Zhone Technologies Reports Second Quarter 2014 Financial Results

Zhone Technologies, Inc. (NASDAQ: ZHNE), a global leader in FTTx network access solutions, today reported its financial results for the second quarter ended June 30, 2014.

Revenue for the second quarter of 2014 was $32.4 million compared to $28.6 million for the first quarter of 2014 and $30.0 million for the second quarter of 2013. Net income for the second quarter of 2014, calculated in accordance with generally accepted accounting principles (“GAAP”), was $0.4 million or $0.01 per share compared with net income of $0.3 million or $0.01 per share for the first quarter of 2014 and net income of $1.1 million or $0.03 per share for the second quarter of 2013. Adjusted earnings before stock-based compensation, interest, taxes, and depreciation (“adjusted EBITDA”) was an adjusted EBITDA profit of $0.6 million for the second quarter of 2014, compared to an adjusted EBITDA profit of $0.5 million for the first quarter of 2014 and an adjusted EBITDA profit of $1.3 million for the second quarter of 2013.

“We're pleased to announce that we generated positive net income for the seventh quarter in a row and continued to strengthen our financial position,” stated Mory Ejabat, Zhone's executive chairman. “We continue to focus on profitability as our number one financial objective.”

Cash and cash equivalents at June 30, 2014 was $15.6 million compared to $15.7 million at December 31, 2013.

Zhone will conduct a conference call and audio webcast today, July 17, 2014, at approximately 2:00 p.m. PT / 5:00 p.m. ET to review its second quarter 2014 results. This call is open to the public by dialing +1 (866) 510-0707 for U.S. callers and +1 (617) 597-5376 for international callers and then entering passcode 10146421. 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 90692081. 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 adjusted 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 income calculated on a GAAP basis and adjusted EBITDA on a non-GAAP basis is provided in a table immediately following the Unaudited Condensed Consolidated Statements of Comprehensive Income.

About Zhone Technologies

Zhone Technologies, Inc. (NASDAQ: ZHNE) is a global leader in all IP multi-service access solutions, serving more than 750 of the world's most innovative network operators. The IP Zhone is the only solution that enables service providers to build the network of the future…today, supporting end-to-end Voice, Data, Entertainment Social Media, Business, Mobile Backhaul and Mobility service. Zhone is committed to building the fastest and highest quality All IP Multi-Service solution for its customers. Zhone is headquartered in California and its products are manufactured in the USA in a facility that is emission, waste-water and CFC free.

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 products 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 financial estimates; projections of revenue, margins, expenses or other financial items. 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 the Company's products; intense competition in the communications equipment market; the Company's ability to execute on its 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, 2013 and the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2014. 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. The Company undertakes no obligation to update or revise any forward-looking statements for any reason.
 
ZHONE TECHNOLOGIES, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Comprehensive Income
(In thousands, except per share data)
 
Three Months Ended   Six Months Ended
June 30,   March 31,   June 30, June 30,   June 30,
2014 2014 2013 2014 2013
Net revenue $ 32,422 $ 28,609 $ 30,048 $ 61,031 $ 58,427
Cost of revenue 21,407 17,744 18,436 39,151 36,311
Stock-based compensation   1             1      
Gross profit   11,014     10,865     11,612     21,879     22,116  
Operating expenses:
Research and product development (1) 4,167 4,143 3,920 8,310 7,580
Sales and marketing (1) 4,804 4,678 5,073 9,482 9,895
General and administrative (1)   1,644     1,689     1,525     3,333     3,214  
Total operating expenses   10,615     10,510     10,518     21,125     20,689  
Operating income 399 355 1,094 754 1,427
Other income (expense), net   (20 )   (10 )   2     (30 )   (69 )
Income before income taxes 379 345 1,096 724 1,358
Income tax provision   10     43     40     53     72  
Net income $ 369   $ 302   $ 1,056   $ 671   $ 1,286  
Other comprehensive income (loss)   6     (20 )   (78 )   (14 )   (83 )
Comprehensive income $ 375   $ 282   $ 978   $ 657   $ 1,203  
Weighted average shares outstanding
Basic 32,354 32,299 31,222 32,327 31,170
Diluted 34,441 34,826 32,696 34,634 31,859
Earnings per common share
Basic $ 0.01 $ 0.01 $ 0.03 $ 0.02 $ 0.04
Diluted $ 0.01 $ 0.01 $ 0.03 $ 0.02 $ 0.04
(1) Amounts include stock-based compensation costs as follows:
Research and product development $ 1 $ 1 $ $ 2 $
Sales and marketing 5 4 9
General and administrative   101     54     134     155     312  
$ 107 $ 59 $ 134 $ 166 $ 312
GAAP net income $ 369 $ 302 $ 1,056 $ 671 $ 1,286
Stock-based compensation 108 59 134 167 312
Interest expense 5 16 10 21 49
Income taxes 10 43 40 53 72
Depreciation   93     90     92     183     174  
Non-GAAP Adjusted EBITDA income $ 585   $ 510   $ 1,332   $ 1,095   $ 1,893  
 
 
ZHONE TECHNOLOGIES, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In thousands)
 
 

  June 30,  
  December 31,
2014 2013
Assets
Current assets:
Cash and cash equivalents $ 15,648 $ 15,686
Accounts receivable 35,357 33,328
Inventories 17,353 19,562
Prepaid expenses and other current assets   2,447     2,269  
Total current assets 70,805 70,845
Property and equipment, net 699 718
Other assets   255     254  
Total assets $ 71,759   $ 71,817  
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 12,512 $ 12,689
Line of credit 10,000 10,000
Accrued and other liabilities   8,352     8,865  
Total current liabilities 30,864 31,554
Other long-term liabilities   2,396     2,704  
Total liabilities   33,260     34,258  
Stockholders’ equity:
Common stock 32 32
Additional paid-in capital 1,074,577 1,074,294
Other comprehensive income 51 65
Accumulated deficit   (1,036,161 )   (1,036,832 )
Total stockholders’ equity   38,499     37,559  
Total liabilities and stockholders’ equity $ 71,759   $ 71,817  
 

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