Zhone Technologies, Inc. (



Q1 2011 Earnings Call

April 20, 2011 05:00 pm ET


Mory Ejabat -- Chairman and Chief Executive Officer

Kirk Misaka – Chief Financial Officer


David Buirstein -- DSL Prime Name

David Lamond -- Artis Capital

[Alack Amuna]



Good day and welcome to the Q1 2011 Zhone Technologies Incorporated Conference Call.

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I am Jeremy, and I will be your coordinator for today. At this time, all participants are on a listen-only mode. We will be facilitating a question-and-answer session towards the end of the conference.

(Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to introduce Kirk Misaka, Zhone's Chief Financial Officer. Please proceed.

Kirk Misaka

Thank you, operator. Hello and welcome to the first quarter 2011 Zhone Technologies, Inc. conference call. I am Kirk Misaka, Zhone's Chief Financial Officer.

The purpose of this call is to discuss Zhone's first quarter 2011 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



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 first quarter. Following Mory's comments, I will discuss Zhone's detailed financial results for the first quarter 2011, and provide guidance for 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


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


, including our annual report on Form 10-K for the year ended December 31


, 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.

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



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 first quarter 2011 earnings call. Let me provide a few updates regarding the recent quarter. Despite a (inaudible) of substantial performance attributes in Q1 2011, we experienced material shortages and significant operational disruption due to the storm and tornadoes very close to our manufacturing plant, which resulted in an extended (inaudible) occasion pattern of manufacturing output on the critical last day of the quarter. Due to these factors, revenue for the quarter was $29.6 million, and below our expectations, but led to a substantial growth in our backlog of approximately $2 million, positioning us for a stronger Q2.

Kirk will give you more detail on our financial results later. Now, let me provide a few details about this past quarter. Subscriber system capacity for MXK has now officially surpassed 10 million subscribers. Furthermore, the number of MXK platforms employment has more than quadrupled since March 2010, one year ago, expanding from approximately 320 system deployments in 24 countries, more than 1,350 deployments in over 40 countries today.

In addition, we are proud of our in-depth (inaudible) efforts in continuing to expand and grow our already robust product family. Specifically, we enhanced our fiber (inaudible) and fiber portfolios, introducing Fiber Cell and Zhone Fiber Home brand, and corresponding solutions for FTTc, FTTb, FTTp, and FTTn, and a new mobile backlog solution. The combined solutions include nine new (inaudible) compromised of four new YU SLMS based products, UCP warranties, media cell and (inaudible) cost, all providing enhanced functionality to an already robust and excellent solution.

In terms of industry recognition and analyst ranking, we continue to deliver a solid performance with respect to GPON deployment on global basis, number one in Caller ID. Number three in MEO, deep burner IDC; top five GPON globally deep burner. Additionally, we announced a multitude of solid new customer range during the quarter. Harvey Telecom, recipient of $34 million broadband for the stimulus award. Rochester Telephone Company, FTTX deployment in Indiana, that further expands Zhone’s US and specifically mid west broadband footprint. Florida-based Myakka Corporation advanced fiber access offered to subscribers in rural areas of Sarasota and Manatee counties for the first time, via $7.8 million broadband system project.

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