Zhone Technologies, Inc. ( ZHNE)

Q3 2011 Earnings Conference Call

October 19, 2011 17:00 ET

Executives

Kirk Misaka – Chief Financial Officer

Mory Ejabat – Chairman and Chief Executive Officer

Analysts

(Wayne Linman)

Presentation

Operator

Good day and welcome to the Third Quarter 2011 Zhone Technologies Incorporated Conference Call. I am Jennifer 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 – Chief Financial Officer

Thank you, operator. Hello and welcome to the third 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 third 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 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 of 2011 and provide guidance for next quarter. After our prepared remarks, we will conclude with questions and answers. As a reminder, this conference is 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, 2010 and our quarterly report on Form 10-Q for the quarters ended March 31, 2011 and June 30, 2011.

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 the basis for making operating decisions, because they provide meaningful supplemental information regarding our operational performance and they facilitate management 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 – Chairman and Chief Executive Officer

Thank you, Kirk. Good afternoon and thank you for joining us today for our third quarter 2011 earnings call.

The third quarter revenue decreased slightly to $30.2 million due to the seasonal slowdown in our international markets and some deferred deployment for a few domestic customers that continued to wait for broadband stimulus funding. More or less as expected, the MXK continued to drive new organic customer growth, sustained industry leadership, and a strong customer acceptance. As a result, we expect revenue growth in the fourth quarter accompanied by adjusted EBITDA profitability. Kirk will start our financial results and guidance in greater detail later.

I am proud to announce that Zhone Technologies has been recognized by the industry’s leading technology analysts like IDC and Infonetics Research for sixth consecutive quarter of GPON leadership. Zhone is the only American GPON supplier among the top five global GPON vendors.

We have significant number of new product launches in the quarter helping to further increase our investing years and technology differentiation. In September 2011, we announced immediate availability of the MXK 194/198 1U GPON OLT platforms. The new 194/198 1U GPON OLTs provide an expanding addition to the industry leading MXK and some portfolio.

To complement the new MXK 1U GPON OLTs, Zhone also introduced a new portfolio of zNID GPON ONTs targeted for indoor residential use. As part of ongoing effort to increase cost efficiency and service differentiation, the new indoor zNID 2400 series of GPON ONTs offer a rich area features and functionality optimal for both Greenfield or expansion FTTx networks globally, and leverage features and best-in-class performance delivered by Zhone’s widely deployed 4200 series outdoor zNID ONTs. These new products help to complement an already powerful solution suite and we are confident of these new products targeting both the central office and customer premise of Zhone to better serve our new and existing customer in all the markets globally. Zhone continues to be new customers in all of our said markets including new international, domestic, and stimulus customers throughout the quarter.

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