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Zhone CEO Discusses Q3 2010 Results - Earnings Call Transcript

Zhone CEO Discusses Q3 2010 Results - Earnings Call Transcript

Zhone Technologies, Inc. (

ZHNE

)

Q3 2010 Earnings Call

TST Recommends

October 20, 2010 5:00 pm ET

Executives

Kirk Misaka - CFO

Mory Ejabat - Chairman and CEO

Analysts

Presentation

Operator

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Previous Statements by ZHNE
» Zhone Technologies, Inc. Q2 2010 Earnings Call Transcript
» Zhone Technologies, Inc. Q1 2010 Earnings Call Transcript
» Zhone Technologies, Inc. Q4 2009 Earnings Call Transcript
» Zhone Technologies, Inc. Q3 2009 Earnings Call Transcript

Good day and welcome to the third quarter 2010 Zhone Technologies Incorporated conference call. (Operator Instructions) I would like to introduce Kirk Misaka, Zhone's Chief Financial Officer.

Kirk Misaka

Hello and welcome to the third quarter 2010 Zhone Technologies, Inc. conference call. I am Kirk Misaka, Zhone's Chief Financial Officer.

The purpose of this call is to discuss Zhone's third quarter 2010 financial results as reported in our earnings release, which was distributed over Business Wire at the close of market today and has been posted on our website at www.zhone.com.

I am here today with Mory Ejabat, Zhone's Chairman and Chief Executive Officer. Mory will begin by discussing the key financial results and business developments of the third quarter. Following Mory's comments, I will discuss Zhone's detailed financial results for the third quarter and provide guidance for the next quarter. After our prepared remarks, we will conclude with questions and answers.

As a reminder, this conference is being recorded for replay purposes and will be available for approximately one week. The dial-in instructions for the replay are available on our press release issued today. An audio webcast replay will also be available online at www.zhone.com following the call.

During the course of the conference call, we will make forward-looking statements, which reflect management's judgment based on factors currently known. However, these statements involve risks and uncertainties, including those related to projections of financial performance; the anticipated growth and trends in our business; the development of new technologies and market acceptance of new products; and statements that express our plans, objectives and strategies for future operations.

We refer you to the risk factors contained in our SEC filings available at www.sec.gov, including our Annual Report on Form 10-K for the year ended December 31, 2009, and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, and June 30, 2010. We'd like to caution you that actual results could differ materially from those contemplated by the forward-looking statements and you should not place undue reliance on any forward-looking statements. We also undertake no obligation to update any forward-looking statements.

During the course of this call, we will also make reference to adjusted EBITDA and adjusted operating expenses. Non-GAAP measures we believe are appropriate to enhance an overall understanding of past financial performance and prospects for the future. These adjustments to our 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 of making operating decisions, because they provide meaningful supplemental information regarding our operational performance and they 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. We have provided GAAP reconciliation information for adjusted EBITDA within the press release, which as previously mentioned has been posted on our website at www.zhone.com.

With those comments in mind, I would now like to introduce Mory Ejabat, Zhone's Chairman and Chief Executive Officer.

Mory Ejabat

Thank you, Kirk. Good afternoon and thank you for joining us today for our third quarter 2010 earnings call. We are pleased that we have exceeded our profit guidance and generated positive cash flow from operations for the third quarter of 2010 based on the double-digit growth in our Latin America, European and Middle East regions and continued revenue growth attributable to our MXK OLT and zNID ONT.

We continue to remain confident about generating positive adjusted EBITDA and a cash flow for the fourth quarter of 2010 as well. The fourth quarter should bring even stronger revenue growth as we work to adjust material and long lead times from suppliers that limited our third quarter revenue growth.

The other important financial accomplishment for the third quarter was the sale and leaseback of our Oakland Campus. The transaction allowed us to substantially strengthen our balance sheet and reduce occupancy costs going forward. Kirk would give you more details about this transaction in a minute.

In the meantime, let me spend a few minutes talking about the improving state of our business. First, growing service provider demand for our GPON solutions vide MXK has become the product to beat. Second, new customer growth, expanding over 20 new MXK customers in Q3 2010 alone.

Third, growing interest in our solution from broadband stimulus recipient in the U.S. who are beginning to receive funding and are choosing the MXK for deployment. Fourth, MXK recognition by the leading research analyst firms like Infonetics, broadbrandtrends and Dittberner, recognized as a clear leader in GPON globally, recognized as the leader in GPON in Latin America, recognized as the number two in GPON in Europe and Middle East.

Moreover, we are well on our way to achieve three consecutive quarters as a clear leader in GPON rating among industry giants, Huawei and Alcatel. And finally, with over 700 MXK systems deployed globally supporting a total system capacity of over 7 million subscribers we expect GPN expansion at both the Central Office and Customer Premises locations in the future.

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