Exhibit 99.1
Zhone Technologies Reports Third
Quarter 2005 Financial Results Demonstrating Continued Revenue and
Market Growth
OAKLAND, Calif.--(BUSINESS WIRE)--Oct. 27, 2005--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 third quarter ended September 30,
2005.
Revenue for the third quarter of 2005 was $40.6 million, compared
with $27.0 million for the third quarter of 2004. Net loss for the
third quarter of 2005, calculated in accordance with Generally
Accepted Accounting Principles ("GAAP"), was $11.3 million (including
acquisition-related charges and purchased in-process research and
development of $4.3 million) compared with a net loss of $11.0 million
(including purchased in-process research and development of $2.4
million) for the third quarter of 2004. Pro forma earnings before
interest, taxes, depreciation and amortization (EBITDA) was $27,000
for the third quarter of 2005, compared to a pro forma EBITDA loss of
$4.1 million for the third quarter of 2004. These third quarter 2005
financial results include one month of revenue contribution from
Paradyne, since the Paradyne acquisition was completed on September 1,
2005. 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.
During the third quarter of 2005, Zhone won significant new
business for its SLMS products and Optical Transport products,
including 19 new customer accounts, as well as previous legacy
customers that have commenced the deployment of Zhone's SLMS and
Optical Transport products. In addition to strong U.S. sales, business
from new first-time customers continued to be realized in all of
Zhone's international sales regions.
DSL port shipments for the combined product set increased to over
250,000 during the quarter, keeping Zhone as the #1 market share
leader for the Broadband Loop Carrier market according to industry
analyst firm Broadband Trends. BLCs are the fastest growing segment of
the DSLAM market and are defined as access platforms that support
voice, data and video services with IP uplinks.
"This was an exceptional quarter for Zhone with excellent growth
in our flagship SLMS product line where revenues more than doubled
from the same quarter of last year," said Mory Ejabat, Chairman and
Chief Executive Officer of Zhone. "The integration of Paradyne is
proceeding as planned and we continue to expect significant cost
synergies and new market opportunities from the acquisition."
Zhone will hold a conference call today, October 27, 2005, at
approximately 5:00 p.m. Eastern Time to review its third quarter
results. The call is open to the public by dialing 800-510-9661 for
U.S. callers and 617-614-3452 for international callers and entering
the passcode 29345805.
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 webcast will be available on the website for at least 30
days. Additional investor information can be accessed at www.zhone.com
or by calling Zhone's Investor Relations Department at 510-777-7013.
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.
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, the amount and timing of synergies
and opportunities that may be achieved in connection with the
acquisition and integration of Paradyne, statements regarding our
future financial performance and the anticipated growth and trends in
our business or key markets, including growth in the BLC market, 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
possibility that the intended benefits of the Paradyne acquisition may
not be fully realized, the acceptance of new telecommunications
services based on DSL technology, our ability to generate sufficient
revenue to achieve or sustain profitability, the economic slowdown in
the telecommunications industry that has restricted the ability of our
customers to purchase our products, the pace of spending in the
telecommunications industry, commercial acceptance of our SLMS
products, intense competition in the communications equipment market
from large equipment companies as well as private companies that
address the same networks needs as our products, 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 and June
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.
About Zhone Technologies, Inc. (Zhone)
Zhone (Nasdaq:ZHNE) designs and manufactures network equipment for
network operators worldwide. Zhone's products allow network operators
to deliver a rich array of voice, data, video, and entertainment
services over their existing networks while simultaneously retooling
for converged packet based voice (VoIP) and video (IPTV) over copper
or fiber access lines.
Zhone's advanced networking solutions include the Single Line
Multi-Service architecture (SLMS(TM)), Multi-Access Line Concentrator
(MALC(TM)), Raptor(TM) and GranDSLAM(TM) ATM/IP DSLAMs, ReachDSL(TM)
Technology, FiberSLAM(TM) Optical Line Terminal, Zhone Residential
Gateways (ZRG(TM)), GigaMux(TM) Optical Transport Systems and Zhone
Management System (ZMS(TM)). With over one million subscriber
interfaces shipped and deployments at over 300 carriers including
among some of the world's largest networks, Zhone has enabled network
operators to reinvent their businesses. For more information, please
visit www.zhone.com.
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.
Copyright (C) 2005 Zhone Technologies, Inc. All rights reserved.
ZHONE TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Ended Nine Months Ended
------------------- -------------------
September September September September
30, 2005 30, 2004 30, 2005 30, 2004
--------- --------- --------- ---------
Net revenue $40,615 $27,006 $98,623 $69,066
Cost of revenue 23,824 15,603 57,012 39,332
Stock-based compensation 22 33 74 181
--------- --------- --------- ---------
Gross Profit 16,769 11,370 41,537 29,553
--------- --------- --------- ---------
Operating expenses:
Research and product
development 7,361 5,705 18,817 17,306
Sales and marketing 7,387 6,825 20,235 16,670
General and administrative 5,450 3,429 8,324 8,849
Purchased in-process
research and development 1,190 2,446 1,190 8,631
Stock-based compensation 2,723 338 2,978 1,265
Amortization and impairment
of intangible assets 3,214 2,862 7,728 7,270
--------- --------- --------- ---------
Total operating expenses 27,325 21,605 59,272 59,991
--------- --------- --------- ---------
Operating loss (10,556) (10,235) (17,735) (30,438)
Other expense, net (618) (798) (1,872) (1,222)
--------- --------- --------- ---------
Loss before income taxes (11,174) (11,033) (19,607) (31,660)
Income tax provision (benefit) 80 (26) 133 143
--------- --------- --------- ---------
Net loss ($11,254) ($11,007) (19,740) ($31,803)
========= ========= ========= =========
Basic and diluted net loss per
share ($0.10) ($0.12) ($0.20) ($0.38)
Weighted average shares
outstanding used to compute
basic and diluted net loss
per share 112,099 93,767 100,198 82,998
Reconciliation between GAAP
net loss and non-GAAP pro
forma EBITDA as follows:
GAAP net loss ($11,254) ($11,007) ($19,740) ($31,803)
Acquisition-related charges 3,101 - 3,101 -
Purchased in-process research
and development 1,190 2,446 1,190 8,631
Stock-based compensation 2,745 371 3,052 1,446
Interest expense, net 508 862 1,696 1,908
Income taxes 80 (26) 133 143
Depreciation 443 394 1,248 924
Amortization and impairment of
intangible assets 3,214 2,862 7,728 7,270
--------- --------- --------- ---------
Non-GAAP pro forma EBITDA $27 ($4,098) ($1,592) ($11,481)
========= ========= ========= =========
Revenue by product line:
SLMS $18,145 $5,612 $37,090 $19,552
Legacy and Service 17,261 17,183 44,440 45,303
Optical Transport 5,209 4,211 17,093 4,211
--------- --------- --------- ---------
$40,615 $27,006 $98,623 $69,066
========= ========= ========= =========
ZHONE TECHNOLOGIES, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In thousands)
September December
30, 2005 31, 2004
---------- ----------
Assets
Current assets:
Cash, cash equivalents and short-term
investments $80,903 $65,216
Accounts receivable 31,608 19,243
Inventories 50,619 37,352
Prepaid expenses and other current assets 16,107 3,949
---------- ----------
Total current assets 179,237 125,760
---------- ----------
Property and equipment, net 23,887 22,967
Goodwill 238,156 157,232
Other acquisition-related intangible assets 66,218 17,847
Restricted cash 547 758
Other assets 260 663
---------- ----------
Total assets $508,305 $325,227
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $19,938 $14,155
Line of credit 14,500 14,500
Current portion of long-term debt 32,596 1,378
Accrued and other liabilities 32,711 23,938
---------- ----------
Total current liabilities 99,745 53,971
Long-term debt, less current portion 8,867 39,935
Other long-term liabilities 1,532 1,537
---------- ----------
Total liabilities 110,144 95,443
---------- ----------
Stockholders' equity:
Common stock 147 94
Additional paid-in capital 1,050,997 862,261
Other stockholders' equity (1,840) (1,168)
Accumulated deficit (651,143) (631,403)
---------- ----------
Total stockholders' equity 398,161 229,784
---------- ----------
Total liabilities and stockholders'
equity $508,305 $325,227
========== ==========
CONTACT: Zhone Technologies, Inc.
Jessica Mullens, 510-777-7020 (Media)
Mobile: 510-520-4470
jmullens@zhone.com
Investor Relations: 510-777-7013
Fax: 510-777-7001
investor-relations@zhone.com