Zhone Technologies Reports Third Quarter 2014 Financial Results

Zhone Technologies, Inc. (NASDAQ:ZHNE), a global leader in fiber access transformation for service provider and enterprise networks, today reported its financial results for the third quarter ended September 30, 2014.

Revenue for the third quarter of 2014 was $29.4 million compared to $32.4 million for the second quarter of 2014 and $31.5 million for the third quarter of 2013. Net loss for the third quarter of 2014, calculated in accordance with generally accepted accounting principles (“GAAP”), was $2.7 million or $0.08 per share compared with net income of $0.4 million or $0.01 per share for the second quarter of 2014 and net income of $1.6 million or $0.05 per share for the third quarter of 2013. Adjusted earnings before stock-based compensation, interest, taxes, and depreciation (“adjusted EBITDA”) was an adjusted EBITDA loss of $2.2 million for the third quarter of 2014, compared to an adjusted EBITDA profit of $0.6 million for the second quarter of 2014 and an adjusted EBITDA profit of $1.8 million for the third quarter of 2013.

"We are confident that our new focused business structure will help grow the business by increasing FiberLAN revenue," stated Jim Norrod, Zhone's chief executive officer. "Ultimately our primary objective is unchanged; to achieve our financial objective of sustained growth and profitability for the company."

Cash and cash equivalents at September 30, 2014 was $13.5 million compared to $15.7 million at December 31, 2013.

Zhone will conduct a conference call and audio webcast today, October 15, 2014, at approximately 2:00 p.m. PT / 5:00 p.m. ET to review its third quarter 2014 results. This call is open to the public by dialing +1 (877) 415-3177 for U.S. callers and +1 (857) 244-7320 for international callers and then entering passcode 69914291. 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 36588411. 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 (Loss).

About Zhone Technologies

Zhone Technologies, Inc. (NASDAQ:ZHNE) is a global leader in fiber access transformation for service provider and enterprise networks, 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 reports on Form 10-Q for the quarters ended March 31, 2014 and June 30, 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.
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands, except per share data)
 

Three Months Ended
Nine Months Ended
September 30,   June 30,

September 30,

September 30,
  September 30,
2014   2014   2013 2014   2013
 
Net revenue $ 29,436 $ 32,422 $ 31,515 $ 90,467 $ 89,942
Cost of revenue 18,681 21,407 19,608 57,832 55,919
Stock-based compensation   1       1       -     2       -  
Gross profit   10,754       11,014       11,907     32,633       34,023  
Operating expenses:
 
Research and product development (1) 4,611 4,167 3,934 12,921 11,514
Sales and marketing (1) 4,775 4,804 4,644 14,257 14,539
General and administrative (1)   4,024       1,644       1,702     7,357       4,916  
Total operating expenses   13,410       10,615       10,280     34,535       30,969  
Operating income (loss) (2,656 ) 399 1,627 (1,902 ) 3,054
Other expense, net   (36 )     (20 )     (25 )   (66 )     (94 )
Income (loss) before income taxes (2,692 ) 379 1,602 (1,968 ) 2,960
Income tax provision   13       10       6     66       78  
Net income (loss) $ (2,705 )   $ 369     $ 1,596   $ (2,034 )   $ 2,882  
Other comprehensive income (loss)   (16 )     6       (30 )   (30 )     (113 )
Comprehensive income (loss) $ (2,721 )   $ 375     $ 1,566   $ (2,064 )   $ 2,769  
 
Weighted average shares outstanding
Basic 32,384 32,354 31,480 32,346 31,273
Diluted 32,384 34,441 33,344 32,346 32,599
 
Earnings per common share
Basic $ (0.08 ) $ 0.01 $ 0.05 $ (0.06 ) $ 0.09
Diluted $ (0.08 ) $ 0.01 $ 0.05 $ (0.06 ) $ 0.09
 
 
(1) Amounts include stock-based compensation costs as follows:
 
Research and product development $ 2 $ 1 $ 1 $ 4 $ 1
Sales and marketing 5 5 1 14 1
General and administrative   356       101       53     511       365  
$ 363 $ 107 $ 55 $ 529 $ 367
 
GAAP net income $ (2,705 ) $ 369 $ 1,596 $ (2,034 ) $ 2,882
Stock-based compensation 364 108 55 531 367
Interest expense 36 5 25 57 74
Income taxes 13 10 6 66 78
Depreciation   102       93       92     285       266  
Non-GAAP Adjusted EBITDA $ (2,190 )   $ 585     $ 1,774   $ (1,095 )   $ 3,667  
   
ZHONE TECHNOLOGIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
 
September 30, December 31,

2014

2013
 
Assets
Current assets:
Cash, cash equivalents and short-term investments $ 13,539 $ 15,686
Accounts receivable 34,165 33,328
Inventories 17,669 19,562
Prepaid expenses and other current assets   3,191       2,269  
Total current assets 68,564 70,845
Property and equipment, net 802 718
Other assets   255       254  
Total assets $ 69,621     $ 71,817  
 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 13,382 $ 12,689
Line of credit 10,000 10,000
Accrued and other liabilities   8,021       8,865  
Total current liabilities 31,403 31,554
Other long-term liabilities   2,064       2,704  
Total liabilities   33,467       34,258  
Stockholders’ equity:
Common stock 32 32
Additional paid-in capital 1,074,953 1,074,294
Other comprehensive income 35 65
Accumulated deficit   (1,038,866

)
    (1,036,832 )
Total stockholders’ equity   36,154       37,559  
Total liabilities and stockholders' equity $ 69,621     $ 71,817  

Copyright Business Wire 2010

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