Zhone Technologies' CEO Discusses 1Q2012 Results - Earnings Call Transcript

Zhone Technologies, Inc. (ZHNE)

Q1 2012 Earnings Call

April 19, 2012 5:00 p.m. EDT

Executives

Kirk Misaka – CFO

Mory Ejabat – Chairman and CEO

Analysts

Wayne Lindemann – Lindemann

Larry Levin – ATT

Presentation

Operator

Good day and welcome to the first quarter 2012 Zhone Technologies, Incorporated conference call. I'm [Regina] and I will be your coordinator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Mr. Kirk Misaka, Zhone’s Chief Financial Officer. Please proceed.

Kirk Misaka

Thank you, operator. Hello and welcome to the first quarter 2012 Zhone Technologies, Inc. conference call. I'm Kirk Misaka, Zhone’s Chief Financial Officer.

The purpose of this call is to discuss Zhone’s first quarter 2012 financial results as reported in our earnings release which was distributed over BusinessWire at the close of market today and has been posted on our website at www.zhone.com.

I'm 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 of 2012 and provide guidance for next quarter. After our prepared remarks, we’ll 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, 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, 2011.

We’d like to caution you that actual results could differ materially from those contemplated by the forward-looking statements and should not place undue reliance on any forward-looking statements. We also undertake no obligations to update any forward-looking statements.

During the course of this call, we’ll also make reference to adjusted EBITDA and adjusted operating expenses, non-GAAP measures we believe are appropriate to enhance an overall understanding of the 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 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 comparisons with 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

Thanks, Kirk. Good afternoon and thank you for joining us for our first quarter 2012 earnings call.

Revenue for the first quarter of 2012 was $27.1 million, which was lower than the fourth quarter of 2011 due to the seasonality of our business as anticipated and mentioned on our previous earnings call. During the quarter we experienced some weakness in our domestic and Western European businesses and also had some purchase orders that could not be shipped because of unavailability of long lead time components. Despite these conditions, we experienced a strong increase in orders during March, and as a result, we exited the first quarter with better-than-expected backlog, driving opportunities for 2012 and a much stronger second quarter.

In the first quarter we also announced that Zhone entered into a new credit facility arrangement with Wells Fargo Capital Finance, part of Wells Fargo & Co. This facility provides multi-capital financing of up to $25 million to support borrowings and letters of credit. The terms of facility extended for two years through March 2014. Kirk will give you more details on our financials later on.

Now focusing on market opportunities. The MXK continues to drive new customer growth while sustaining industry leadership and a strong consumer acceptance throughout our served markets. As you might recall, several quarters back we launched the new Zhone FiberHome line. In Q1 we started to experience growth of these new products, helping our customers deploy new fiber-to-the-home curb and building solutions. Overall, the new FiberHome growth was led primarily by increasing in the number of VDSL2 deployments. We expect to sustain this momentum throughout 2012. We noted a respectable increase in the number of MXK voice deployments, most commonly in combination with GPON.

As indicated by a number of new customers announcement, we continue to experience good momentum in our international markets where we also launched our new zNID 2400 series ONT line to the European community in February. We announced an immediate availability of the new zNID 2400 gigawatt ethernet ONT to the European market at the annual FTTH Conference in Munich, Germany. The new active ethernet indoor ONTs, part of the zNID 2400 xx series indoor ONTs, provide a cost-effective, high-performance solution for delivering high-bandwidth services. The new zNID 2400 series has become very popular with our customers around the globe.

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