Zhone Technologies, Inc. Q1 2010 Earnings Call Transcript

Zhone Technologies, Inc. Q1 2010 Earnings Call Transcript
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Zhone Technologies, Inc. (ZHNE)

Q1 2010 Earnings Call Transcript

April 28, 2010 5:00 pm ET

Executives

Mory Ejabat – Chairman, President and CEO

Kirk Misaka – CFO, Corporate Treasurer and Secretary

Analysts

Greg Mesniaeff – Needham & Company

Martin Laney [ph]

Karl Laconte [ph]

Presentation

Operator

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Good day and welcome to the first quarter 2010 Zhone Technologies, Inc. conference call. I am Jonathan and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session toward the end of this conference. (Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to introduce Mr. Kirk Misaka, Zhone's Chief Financial Officer. Please proceed, sir.

Kirk Misaka

Thank you, operator. Hello and welcome to the First 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 first 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 web site 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 first quarter. Following Mory's comments, I will discuss Zhone's detailed financial results for the first quarter 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 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 relating 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. We would 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 undertake no obligation to update any forward-looking statements.

During the course of this call, we will also make reference to pro forma EBITDA and pro forma 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 the basis for making operating decisions, because they provide meaningful supplemental information regarding our operational performance and they facilitate management's internal comparison 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 pro forma EBITDA within the press release, which as previously mentioned, has been posted on our web site 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 first quarter 2010 earnings call. With a strong year over year revenue growth in the first quarter and improving market conditions, we anticipate revenue growth for 2010. The first quarter revenue was up 29% as compared to the first quarter of 2009. On another positive note, we substantially reduced our pro forma EBITDA loss on a year-over-year basis, which was our top priority. This reduction was achieved by a strong review growth, improved gross margins on our newer products, and continued expense control. The momentum from our MXK product and the anticipated revenue growth keep us on track to achieve our financial goal of positive pro forma EBITDA for the year as a whole.

We expect revenue growth in 2010, both in the U.S. and abroad. In particular, in the U.S., we have started to see the effect of a stimulus program and some of our customers have started placing orders with us. Also, other carriers, who are not using Zhone's products, and have been awarded a stimulus phones are issuing RFPs for FTTx projects. Our MXK product line is well positioned against our competitors.

The impact of the stimulus program, combined with the improved economic conditions in emerging countries and our strength in the international markets, especially in the Middle East, Western Europe, and South America, will be the major forces driving revenue growth and profitability for Zhone in 2010.

Kirk will give you more details on our financial performance and guidance. So let me briefly mention two other financial matters that happened during the quarter. First, we successfully completed the $1.45 reverse bid, which brought us back in compliance with the NASDAQ's $1 minimum bid price requirement.

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