Zhone Technologies Reports Second Quarter 2009 Financial Results

Zhone Technologies, Inc. (NASDAQ:ZHNE), a global leader in access network solutions, today reported its financial results for the second quarter ended June 30, 2009.

Revenue for the second quarter of 2009 was $30.3 million compared with $24.1 million for the first quarter of 2009 and $40.1 million for the second quarter of 2008. Net loss for the second quarter of 2009, calculated in accordance with generally accepted accounting principles ("GAAP”), was $2.3 million or $0.02 per share compared with a net loss of $6.9 million or $0.05 per share for the first quarter of 2009, and a net loss of $80.3 million or $0.53 per share for the second quarter of 2008. Pro forma earnings before stock-based compensation, interest, taxes, depreciation, lease liability accrual, gain on sale of intangible assets and goodwill impairment ("EBITDA”) was a $0.9 million loss for the second quarter of 2009, compared to a pro forma EBITDA loss of $5.5 million for the first quarter of 2009, and pro forma EBITDA loss of $5.2 million for the second quarter of 2008.

"Strong sequential revenue growth, improving gross margins and continued expense control contributed to better than expected earnings for the quarter,” stated Mory Ejabat, Zhone’s chief executive officer. "We are encouraged by the immediate acceptance of our new products and hope to build on that momentum to achieve our primary goal of reaching quarterly EBITDA profitability by year end.”

Zhone will conduct a conference call and audio webcast today, July 22, 2009, at approximately 2:00 p.m. PT / 5:00 p.m. ET to review its second quarter 2009 results. This call is open to the public by dialing +1 (800) 237-9752 for U.S. callers and +1 (617) 847-8706 for international callers and then entering passcode 51358333. The audio webcast will be simultaneously available on the Investor Relations section of Zhone's website at http://www.zhone.com/investors/.

A replay of the conference call will be available after the original call by dialing +1 (888) 286-8010 for U.S. callers and +1 (617) 801-6888 for international callers and then entering passcode 48028058. An audio webcast replay will also be available online at http://www.zhone.com/investors/ for approximately one week following the original call.

Non-GAAP Financial Measures

To supplement Zhone’s consolidated financial statements presented in accordance with GAAP, Zhone uses pro forma EBITDA, a non-GAAP measure Zhone believes is appropriate to enhance an overall understanding of Zhone’s past financial performance and prospects for the future. These adjustments to 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 for making operating decisions because they provide meaningful supplemental information regarding the company’s operational performance, including the company’s ability to provide cash flows to invest in research and development, and to fund capital expenditures. In addition, these non-GAAP financial measures 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. A reconciliation between net loss calculated on a GAAP basis and pro forma EBITDA on a non-GAAP basis is provided in a table immediately following the Unaudited Condensed Consolidated Statements of Operations.

About Zhone Technologies — Access for a Converging World

Zhone Technologies, Inc. (NASDAQ:ZHNE) is a global leader in multi-service access network solutions, serving more than 700 of the world's most innovative network operators. The company offers the industry's only fully-integrated portfolio of MSAP, FTTx, EFM and Wi-Fi access technologies, improving network agility and reducing the costs of delivering the full spectrum of access services, including residential and business broadband, VoIP, and High-Definition IPTV over copper, fiber, and wireless. Zhone is headquartered in California, and its MSAP products are all manufactured in the USA, in a facility that is emission, waste-water, and CFC free.

www.zhone.com

Zhone, the Zhone logo, and all Zhone product names are trademarks of Zhone Technologies, Inc. Other brand and product names are trademarks of their respective holders. Specifications, products, and/or product names are all subject to change without notice.

Forward-Looking Statements

This press release contains forward-looking statements that are subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934. Words such as "anticipate,” "believe,” "continue,” "could,” "estimate,” "expect,” "goal,” "intend,” "may,” "plan,” "project,” "seek,” "should,” "target,” "will,” "would,” variations of such words, and similar expressions are intended to identify forward-looking statements. In addition, forward-looking statements include, among others, statements that refer to second quarter 2009 financial estimates; projections of revenue, margins, expenses or other financial items; and improvement of financial markets. Readers are cautioned that actual results could differ materially from those expressed in or contemplated by the forward-looking statements. Factors that could cause actual results to differ include, but are not limited to, commercial acceptance of our products; intense competition in the communications equipment market; our ability to execute on our strategy and operating plans; and economic conditions specific to the communications, networking, internet and related industries. In addition, please refer to the risk factors contained in the Company's SEC filings available at www.sec.gov, including without limitation, the Company's annual report on Form 10-K for the year ended December 31, 2008 and Zhone’s quarterly report on Form 10-Q for the quarter ended March 31, 2009. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date on which they are made. Zhone undertakes no obligation to update or revise any forward-looking statements for any reason.