% sequentially; primarily reflecting the timing of service contract renewals. To help you better understand how we are looking at our growth plans let me close with a few forward-looking comments. I remind you that the comments I am about to make are based on the current indication for our business, which may change at anytime. We undertake no obligation to update these comments.

As outlined in our press release issued earlier today, we are updating our full year outlook for 2008. We continue to expect revenues in 2008 to range between $142 million to $147 million, which represents growth of between 26% and 30% for the full year. We expect sequential growth of each subsequent quarter of the year and we also expected our growth rate will accelerate in the second half of the year.

We continue to expect diluted Non-GAAP net income in 2008 to be between $0.38 per share and $0.42 per share. We will continue to model gross margins in the upper 70s for 2008. We are continuing to model operating margins in the mid 20s for the full year. Certain of our full year assumptions have been modified slightly though they do not have any aggregate of any impact on the full year non-GAAP earnings expectations.

We now expect full year interest income to be approximately $4.4 million compared to the $5 million we previously forecast. Despite our growing cash balances this lowered interest income forecast, reflects the current interest rate environment. Our full year earnings projections assume a non-GAAP effective tax rate of approximately 37.5% slightly higher than our previous assumption of 36.5% due to the exploration of the R&D tax credit.

At present we expect our weighted average fully diluted share count to be approximately $66.5 million shares in 2008 compared to the $67 million shares we had previously forecast. We are increasing our forecast range for GAAP net income to be between $0.29 and $0.33 per share from our earlier forecast of between $0.28 and $0.32 per share. This increase reflects our expectation of a slightly lower full year stock based compensation expense compared to our earlier forecast.

Our estimates for Non-GAAP net income in 2008 differs from GAAP net income as it excludes estimated stock based compensation expense of approximately $5.5 million or $0.09 per share, down from our earlier estimate of $6.5 million or $0.10 per share primarily reflecting the recapture in the first quarter of expenses associated with certain options which were forfeited prior to exercise.

In summary we reached new company records in every key measure of the business for the first quarter. We remain excited about and committed to the growth plan that we outline tonight. We look forward to updating you on our progress to our future calls. With that I will turn the call back over to Andy.

Andy Ory

We are pleased with our first quarter results which were highlighted by record revenues, solid earnings growth and record cash flow from operations. This strong performance extends our track record of solid financial results and reaffirms our growth trajectory for 2008. The March quarter was the tenth consecutive quarter, we delivered both sequential and year-over-year revenue growth. We also continued our track record of solid and sustained margin expansion highlighted by first quarter gross margin of 82% and operating margin of 27% both above the high end of our target operating range.

Our revenue growth coupled with our prudent expense management enabled us to drive strong earnings growth of 21% year-over-year. To help you better understand what is fundamentally driving our improved financial results, I want to take a few minutes to share some key market trends and growth drivers that we are seeing and the things we are doing to capitalize on them.

As we have reviewed in the past there is a migration underway among service providers, enterprises and contact centers which are moving from centrally owned circuit switch technology networks or TDM to internet protocol or IP based networks. The largest service providers in the world as well as more and more enterprises and contact centers are making the investments to lower their operating costs and to introduce new IP enabled service offerings, such as residential Voice over Internet Protocol or VOIP, Video over IP, IP Centrac, instant messaging, gaming and distance learning.

Service providers and enterprises that were early adaptors of IP networks did so to leverage IP within their own network. This first ways of IP adoption required gateways that could connect TDM to IP and IP to TDM. This market underwent growth during the early part of this decade growing to reach about $1.5 billion by 2006, however growth in the media gateway market is expected to slow as customers move to end-to-end IP communication.

Market forecasters such as Infonetics expect the gateway market to grow on average by single digits annually through 2011. Well, at the same time they forecast the session border controller market to be growing by at least 25% to 30% a year. Delora Group expects that the SBC market will grow more then three times faster then the media gateway market in 2008. In fact in it’s recently issued market study the Delora Group forecasted that the SBC market will grow from $215 million in 2007 to about $350 million in 2008 and nearly $900 million by 2011.

We believe that over the next several years end-to-end IP communications will create tens of thousands of edges within the network of service providers and very large enterprises. We believe that each of these IP edges will require an SBC to meet critical security, quality, inner operability and regulatory requirement. As the leading provider in the market with over 5000 SBC’s deployed and a market share over two times that of its closest competitor we believe that Acme Packet is well positioned to leverage this growth opportunity.

Infonetics recently reported that our market share had grown to 51% with the number two player in a distant second with 19% followed by dramatic market fragmentation. A look forward by the Delora Group reported similar market share lead for Acme Packet in their most recent industry report issued in February.

This market leadership is very important when you consider the size of the growth opportunity. Consider for a moment the opportunity for a single IP enabled service offerings with residential VOIP. There were about $80 million residential and so called VOIP subscribers world wide at the end of 2007. Infonetics expects that number to climb to just over $200 million by 2011 or about $30 million new subscribers each year.

Session border controllers are deployed at both the asset edge and interiors of these VOIP networks. Today on the access side our customers typically deployed two SBC’s for every 30,000 VOIP subscribers they add to their network. Extrapolating that deployment rate 30 million new VOIP subscribers could drive demand for over 2,000 SBC’s every year just to support to the AXA subscriber growth for VoIP. As the leading provider of SBC’s with more than 50% market share and a presence established in 84 of the 100 largest tier one service providers in the world, we believe we are well positioned to leverage this growth.

Our recent announcements related to our deployments at cricket communications and Excel communications are testimonies to the proliferation of VoIP. Cricket communications the operating subsidiary of lead wireless international has deployed our SBC’s to securely interconnect its VoIP core network to other service providers. Cricket is one of the first mobile operators in the United States to interconnect its VoIP core via IP to other service providers for PSTN origination and termination.

After initial deployments of our Net-Net 4000 in 2006 Cricket is now expanding with the deployment of our Net-Net 9000 in multiple path to meet the increasing traffic demand as Cricket subscriber base continues to grow.

Excel communication, the leading provider of communication services for businesses including 50% of the fortune 500 and leading cable companies, carriers, content providers and mobile operators is increasing its deployment of Acme Packet SBC’s to support wholesale service provider VoIP customers. Launched in 2005, Excel’s wholesale VoIP services enabled service providers to originate and terminate customer voice calls throughout the United States with a single connection to the Excel IP network. This service helps Excel’s service provider customers to reduce cost in market where they offer service, enter new markets more quickly and more efficiently to manage voice traffic on a nation wide basis.

The growing adoption of all IP based communications is driving the growth of our market. We are able to leverage this market growth because of our experience serving the needs of the largest tier 1 service providers in the world and our commitment to constant innovation. This innovation has in turn enabled us to rapidly evolve our product portfolio. In fact we are currently at the early stages of deploying two additional categories of products; session routing proxies and multi service security gateway.

We recently announced the deployment of our Open Session Routing or OSR architectural products and partnership. Our tier 1 wire line, wireless and cable service providers are using this solution for a more open and cost effective core session routing solution to scale their networks in terms of Zip routing performance and capacities. Our solution, simplified session routing in the core and between networks and it’s designed to reduce both capital expense and operating expense.

The architecture for OSR features our Net-Net session router working in conjunction with routing data base products and services from our OSR eco system partners. These complementary product vendors and service providers offers centralized routing databases supporting a wide selection of both IP and PSTN oriented parameters for dynamic route selection.

Our Net-Net session router queries our partner’s databases using open industry standard protocol like ENAM, STEP and DNS. Using these databases our Net-Net session router is able to dynamically route sessions between all types of borders including access and interconnects. More specifically our Net-Net session router, routes sessions between stateful service control elements such as our own SBC , wireless mobile switching centers for MSC, IMS subscriber call control element, classified soft switches, cable modem termination systems or CMTS and talk switches controlling media gateway.

These deployments of our open session routing solutions signal an impending change away from monolithic session stateful talk switches to session stateless routing proxies leveraging open routing databases. Our recently announced Net-Net security gateway is a multi-server security gateway which enables mobile service providers to maximize revenues by accelerating six mobile substitution and convergence and to lower operating costs by supporting the transition to all IP networks.

Our security gateway, secures the delivery of multiple services both voice and data over the untrusted internet using IP set tunnels to subscribers using Censor sales or WiFi access points. It is configurable as a stand alone product to support both 3GP, UMA and SIP based I-WLAN architecture. It is also available at the tightly integrated solution when combined with our net session border controllers.

Our security gateway features IPsec tunnel system capacity, density, high performance IPsec encryption and tunnel setup, integrated DoS, DDoS protection and Carrier-class high availability support. Further evidence of our commitment to innovation is our recent announcement to finding the complementary role of session border controllers in delivering trusted first class unified communications within Microsoft Office communication server deployment.

The Microsoft OCS combines or unifies all enterprise communication including presence enabled voice, video, instant messaging, conferencing and collaboration such as white boarding and application share. Our SBC satisfied critical enterprise requirements in the areas of comprehensive security for Microsoft OCS and IP PBX infrastructure, IP PBX interoperability, SIP trunking and overall solution scalability that complement Microsoft architecture and reduced overall total cost of ownership.

We are pleased with the progress in our product development effort. We believe that the complexity and velocity of the product development required to be successful in this market, demands a level of flexibility and innovation with which larger more diversified companies are hard for us to keep pace. This continued to be a key competitive advantage and one that is central for the advancement of our technology and position in the SBC, MFG and SRB product category.

During the balance of the year and in support of the financial plans we review this evening we plan to continue to satisfy the evolving border requirements of large service providers and leverage our position among customers to expand and enhance our product features and functionality, strengthen our position in key adjacent markets including enterprise, contact center and wireless backups by continuing to invest in both our sales and marketing efforts as well as in our product development efforts and bright new technologies to enhance our product performance and scalability with the continual focus on reducing cost.

Continue to promote IP interconnect among our customers which we believe increases the value of their services to their customers and drive increased demand for both our customer services and for our products and continue to leverage our distribution partnerships to enhance market penetration.

So as we have shared with you this evening we are pleased with our first quarter results and we believe we are well positioned to meet our growth plans for 2008. We are excited about the level of activity throughout our customer base and the new products that we have launched which drives the next stage of our growth. We look forward to our next call in August at which time we will update you on our progress for the second quarter.

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