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Press ReleaseZhone Technologies Reports Second Quarter 2006 Financial ResultsOakland, CA — July 20, 2006 — 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 second quarter ended June 30, 2006. Revenue for the second quarter of 2006 was $54.2 million compared with $52.7 million for the first quarter of 2006 and $30.4 million for the second quarter of 2005. Net loss for the second quarter of 2006, calculated in accordance with generally accepted accounting principles ("GAAP"), was $13.1 million or $0.09 per share compared with a net loss of $3.9 million or $0.03 per share for the first quarter of 2006, and a net loss of $3.4 million or $0.04 per share for the second quarter of 2005. The second quarter 2006 results included a $7.2 million inventory write-off related to Zhone's legacy business. 2006 results also included incremental non-cash employee stock-based compensation expense associated with the implementation of SFAS 123R. Pro forma earnings before interest, taxes, depreciation and amortization (EBITDA) was a loss of $10.1 million for the second quarter of 2006, compared to pro forma EBITDA earnings of $0.2 million for the first quarter of 2006 and pro forma EBITDA earnings of $39,000 for the second quarter of 2005. "Despite the sequential quarterly growth of our SLMS and optical businesses and increase in our cash balances, the second quarter was hampered by a greater than expected decline in legacy revenues as well as the significant drop in gross margins caused largely by the write-off of inventory in some of our legacy products," said Mory Ejabat, Chairman and Chief Executive Officer of Zhone. "We hope to improve our gross margins in the future through cost reductions driven by outsourced manufacturing of certain products." Demand for Zhone's DSL products remains strong with port shipments having increased to over 400,000 ports in the second quarter. This represents an increase of more than 35% over the first quarter, which had previously been the company's biggest quarter ever for DSL shipments. Zhone was the third largest North American supplier of DSL access ports for 2005 according to analyst firm Broadband Trends. Zhone continued to maintain its broad base of service provider customers with sales into each of its operating regions and with no single account representing over 10% of revenue. Service providers continue to migrate to the next generation IP based networks, installing Zhone's innovative solutions to enhance their service offerings with IPTV, VoIP and broadband. Zhone products are interoperable with more VoIP softswitch platforms and protocols than those of any other equipment provider in the industry. Zhone will hold a conference call today, July 20, 2006, at approximately 5:00 p.m. Eastern Time to review its second quarter results. This call is open to the public by dialing +1 (800) 901-5218 for U.S. callers and +1 (617) 786-4511 for international callers and then entering passcode 65427223. The audio webcast will be simultaneously available on the Investor Relations section of Zhone's website at http://www.zhone.com/about/investors/. A replay of the conference call will be available for approximately one week after the original call by dialing +1 (888) 286-8010 for U.S. callers and +1 (617) 801-6888 for international callers and then entering passcode 82526347. 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. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," or "will." 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; intense competition in the communications equipment market; our ability to execute on our strategy and operating plans; and economic conditions specific to the communications, networking, 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 and Zhone's quarterly report on Form 10-Q for the quarter ended March 31, 2006. 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) Six Months Ended (a) ------------------------------ -------------------- June 30, March 31, June 30, June 30, June 30, 2006 2006 2005 2006 2005 ---------- --------- --------- ---------- --------- Net revenue $ 54,214 $ 52,686 $ 30,445 $ 106,900 $ 58,008 Cost of revenue 42,291 32,504 17,621 74,795 33,188 Stock-based compensation 235 321 25 556 52 ---------- --------- --------- ---------- --------- Gross profit 11,688 19,861 12,799 31,549 24,768 ---------- --------- --------- ---------- --------- Operating expenses: Research and product development (b) 9,817 8,612 5,606 18,429 11,575 Sales and marketing (b) 10,684 9,590 6,765 20,274 12,950 General and administrative (b) 3,627 3,511 863 7,138 2,908 Amortization and impairment of intangible assets 559 1,898 2,257 2,457 4,514 ---------- --------- --------- ---------- --------- Total operating expenses 24,687 23,611 15,491 48,298 31,947 ---------- --------- --------- ---------- --------- Operating loss (12,999) (3,750) (2,692) (16,749) (7,179) Other expense, net (46) (47) (648) (93) (1,254) ---------- --------- --------- ---------- --------- Loss before income taxes (13,045) (3,797) (3,340) (16,842) (8,433) Income tax provision 55 107 15 162 53 ---------- --------- --------- ---------- --------- Net loss ($13,100) ($3,904) ($3,355) ($17,004) ($8,486) ========== ========= ========= ========== ========= Basic and diluted net loss per share ($0.09) ($0.03) ($0.04) ($0.11) ($0.09) Weighted average shares outstanding used to compute basic and diluted net loss per share 148,721 148,139 94,385 148,430 94,146 (a) 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 391 538 60 929 119 Sales and marketing 332 444 51 776 102 General and administrative 478 168 16 646 34 ---------- --------- --------- ---------- --------- 1,201 1,150 127 2,351 255 GAAP net loss ($13,100) ($3,904) ($3,355) ($17,004) ($8,486) Stock-based compensation 1,436 1,471 152 2,907 307 Interest expense, net 235 (1) 591 234 1,188 Income Taxes 55 107 15 162 53 Depreciation 678 587 379 1,265 805 Amortization and impairment of intangible assets 559 1,898 2,257 2,457 4,514 ---------- --------- --------- ---------- --------- Non-GAAP pro forma EBITDA ($10,137) $ 158 $ 39 ($9,979) ($1,619) ========== ========= ========= ========== ========= Revenue by product line: SLMS 35,272 33,155 9,852 68,427 18,945 Legacy and Service 12,690 14,673 14,447 27,363 27,179 Optical Transport 6,252 4,858 6,146 11,110 11,884 ---------- --------- --------- ---------- --------- 54,214 52,686 30,445 106,900 58,008 ---------- --------- --------- ---------- --------- ZHONE TECHNOLOGIES, INC. AND SUBSIDIARIES Unaudited Condensed Consolidated Balance Sheets (In thousands) June 30, December 31, 2006 2005 ----------- ------------ Assets Current assets: Cash, cash equivalents and short-term investments $ 71,811 $ 71,140 Accounts receivable 39,338 35,392 Inventories 47,520 48,370 Prepaid expenses and other current assets 3,700 5,811 ----------- ----------- Total current assets 162,369 160,713 ----------- ----------- Property and equipment, net 24,005 24,097 Goodwill 180,001 180,001 Other acquisition-related intangible assets 3,503 14,638 Restricted cash 547 547 Other assets 79 109 ----------- ----------- Total assets $ 370,504 $ 380,105 =========== =========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 22,809 $ 17,912 Line of credit 14,500 14,500 Current portion of long-term debt 1,718 1,170 Accrued and other liabilities 23,358 24,610 ----------- ----------- Total current liabilities 62,385 58,192 Long-term debt, less current portion 26,938 28,597 Other long-term liabilities 1,516 1,527 ----------- ----------- Total liabilities 90,839 88,316 ----------- ----------- Stockholders' equity: Common stock 149 148 Additional paid-in capital 1,055,229 1,051,320 Other stockholders' equity (415) (1,385) Accumulated deficit (775,298) (758,294) ----------- ----------- Total stockholders' equity 279,665 291,789 ----------- ----------- Total liabilities and stockholders' equity $ 370,504 $ 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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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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