Zhone Technologies Reports First Quarter 2014 Financial Results

OAKLAND, Calif.--()--Zhone Technologies, Inc. (NASDAQ: ZHNE), a global leader in FTTx network access solutions, today reported its financial results for the quarter ended March 31, 2014.

Revenue for the first quarter of 2014 was $28.6 million, compared to $32.3 million for the fourth quarter of 2013 and $28.4 million for the first quarter of 2013. Net income for the first quarter of 2014, calculated in accordance with generally accepted accounting principles (“GAAP”), was $0.3 million or $0.01 per share compared with net income of $1.4 million or $0.04 per share for the fourth quarter of 2013 and net income of $0.2 million or $0.01 per share for the first quarter of 2013. Adjusted earnings before stock-based compensation, interest, taxes, and depreciation (“adjusted EBITDA”) was an adjusted EBITDA profit of $0.5 million for the first quarter of 2014, compared to an adjusted EBITDA profit of $1.6 million for the fourth quarter of 2013 and an adjusted EBITDA profit of $0.6 million for the first quarter of 2013.

"Despite normal seasonal patterns affecting revenue, we’re pleased to announce that we generated positive net income for the sixth quarter in a row and continue to strengthen our financial position,” stated Mory Ejabat, Zhone Technologies' chief executive officer. “In 2014, our primary financial goal is to generate greater profitability for the year as a whole."

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

Zhone will conduct a conference call and audio webcast today, April 22, 2014, at approximately 2:00 p.m. PT / 5:00 p.m. ET to review its first quarter 2014 results. This call is open to the public by dialing +1 (877) 280-4953 for U.S. callers and +1 (857) 244-7310 for international callers and then entering passcode 62047315. 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 56918943. 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 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.

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. 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
March 31,   December 31,   March 31,
2014   2013   2013
 
Net revenue $ 28,609 $ 32,306 $ 28,379
Cost of revenue 17,744 20,197 17,875
Stock-based compensation   -       -       -  
Gross profit   10,865       12,109       10,504  
Operating expenses:
Research and product development (1) 4,143 3,812 3,660
Sales and marketing (1) 4,678 5,620 4,822
General and administrative (1)   1,689       1,283       1,689  
Total operating expenses   10,510       10,715       10,171  
Operating income 355 1,394 333
Other income (expense), net   (10 )     2       (71 )
Income before income taxes 345 1,396 262
Income tax provision (benefit)   43       (36 )     32  
Net income $ 302     $ 1,432     $ 230  
Other comprehensive loss   (20 )     (38 )     (5 )
Comprehensive income $ 282     $ 1,394     $ 225  
 
Weighted average shares outstanding
Basic 32,299 31,896 31,118
Diluted 34,826 34,287 31,758
 
Earnings per common share
Basic $ 0.01 $ 0.04 $ 0.01
Diluted $ 0.01 $ 0.04 $ 0.01
 
 
(1) Amounts include stock-based compensation costs as follows:
Research and product development $ 1 $ 1 $ -
Sales and marketing 4 1 -
General and administrative   54       55       178  
$ 59 $ 57 $ 178
 
GAAP net income $ 302 $ 1,432 $ 230
Stock-based compensation 59 57 178
Interest expense 16 11 39
Income taxes 43 (36 ) 32
Depreciation   90       101       82  
Non-GAAP Adjusted EBITDA income $ 510     $ 1,565     $ 561  
ZHONE TECHNOLOGIES, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In thousands)
   
March 31, December 31,
2014 2013
 
Assets
Current assets:
Cash, cash equivalents and short-term investments $ 15,605 $ 15,686
Accounts receivable 30,604 33,328
Inventories 17,889 19,562
Prepaid expenses and other current assets   2,191       2,269  
Total current assets 66,289 70,845
Property and equipment, net 659 718
Other assets   255       254  
Total assets $ 67,203     $ 71,817  
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 8,340 $ 12,689
Line of credit 10,000 10,000
Accrued and other liabilities   8,103       8,865  
Total current liabilities 26,443 31,554
Other long-term liabilities   2,750       2,704  
Total liabilities   29,193       34,258  
Stockholders’ equity:
Common stock 32 32
Additional paid-in capital 1,074,463 1,074,294
Other comprehensive income 45 65
Accumulated deficit   (1,036,530 )     (1,036,832 )
Total stockholders’ equity   38,010       37,559  
Total liabilities and stockholders' equity $ 67,203     $ 71,817  

Contacts

Zhone Investor Relations, +1 510-777-7013
Fax: +1 510-777-7001
investor-relations@zhone.com
or
Zhone Public Relations, +1 404-460-8578
aurora.arlet@edelman.com

Release Summary

Zhone Technologies Reports First Quarter 2014 Financial Results

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Contacts

Zhone Investor Relations, +1 510-777-7013
Fax: +1 510-777-7001
investor-relations@zhone.com
or
Zhone Public Relations, +1 404-460-8578
aurora.arlet@edelman.com