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Press ReleaseZhone Technologies Reports Fourth Quarter 2005 Financial ResultsOakland, CA — January 31, 2006 — Zhone Technologies, Inc. (Nasdaq: ZHNE), the first company dedicated to building total-delivery solutions for voice, data and video worldwide, today reported its results for the fourth quarter ended December 31, 2005. Revenue for the fourth quarter of 2005 was $53.2 million, compared with $28.1million for the fourth quarter of 2004. Net loss for the fourth quarter of 2005, calculated in accordance with Generally Accepted Accounting Principles ("GAAP"), was $107.2 million or $0.73 per share compared with a net loss of $3.8 million or $0.04 per share for the fourth quarter of 2004. Fourth quarter 2005 results included a charge of $102.1 million or $0.69 per share related to impairment of acquisition related intangibles and goodwill. This non-cash impairment charge was calculated in accordance with GAAP, and is expected to be non-recurring. Pro forma earnings before interest, taxes, depreciation and amortization (EBITDA) was $1.1 million or $0.01 per share for the fourth quarter of 2005, compared to pro forma EBITDA earnings of $0.5 million or $0.01 per share for the fourth quarter of 2004. Revenue for the year ended December 31, 2005 was $151.8 million, compared with $97.2 million for the year ended December 31, 2004. Net loss for the year ended December 31, 2005, calculated in accordance with GAAP was $126.9 million or $1.13 per share, compared with a net loss of $35.6 million or $0.42 per share for year ended December 31, 2004. Pro forma EBITDA loss for the year ended December 31, 2005 was $0.5 million or no loss per share compared to a pro forma EBITDA loss of $11.0 million or $0.13 per share for the year ended December 31, 2004. During the fourth quarter of 2005, Zhone won significant new business for its products, including shipments to 24 new customer accounts. Business from new first-time customers continued to be realized in all of Zhone's domestic and international sales regions. Zhone again sustained the number one market share position in the Broadband Loop Carrier market for the fourth quarter as well as for all of 2005 according to industry analyst firm Broadband Trends. BLCs are defined as access platforms that support IPTV, VoIP and broadband services with IP infrastructure. BLCs remain the fastest growing segment of the multi-billion dollar broadband market. Zhone shipped over 675,000 DSL access ports in 2005 putting Zhone among the top three suppliers of DSLAM equipment in North America. "We are very pleased with this quarter's performance, especially in the continued adoption of our flagship SLMS products," said Mory Ejabat, Chairman and Chief Executive Officer of Zhone. "Increased customer acquisition and solid execution by our team clearly indicate that Zhone is well-positioned going into 2006 and beyond. We plan to maintain our leadership positions in the fastest growing areas of the telecommunications industry." Zhone will hold a conference call today, January 31, 2006, at approximately 5:00 p.m. Eastern Time to review its fourth quarter results. This call is open to the public by dialing 866.825.1709 for U.S. callers and 617.213.8060 for international callers and entering the passcode 79940539. Zhone has also scheduled this event to be broadcast live via webcast. To access this webcast please go to the Investor Relations section of the Zhone website at www.zhone.com/about/investors/. A replay of the conference call will be available for approximately one week after the original call by dialing 888-286-8010 for U.S. callers and 617-801-6888 for international callers and entering the passcode 11042589. An audio webcast replay will also be available online at www.zhone.com/about/investors/ for approximately one week following the original call.
Non-GAAP Financial Measures To supplement Zhone's consolidated financial statements presented in accordance with GAAP, we use pro forma EBITDA, an additional non-GAAP measure we believe is appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to GAAP results are made with the intent of providing greater transparency to supplemental information used by management in its financial and operational decision-making. These non-GAAP results are among the primary indicators that management uses as a basis for making operating decisions because they provide meaningful supplemental information regarding the company's operational performance, including the company's ability to provide cash flows to invest in research and development, and fund acquisitions and capital expenditures. In addition, these non-GAAP financial measures facilitate management's internal comparisons to the company's historical operating results and comparisons to competitors' operating results. The presentation of this additional information is not meant to be considered in isolation or as a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation between net loss calculated on a GAAP basis and pro forma EBITDA on a non-GAAP basis is provided in a table immediately following the Unaudited Condensed Consolidated Statements of Operations. Forward-looking statements This press release contains "forward-looking statements" that are entitled to the protection of the safe harbors contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Specifically, statements that refer to future financial performance and the anticipated growth and trends in our business or key markets, including growth in the BLC market and Zhone's market position, are all forward-looking statements. Readers are cautioned that actual results could differ materially from those expressed in or contemplated by the forward-looking statements. Factors that could cause actual results to differ include, but are not limited to, the acceptance of new telecommunications services based on DSL technology, our ability to generate sufficient revenue to achieve or sustain profitability, the ability of our customers to finance their purchase of our products as well as their own operations, weakness in sales to the service provider industry, commercial acceptance of our SLMS products, aggressive pricing policies of price-focused competitors from China, and higher than anticipated expenses that we may incur. In addition, please refer to the risk factors contained in Zhone's SEC filings available at www.sec.gov, including without limitation, Zhone's annual report on Form 10-K for the year ended December 31, 2004 and Zhone's quarterly reports on Form 10-Q for the quarters ended March 31, 2005, June 30, 2005 and September 30, 2005. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date on which they are made. Zhone undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. ZHONE TECHNOLOGIES, INC. Unaudited Condensed Consolidated Statements of Operations (In thousands, except per share data) Three Months Ended Year Ended --------------------- ---------------------- December December December December 31, 31, 31, 31, 2005 2004 2005 2004 ----------- --------- ----------- ---------- Net revenue $ 53,205 $ 28,102 $ 151,828 $ 97,168 Cost of revenue 31,793 15,763 88,805 55,095 Stock-based compensation 79 29 153 210 ----------- --------- ----------- ---------- Gross Profit 21,333 12,310 62,870 41,863 ----------- --------- ----------- ---------- Operating expenses: Research and product development 8,022 5,904 26,839 23,210 Sales and marketing 9,295 5,288 29,530 21,958 General and administrative 3,540 1,567 11,864 10,416 Purchased in-process research and development 0 0 1,190 8,631 Stock-based compensation 141 131 3,119 1,396 Amortization and impairment of intangible assets 106,830 2,862 114,558 10,132 ----------- --------- ----------- ---------- Total operating expenses 127,828 15,752 187,100 75,743 ----------- --------- ----------- ---------- Operating loss (106,495) (3,442) (124,230) (33,880) Other expense, net (574) (339) (2,446) (1,561) ----------- --------- ----------- ---------- Loss before income taxes (107,069) (3,781) (126,676) (35,441) Income tax provision 82 62 215 205 ----------- --------- ----------- ---------- Net loss ($107,151) ($3,843) ($126,891) ($35,646) =========== ========= =========== ========== Basic and diluted net loss per share ($0.73) ($0.04) ($1.13) ($0.42) Weighted average shares outstanding used to compute basic and diluted net loss per share 147,424 93,978 112,004 85,745 Reconciliation between GAAP net loss and non- GAAP pro forma EBITDA as follows: GAAP net loss ($107,151) ($3,843) ($126,891) ($35,646) Purchased in-process research, development and acquisition related charges 0 0 4,291 8,631 Stock-based compensation 220 160 3,272 1,606 Interest Expense, net 227 770 1,923 2,679 Income Taxes 82 62 215 205 Depreciation 554 470 1,802 1,394 Realized loss on sale of securities 360 0 360 0 Amortization and impairment of intangible assets 106,830 2,862 114,558 10,132 ----------- --------- ----------- ---------- Non-GAAP pro forma EBITDA $ 1,122 $ 481 ($470) ($10,999) =========== ========= =========== ========== Non-GAAP per share data $ 0.01 $ 0.01 $ 0.00 ($0.13) Revenue by product line: SLMS 29,764 9,799 66,854 29,351 Legacy and Service 18,995 13,614 63,435 58,917 Optical Transport 4,446 4,689 21,539 8,900 ----------- --------- ----------- ---------- 53,205 28,102 151,828 97,168 =========== ========= =========== ========== ZHONE TECHNOLOGIES, INC. AND SUBSIDIARIES Unaudited Condensed Consolidated Balance Sheets (In thousands) December December 31, 31, 2005 2004 ----------- ---------- Assets Current assets: Cash, cash equivalents and short-term investments $ 71,140 $ 65,216 Accounts receivable 35,392 19,243 Inventories 48,370 37,352 Prepaid expenses and other current assets 5,811 3,949 ----------- ---------- Total current assets 160,713 125,760 ----------- ---------- Property and equipment, net 24,097 22,967 Goodwill 180,001 157,232 Other acquisition-related intangible assets 14,638 17,847 Restricted cash 547 758 Other assets 109 663 ----------- ---------- Total assets $ 380,105 $ 325,227 =========== ========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 17,912 $ 14,155 Line of credit 14,500 14,500 Current portion of long-term debt 1,170 1,378 Accrued and other liabilities 24,610 23,938 ----------- ---------- Total current liabilities 58,192 53,971 Long-term debt, less current portion 28,597 39,935 Other long-term liabilities 1,527 1,537 ----------- ---------- Total liabilities 88,316 95,443 ----------- ---------- Stockholders' equity: Common stock 148 94 Additional paid-in capital 1,051,320 862,261 Other stockholders' equity (1,385) (1,168) Accumulated deficit (758,294) (631,403) ----------- ---------- Total stockholders' equity 291,789 229,784 ----------- ---------- Total liabilities and stockholders' equity $ 380,105 $ 325,227 =========== ========== About Zhone Technologies
Zhone Technologies, Inc. (NASDAQ: ZHNE) is a global leader in all IP
multi-service access solutions, serving more than 750 of the world's
most innovative network operators.
The IP Zhone is the only solution that enables service providers to
build the network of the future…today, supporting end-to-end Voice,
Data, Entertainment Social Media, Business, Mobile Backhaul and Mobility
service.
Zhone is committed to building the fastest and highest quality All IP
Multi-Service solution for its customers.
Zhone is headquartered in California and its products are manufactured
in the USA in a facility that is emission, waste-water and CFC free.
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Zhone, the Zhone logo, and all Zhone product names are trademarks of Zhone Technologies, Inc. Other brand and product names are trademarks of their respective holders. Specifications, products, and/or product names are all subject to change without notice. |
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