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Press ReleaseZhone Technologies Reports Third Quarter 2007 Financial ResultsOakland, CA — October 18, 2007 —
Zhone Technologies, Inc. (NASDAQ: ZHNE), a global provider of advanced
communications equipment and a leader in VoIP, IPTV, and Ethernet over copper
and fiber access lines, today reported its financial results for the third
quarter ended September 30, 2007.
Revenue for the third quarter of 2007 was $41.6 million compared with $44.1
million for the second quarter of 2007 and $43.1 million for the third quarter
of 2006. Net loss for the third quarter of 2007, calculated in accordance with
generally accepted accounting principles ("GAAP"), was $1.5 million
or $0.01 per share compared with a net loss of $4.6 million or $0.03 per share
for the second quarter of 2007, and a net loss of $121.0 million or $0.81 per
share for the third quarter of 2006. Pro forma earnings before stock-based
compensation, gain on sale of patents, interest, taxes, impairment,
depreciation and amortization ("EBITDA") was a $4.9 million loss for
the third quarter of 2007, compared to a pro forma EBITDA loss of $2.9 million
for the second quarter of 2007, and pro forma EBITDA loss of $5.1 million for
the third quarter of 2006.
"As expected, revenues declined due to the divestiture of one of our
legacy product lines and the seasonally slow international market," said
Mory Ejabat, chairman and chief executive officer of Zhone Technologies, Inc.
"Despite this decline, we are encouraged by the long-term prospects of
our business as evidenced by significant new customer wins and continued
interest in our next generation technologies."
Zhone will hold a conference call and audio webcast today, October 18, 2007,
at approximately 2:00 p.m. PT / 5:00 p.m. ET to review its third quarter 2007
results. This call is open to the public by dialing +1 (800) 573-4842 for U.S.
callers and +1 (617) 224-4327 for international callers and then entering
passcode 35985942. 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
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
50468408. An audio webcast replay will also be available online at http://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 to fund 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. ZHONE TECHNOLOGIES, INC. Unaudited Condensed Consolidated Statements of Operations (In thousands, except per share data) Three Months Ended Nine Months Ended ------------------------------ -------------------- Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30, 2007 2007 2006 2007 2006 --------------------------------------------------- Net revenue $ 41,604 $ 44,085 $ 43,138 $128,835 $ 150,038 Cost of revenue 29,066 29,028 27,848 85,581 102,643 Stock-based compensation 67 81 181 268 737 --------------------------------------------------- Gross profit 12,471 14,976 15,109 42,986 46,658 --------------------------------------------------- Operating expenses: Research and product development (1) 8,154 8,528 9,042 25,338 27,471 Sales and marketing (1) 8,446 8,068 9,308 25,141 29,582 General and administrative (1) 2,260 2,783 3,930 7,868 11,068 Gain on sale of patents (5,000) - - (5,000) - Amortization and impairment of intangible assets - - 113,973 - 116,430 --------------------------------------------------- Total operating expenses 13,860 19,379 136,253 53,347 184,551 --------------------------------------------------- Operating loss (1,389) (4,403) (121,144) (10,361) (137,893) Other income/(expense), net (16) (26) 134 (221) 41 --------------------------------------------------- Loss before income taxes (1,405) (4,429) (121,010) (10,582) (137,852) Income tax provision 125 125 22 288 184 --------------------------------------------------- Net loss $ (1,530) $ (4,554) $(121,032) $(10,870) $(138,036) =================================================== Basic and diluted net loss per share $ (0.01) $ (0.03) $ (0.81) $ (0.07) $ (0.93) Weighted average shares outstanding used to compute basic and diluted net loss per share 149,715 149,533 148,905 149,512 148,589 (1) Amounts include stock- based compensation costs as follows: Research and product development 179 184 370 625 1,299 Sales and marketing 154 147 310 512 1,086 General and administrative 308 360 457 1,057 1,103 --------------------------------------------------- 641 691 1,137 2,194 3,488 GAAP net loss $ (1,530) $ (4,554) $(121,032) $(10,870) $(138,036) Stock-based compensation 708 772 1,318 2,462 4,225 Interest (income)/expense, net 38 77 (87) 282 147 Income taxes 125 125 22 288 184 Depreciation 716 672 692 2,044 1,957 Gain on sale of patents (5,000) (5,000) Amortization and impairment of intangible assets - - 113,973 - 116,430 --------------------------------------------------- Non-GAAP pro forma EBITDA $ (4,943) $ (2,908) $ (5,114) $(10,794) $ (15,093) =================================================== Revenue by product line: SLMS 29,227 31,657 23,608 91,105 92,035 Legacy, service and other 12,377 12,428 19,530 37,730 58,003 --------------------------------------------------- 41,604 44,085 43,138 128,835 150,038 ZHONE TECHNOLOGIES, INC. AND SUBSIDIARIES Unaudited Condensed Consolidated Balance Sheets (In thousands) September December 30, 31, 2007 2006 ------------------- Assets Current assets: Cash, cash equivalents and short-term investments $50,392 $64,310 Accounts receivable 35,642 31,828 Inventories 42,739 45,036 Prepaid expenses and other current assets 3,853 3,852 ------------------- Total current assets 132,626 145,026 Property and equipment, net 21,220 23,704 Goodwill 70,401 70,737 Restricted cash 183 636 Other assets 85 79 ------------------- Total assets $224,515 $240,182 =================== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $20,281 $18,893 Line of credit 15,000 14,500 Current portion of long-term debt 279 7,673 Accrued and other liabilities 19,342 20,088 ------------------- Total current liabilities 54,902 61,154 Long-term debt, less current portion 19,192 19,376 Other long-term liabilities 255 2,048 ------------------- Total liabilities 74,349 82,578 ------------------- Stockholders' equity: Common stock 150 149 Additional paid-in capital 1,061,284 1,058,317 Other stockholders' equity 562 98 Accumulated deficit (911,830) (900,960) ------------------- Total stockholders' equity 150,166 157,604 ------------------- Total liabilities and stockholders' equity $224,515 $240,182 =================== About Zhone Technologies, Inc.
Zhone Technologies, Inc. (NASDAQ: ZHNE) is a provider of advanced
communications equipment to more than 600 operators worldwide. The
company's broad line of access and transport networking solutions
enables the full range of multi-play services, including residential and
business broadband, VoIP, IPTV, and Ethernet. Zhone's converged
access platform improves network agility and reduces costs, allowing
operators to rapidly deploy premium services on their existing copper
and fiber infrastructure while providing a seamless migration path to an
efficient, all-IP network. www.zhone.com
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