Zhone Technologies Reports First Quarter 2006 Financial ResultsOakland, CA — April 20, 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 first quarter ended March 31, 2006. Revenue for the first quarter of 2006 was $52.7 million compared with $53.2 million for the fourth quarter of 2005 and $27.6 million for the first quarter of 2005. Net loss for the first quarter of 2006, calculated in accordance with generally accepted accounting principles ("GAAP"), was $3.9 million or $0.03 per share compared with a net loss of $107.2 million or $0.73 per share for the fourth quarter of 2005 and a net loss of $5.1 million or $0.05 per share for the first quarter of 2005. First quarter 2006 results included incremental non-cash employee stock-based compensation expense associated with the implementation of SFAS 123R. Fourth quarter 2005 results included a non-cash charge of $102.1 million related to impairment of acquisition related intangibles and goodwill. Pro forma earnings before interest, taxes, depreciation and amortization (EBITDA) was $0.2 million for the first quarter of 2006, compared to pro forma EBITDA earnings of $1.1 million for the fourth quarter of 2005 and pro forma EBITDA loss of $1.7 million for the first quarter of 2005. During the first quarter of 2006, Zhone shipped 296,000 DSL ports, Zhone's strongest quarter for DSL shipments to date and a good indicator of the growing adoption of our flagship SLMS products. This represents more than a 20% increase in DSL ports over last quarter, which had previously been Zhone's biggest quarter for DSL shipments. During the first quarter of 2006, Zhone maintained its broad base of service provider customers with sales into each of its worldwide sales regions and with no single account representing over 10% of revenue. Zhone also won significant new business for its products, including shipments to 19 new customer accounts in both domestic and international sales regions. Zhone maintained its long-standing role as the "Number 1" worldwide market share leader in the highly coveted Broadband Loop Carrier (BLC) market for all of 2005 according to industry analyst firm Broadband Trends. BLCs remain the fastest growing segment of the multi-billion dollar broadband market. Zhone was also among the "Top 3" suppliers of DSL equipment in North America for 2005 according to Broadband Trends. "We are pleased with the sequential quarterly growth of our SLMS business, which increased by more than 11% over Q4 2005, as well as the strong rebound in our optical product line during the first quarter 2006, " said Mory Ejabat, Chairman and Chief Executive Officer of Zhone. "Shipments of our flagship SLMS and optical products continue to fuel our company's growth while the legacy business experienced normal seasonal trends. We also maintained our focus on expense controls, and as a result, we again achieved profitability on a pro forma EBITDA basis." Zhone will hold a conference call today, April 20, 2006, at approximately 5:00 p.m. Eastern Time to review its first quarter results. This call is open to the public by dialing 800.591.6945 for U.S. callers and 617.614.4911 for international callers and entering the passcode 80571987. 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 15197154. 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, Zhone uses pro forma EBITDA, a non-GAAP measure Zhone believes is appropriate to enhance an overall understanding of Zhone's past financial performance and 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 subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934. Forward-looking statements include, among others, statements that refer to anticipated growth and trends in Zhone's business or key markets, including growth in the BLC market; future growth from Zhone's SLMS and optical products; and future economic conditions and performance. 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, commercial acceptance of our SLMS and optical products; fluctuations in demand for network access products; how well we execute on our strategy and operating plans; and general economic conditions as well as those specific to the communications, internet and related industries. 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, 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 for any reason. ZHONE TECHNOLOGIES, INC. Unaudited Condensed Consolidated Statements of Operations (In thousands, except per share data) Three Months Ended(a) ------------------------------- March December March 31, 31, 31, 2006 2005 2005 ------------------------------- Net revenue $ 52,686 $ 53,205 $ 27,563 Cost of revenue 32,504 31,793 15,567 Stock-based compensation 321 79 27 ------------------------------- Gross profit 19,861 21,333 11,969 ------------------------------- Operating expenses: Research and product development (b) 8,612 8,074 5,969 Sales and marketing (b) 9,590 9,365 6,185 General and administrative (b) 3,511 3,559 2,045 Amortization and impairment of intangible assets 1,898 106,830 2,257 ------------------------------- Total operating expenses 23,611 127,828 16,456 ------------------------------- Operating loss (3,750) (106,495) (4,487) Other expense, net (47) (574) (606) ------------------------------- Loss before income taxes (3,797) (107,069) (5,093) Income tax provision 107 82 38 ------------------------------- Net loss ($3,904) ($107,151) ($5,131) =============================== Basic and diluted net loss per share ($0.03) ($0.73) ($0.05) Weighted average shares outstanding used to compute basic and diluted net loss per share 148,139 147,424 94,100 (a) First quarter 2006 includes incremental employee stock-based compensation expense associated with the implementation of SFAS 123R. 2005 stock-based compensation expense has been reclassified to conform to current year presentation. (b) Amounts include stock-based compensation cost as follows: Research and product development 538 52 59 Sales and marketing 444 70 51 General and administrative 168 19 18 ------------------------------- 1,150 141 128 GAAP net loss ($3,904) ($107,151) ($5,131) Stock-based compensation 1,471 220 155 Interest Expense, net (1) 227 597 Income Taxes 107 82 38 Depreciation 587 554 426 Realized loss on sale of securities - 360 - Amortization and impairment of intangible assets 1,898 106,830 2,257 ------------------------------- Non-GAAP pro forma EBITDA $ 158 $ 1,122 ($1,658) =============================== Revenue by product line: SLMS 33,155 29,764 9,093 Legacy and Service 14,673 18,995 12,732 Optical Transport 4,858 4,446 5,738 ------------------------------- 52,686 53,205 27,563 ------------------------------- ZHONE TECHNOLOGIES, INC. AND SUBSIDIARIES Unaudited Condensed Consolidated Balance Sheets (In thousands) March December 31, 31, 2006 2005 ---- ---- Assets Current assets: Cash, cash equivalents and short-term investments $ 71,452 $ 71,140 Accounts receivable 37,452 35,392 Inventories 55,879 48,370 Prepaid expenses and other current assets 4,713 5,811 ----------------------- Total current assets 169,496 160,713 ----------------------- Property and equipment, net 24,023 24,097 Goodwill 180,001 180,001 Other acquisition-related intangible assets 12,685 14,638 Restricted cash 547 547 Other assets 78 109 ----------------------- Total assets $ 386,830 $ 380,105 ======================= Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 26,497 $ 17,912 Line of credit 14,500 14,500 Current portion of long-term debt 707 1,170 Accrued and other liabilities 24,236 24,610 ----------------------- Total current liabilities 65,940 58,192 Long-term debt, less current portion 28,440 28,597 Other long-term liabilities 1,535 1,527 ----------------------- Total liabilities 95,915 88,316 ----------------------- Stockholders' equity: Common stock 149 148 Additional paid-in capital 1,053,489 1,051,320 Other stockholders' equity (525) (1,385) Accumulated deficit (762,198) (758,294) ----------------------- Total stockholders' equity 290,915 291,789 ----------------------- Total liabilities and stockholders' equity $ 386,830 $ 380,105 ======================= 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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