Zhone Technologies Reports Second Quarter 2016 Financial Results

Zhone Technologies, Inc. (NASDAQ: ZHNE), a global leader in the fiber access market, today reported its financial results for the quarter ended June 30, 2016.

Revenue for the second quarter of 2016 was $22.6 million, compared to $20.6 million for the first quarter of 2016 and $27.5 million for the second quarter of 2015. Net loss for the second quarter of 2016, calculated in accordance with generally accepted accounting principles ("GAAP"), was $1.6 million or $0.05 per share compared with net loss of $3.4 million or $0.10 per share for the first quarter of 2016 and net loss of $0.4 million or $0.01 per share for the second quarter of 2015. Adjusted earnings before stock-based compensation, interest, taxes, depreciation and merger transaction costs ("adjusted EBITDA") was an adjusted EBITDA loss of $0.1 million for the second quarter of 2016, compared to an adjusted EBITDA loss of $0.7 million for the first quarter of 2016 and an adjusted EBITDA profit of $0.1 million for the second quarter of 2015.

"The changes we made over the past two years are beginning to bear fruit in 2016 and will create sustainable revenue growth and profitability for the future," stated Jim Norrod, Zhone's chief executive officer. "Despite the impending transaction, we continue to maintain focus on our stand alone financial performance and are driving the initiatives that will create revenue growth and margin expansion, while maintaining cost efficiencies."

Cash and cash equivalents at June 30, 2016 were $8.3 million compared to $10.1 million at December 31, 2015.

Zhone will conduct a conference call and audio webcast today, July 21, 2016, at approximately 2:00 p.m. PT / 5:00 p.m. ET to review its second quarter 2016 results. This call is open to the public by dialing +1 (888) 306-9369 for U.S. callers and +1 (503) 406-4059 for international callers, and then entering passcode 45192181. The audio webcast will be simultaneously available on the Investor Relations section of Zhone's website at http://www.zhone.com/investors/.

A recording of the conference call will be available after the original call by dialing +1 (855) 859-2056 for U.S. callers and +1 (404) 537-3406 for international callers, and then entering passcode 45192181. An audio webcast recording 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, 2015 and the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2016. 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 Six Months Ended

June 30,

2016
       

March 31,

2016
       

June 30,

2015

June 30,

2016
       

June 30,

2015
Net revenue $   22,599 $   20,599 $   27,493 $   43,198   $   54,615
Cost of revenue 13,831 12,347 17,268 26,178 34,215
Stock-based compensation 1   1   1   2   5  
Gross profit 8,767   8,251   10,224   17,018   20,395  
Operating expenses:
Research and product development (1) 3,422 3,558 3,942 6,980 7,992
Sales and marketing (1) 3,884 3,802 4,387 7,686 8,769
General and administrative (1) 3,099   4,253   2,208   7,352   4,485  
Total operating expenses 10,405   11,613   10,537   22,018   21,246  
Operating loss (1,638 ) (3,362 ) (313 ) (5,000 ) (851 )
Interest income (expense), net 3 (5 ) (16 ) (2 ) (69 )
Other income (expense), net 25   (36 ) (15 ) (11 ) (4 )
Loss before income taxes (1,610 ) (3,403 ) (344 ) (5,013 ) (924 )
Income tax provision 31   29   22   60   44  
Net loss $   (1,641 ) $   (3,432 ) $   (366 ) $   (5,073 ) $   (968 )
Other comprehensive income (loss) 19   (35 ) 18   (16 ) (71 )
Comprehensive loss $   (1,622 ) $   (3,467 ) $   (348 ) $   (5,089 ) $   (1,039 )
Weighted average shares outstanding
Basic 33,847 33,841 32,665 33,844 32,635
Diluted 33,847 33,841 32,665 33,844 32,635
Earnings per common share
Basic $ (0.05 ) $ (0.10 ) $ (0.01 ) $ (0.15 ) $ (0.03 )
Diluted $ (0.05 ) $ (0.10 ) $ (0.01 ) $ (0.15 ) $ (0.03 )
(1) Amounts include stock-based compensation costs as follows:
Research and product development $ 13 $ 13 $ 13 $ 26 $ 26
Sales and marketing 25 26 24 51 49
General and administrative 59   2,496   262   2,555   393  
$ 97 $ 2,535 $ 299 $ 2,632 $ 468
GAAP net loss $ (1,641 ) $ (3,432 ) $ (366 ) $ (5,073 ) $ (968 )
Stock-based compensation 98 2,536 300 2,634 473
Interest expense 1 8 18 9 73
Income taxes 31 29 22 60 44
Depreciation 179 191 174 370 384
Merger transaction costs 1,247       1,247    
Non-GAAP Adjusted EBITDA $   (85 ) $   (668 ) $   148   $   (753 ) $   6  
                     
 

ZHONE TECHNOLOGIES, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(In thousands)
 
June 30, 2016 December 31, 2015
Assets
Current assets:
Cash and cash equivalents $ 8,335 $ 10,113
Accounts receivable 26,536 28,209
Inventories 14,449 14,802
Prepaid expenses and other current assets 2,530   1,914  
Total current assets 51,850 55,038
Property and equipment, net 4,383 1,358
Other assets 249   249  
Total assets $ 56,482   $ 56,645  
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 13,487 $ 10,053
Line of credit 2,000 5,000
Accrued and other liabilities 6,272   5,742  
Total current liabilities 21,759 20,795
Other long-term liabilities 2,992   1,693  
Total liabilities 24,751   22,488  
Stockholders' equity:
Common stock 34 34
Additional paid-in capital 1,080,122 1,077,459
Other comprehensive loss (372 ) (356 )
Accumulated deficit (1,048,053 ) (1,042,980 )
Total stockholders' equity 31,731   34,157  
Total liabilities and stockholders' equity $ 56,482   $ 56,645  
 

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