Zhone Technologies Reports First Quarter 2015 Financial Results

Zhone Technologies, Inc. (NASDAQ:ZHNE), a global leader in the fiber access market, today reported its financial results for the quarter ended March 31, 2015.

Revenue for the first quarter of 2015 was $27.1 million, compared to $30.1 million for the fourth quarter of 2014 and $28.6 million for the first quarter of 2014. Net loss for the first quarter of 2015, calculated in accordance with generally accepted accounting principles ("GAAP"), was $0.6 million or $0.02 per share compared with net loss of $2.1 million or $0.06 per share for the fourth quarter of 2014 and net income of $0.3 million or $0.01 per share for the first quarter of 2014. Adjusted earnings before stock-based compensation, interest, taxes, and depreciation ("adjusted EBITDA") was an adjusted EBITDA loss of $0.1 million for the first quarter of 2015, compared to an adjusted EBITDA loss of $1.7 million for the fourth quarter of 2014 and an adjusted EBITDA profit of $0.5 million for the first quarter of 2014.

"We're excited to announce that we met or exceeded all of our financial goals for the quarter, completed the transformation of our business, and positioned ourselves for substantial growth and profitability in the years ahead," stated Jim Norrod, Zhone's chief executive officer. "Today, both our service provider and enterprise businesses are positioned for growth and are gaining momentum."

Cash and cash equivalents at March 31, 2015 were $11.3 million compared to $11.5 million at December 31, 2014.

Zhone will conduct a conference call and audio webcast today, April 21, 2015, at approximately 2:00 p.m. PT / 5:00 p.m. ET to review its first quarter 2015 results. This call is open to the public by dialing +1 (866) 953-6856 for U.S. callers and +1 (617) 399-3480 for international callers, and then entering passcode 19378739. 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 18096396. 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 (loss) 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, 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 (Loss)

(In thousands, except per share data)
 
Three Months Ended
March 31, December 31, March 31,
2015   2014   2014
 
Net revenue $ 27,122 $ 30,115 $ 28,609
Cost of revenue 16,947 20,909 17,744
Stock-based compensation   4       5       -  
Gross profit   10,171       9,201       10,865  
Operating expenses:
Research and product development (1) 4,050 4,419 4,143
Sales and marketing (1) 4,382 4,822 4,678
General and administrative (1)   2,277       2,052       1,689  
Total operating expenses   10,709       11,293       10,510  
Operating income (loss) (538 ) (2,092 ) 355
Other income (expense), net   (42 )     (3 )     (10 )
Income (loss) before income taxes (580 ) (2,095 ) 345
Income tax provision   22       2       43  
Net income (loss) $ (602 ) $ (2,097 ) $ 302  
Other comprehensive loss   (89 )     (70 )     (20 )
Comprehensive income (loss) $ (691 )   $ (2,167 )   $ 282  
 
Weighted average shares outstanding
Basic 32,605 32,484 32,299
Diluted 32,605 32,484 34,826
 
Earnings per common share
Basic $ (0.02 ) $ (0.06 ) $ 0.01
Diluted $ (0.02 ) $ (0.06 ) $ 0.01
 
 
(1) Amounts include stock-based compensation costs as follows:
Research and product development $ 13 $ 7 $ 1
Sales and marketing 25 15 4
General and administrative   131       228       54  
$ 169 $ 250 $ 59
 
GAAP net income (loss) $ (602 ) $ (2,097 ) $ 302
Stock-based compensation 173 255 59
Interest expense 55 11 16
Income taxes 22 2 43
Depreciation   210       118       90  
Non-GAAP Adjusted EBITDA income (loss) $ (142 )   $ (1,711 )   $ 510  
 

 
   

ZHONE TECHNOLOGIES, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(In thousands)
 
March 31, December 31,

2015

2014
 

Assets
Current assets:
Cash, cash equivalents and short-term investments $ 11,343 $ 11,528
Accounts receivable 31,892 29,916
Inventories 17,250 19,985
Prepaid expenses and other current assets   2,705       2,863  

Total current assets
63,190 64,292
Property and equipment, net 1,459 1,165
Other assets   255       255  
Total assets $ 64,904     $ 65,712  

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 11,490 $ 11,719
Line of credit 10,000 10,000
Accrued and other liabilities   7,586       7,669  
Total current liabilities 29,076 29,388
Other long-term liabilities   1,908       1,981  
Total liabilities   30,984       31,369  
Stockholders' equity:
Common stock 33 32
Additional paid-in capital 1,075,576 1,075,309
Other comprehensive income (124 ) (35 )
Accumulated deficit   (1,041,565 )     (1,040,963 )
Total stockholders' equity   33,920       34,343  
Total liabilities and stockholders' equity $ 64,904     $ 65,712  
 

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