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Press ReleaseZhone Technologies Reports Fourth Quarter 2006 Financial ResultsOakland, CA — January 25, 2007 — Zhone Technologies, Inc. (NASDAQ:ZHNE), a global provider of advanced communications equipment and a leader in VoIP, IPTV, and Ethernet over both copper and fiber access lines, today reported its results for the fourth quarter ended December 31, 2006. Revenue for the fourth quarter of 2006 was $44.3 million compared with $43.1 million for the third quarter of 2006 and $53.2 million for the fourth quarter of 2005. Net loss for the fourth quarter of 2006, calculated in accordance with generally accepted accounting principles ("GAAP"), was $4.6 million or $0.03 per share compared with a net loss of $121.0 million or $0.81 per share for the third quarter of 2006, and a net loss of $107.2 million or $0.73 per share for the fourth quarter of 2005. The third quarter 2006 and fourth quarter 2005 results included charges of $113.7 million and $102.1 million, respectively, for impairment of goodwill and intangible assets. These non-cash impairment charges were calculated in accordance with GAAP and are expected to be non-recurring. The results for 2006 also included incremental, non-cash, employee stock-based compensation expenses associated with the implementation of SFAS 123R. Pro forma earnings before stock-based compensation, interest, taxes, impairment, depreciation and amortization (EBITDA) was a $2.3 million loss for the fourth quarter of 2006, compared to a pro forma EBITDA loss of $5.1 million for the third quarter of 2006, and a pro forma EBITDA earnings of $1.1 million for the fourth quarter of 2005. "We are encouraged by the level of customer activity involved in the evaluation of our next generation technologies," said Mory Ejabat, chairman and chief executive officer of Zhone Technologies, Inc. "For the fourth quarter as compared to the third quarter of 2006, these next generation technologies drove 11% growth in our SLMS revenue, and 3% growth in total revenue. We also quickly streamlined the business by reducing operating expenses excluding impairment charges by 10%, and improved operational execution without sacrificing our commitment to new research and development." Zhone will hold a conference call today, January 25, 2007, at approximately 5:00p.m. Eastern Time to review its fourth quarter results. This call is open to the public by dialing +1 (866) 700-6293 for U.S. callers, and +1 (617) 213-8835 for international callers. The passcode is: 11277115. An 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 following 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 90551835. An audio webcast replay will also be available online at www.zhone.com/about/investors/ 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 and operating expenses excluding impairment charges, non-GAAP measures Zhone believes are 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 to 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. Words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "goal," "intend," "may," "plan," "project," "seek," "should," "target," "will," "would," variations of such words, and similar expressions are intended to identify forward-looking statements. In addition, forward-looking statements include statements that refer to the expectation that impairment charges will be non-recurring. 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 Zhone's SLMS and optical products; intense competition in the communications equipment market; Zhone's ability to execute on the company's 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 reports on Form 10-Q for the quarters ended March 31, 2006, June 30, 2006, and September 30, 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) Year Ended (a)
------------------------------- ---------------------
December September December December December
31, 30, 31, 31, 31,
2006 2006 2005 2006 2005
-----------------------------------------------------
Net revenue $ 44,306 $ 43,138 $ 53,205 $ 194,344 $ 151,828
Cost of revenue 28,214 27,848 31,793 130,857 88,805
Stock-based
compensation 155 181 79 892 153
-----------------------------------------------------
Gross profit 15,937 15,109 21,333 62,595 62,870
-----------------------------------------------------
Operating
expenses:
Research and
product
development
(b) 8,628 9,042 8,074 36,099 27,062
Sales and
marketing (b) 8,643 9,308 9,365 38,225 29,756
General and
admini-
strative (b) 2,968 3,930 3,559 14,036 14,534
Purchased in-
process
research and
development - - 1,190
Amortization of
intangible
assets - 307 4,724 2,764 12,452
Impairment of
intangible
assets and
goodwill - 113,666 102,106 113,666 102,106
------------------------------------------ ----------
Total
operating
expenses 20,239 136,253 127,828 204,790 187,100
-----------------------------------------------------
Operating
loss (4,302) (121,144) (106,495) (142,195) (124,230)
Other income
(expense), net (248) 134 (574) (207) (2,446)
-----------------------------------------------------
Loss before
income taxes (4,550) (121,010) (107,069) (142,402) (126,676)
Income tax
provision 80 22 82 264 215
-----------------------------------------------------
Net loss $ (4,630) $(121,032) $(107,151) $(142,666) $(126,891)
=====================================================
Basic and
diluted net
loss per share ($0.03) ($0.81) ($0.73) ($0.96) ($1.13)
Weighted average
shares
outstanding
used to compute
basic and
diluted net
loss per share 149,142 148,905 147,424 148,727 112,004
(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 333 370 52 1,632 223
Sales and
marketing 294 310 70 1,380 226
General and
admini-
strative 498 457 19 1,601 2,670
-----------------------------------------------------
1,125 1,137 141 4,613 3,119
GAAP net loss $ (4,630) $(121,032) $(107,151) $(142,666) $(126,891)
Stock-based
compensation 1,280 1,318 220 5,505 3,272
Purchased in-
process
research,
development and
acquisition
related charges - - - - 4,291
Realized loss on
sale of
securities - - 360 - 360
Interest
expense, net 299 (87) 227 446 1,923
Income taxes 80 22 82 264 215
Depreciation 662 692 554 2,619 1,802
Amortization and
impairment of
intangible
assets - 113,973 106,830 116,430 114,558
-----------------------------------------------------
Non-GAAP pro
forma EBITDA $ (2,309) $ (5,114) $ 1,122 $ (17,402) $ (470)
=====================================================
Revenue by
product line:
SLMS 26,174 23,608 29,764 118,209 66,854
Legacy and
Service 14,680 15,081 18,995 57,124 63,435
Optical
Transport 3,452 4,449 4,446 19,011 21,539
-----------------------------------------------------
44,306 43,138 53,205 194,344 151,828
ZHONE TECHNOLOGIES, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In thousands)
December 31, December 31,
2006 2005
------------ ------------
Assets
Current assets:
Cash, cash equivalents and short-term
investments $ 64,310 $ 71,140
Accounts receivable 31,828 35,392
Inventories 45,036 48,370
Prepaid expenses and other current assets 3,852 5,811
-------------------------
Total current assets 145,026 160,713
-------------------------
Property and equipment, net 23,704 24,097
Goodwill 70,737 180,001
Other acquisition-related intangible assets - 14,638
Restricted cash 636 547
Other assets 79 109
-------------------------
Total assets $ 240,182 $ 380,105
=========================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 18,893 $ 17,912
Line of credit 14,500 14,500
Current portion of long-term debt 7,673 1,170
Accrued and other liabilities 20,088 24,610
-------------------------
Total current liabilities 61,154 58,192
Long-term debt, less current portion 19,376 28,597
Other long-term liabilities 2,048 1,527
-------------------------
Total liabilities 82,578 88,316
-------------------------
Stockholders' equity:
Common stock 149 148
Additional paid-in capital 1,058,317 1,051,320
Other stockholders' equity 98 (1,385)
Accumulated deficit (900,960) (758,294)
-------------------------
Total stockholders' equity 157,604 291,789
-------------------------
Total liabilities and stockholders'
equity $ 240,182 $ 380,105
=========================
About Zhone Technologies, Inc. (www.zhone.com)
Zhone Technologies, Inc. (NASDAQ: ZHNE) is a global provider of advanced
communications equipment to more than 600 operators in both emerging and
established markets. Zhone’s market-leading broadband loop carrier equipment
(BLC) enables operators to rapidly deploy revenue-generating access services
using existing infrastructure, while providing a migration path to a
cost-efficient, all-IP access network. The company’s products address a broad
range of applications including residential and business broadband, VoIP,
IPTV, and Ethernet over both copper and fiber access lines. Zhone's
advanced networking solutions include the Single Line Multi-Service
architecture (SLMS™), Multi-Access Line Concentrator (MALC™), Raptor™ ATM/IP
DSLAMs, Zhone Residential Gateways (ZRG™), GigaMux™ Optical Transport Systems,
and the Zhone Management System (ZMS™).
Contacts:
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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