Zhone Technologies Reports Second Quarter 2013 Financial Results

  Zhone Technologies Reports Second Quarter 2013 Financial Results

Business Wire

OAKLAND, Calif. -- July 17, 2013

Zhone Technologies, Inc. (NASDAQ: ZHNE), a global pioneer in FTTx network
access solutions, today reported its financial results for the second quarter
ended June 30, 2013.

Revenue for the second quarter of 2013 was $30.0 million compared to $28.4
million for the first quarter of 2013 and $30.8 million for the second quarter
of 2012. Net income for the second quarter of 2013, calculated in accordance
with generally accepted accounting principles (“GAAP”), was $1.1 million or
$0.03 per share compared with net income of $0.2 million or $0.01 per share
for the first quarter of 2013 and a net loss of $2.1 million or $0.07 per
share for the second quarter of 2012. Adjusted earnings before stock-based
compensation, interest, taxes, and depreciation (“adjusted EBITDA”) was an
adjusted EBITDA profit of $1.3 million for the second quarter of 2013,
compared to an adjusted EBITDA profit of $0.6 million for the first quarter of
2013 and an adjusted EBITDA loss of $1.7 million for the second quarter of
2012.

“We’re pleased to announce that we achieved or exceeded our revenue, gross
margin and expense targets for the quarter thereby generating positive free
cash flow from operations,” stated Mory Ejabat, Zhone’s chief executive
officer. “For the third quarter in a row, we have generated positive net
income and cash flow from operations, further strengthening our financial
position. We continue to focus on profitability as our number one financial
objective and expect to improve that profitability in the second half of
2013.”

Cash, cash equivalents and short-term investments at June 30, 2013 was $12.7
million compared to $11.1 million at December 31, 2012.

Zhone will conduct a conference call and audio webcast today, July 17, 2013,
at approximately 2:00 p.m. PT / 5:00 p.m. ET to review its second quarter 2013
results. This call is open to the public by dialing +1 (866) 314-5232 for U.S.
callers and +1 (617) 213-8052  for  international callers and then entering
passcode 59793121. 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 77481386. 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 Loss.

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 inthe Company'sSEC
filings available at www.sec.gov, including without limitation,the
Company'sannual report on Form 10-K for the year ended December 31, 2012 and
the Company’s quarterly report on Form 10-Q for the quarter ended March 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 (Loss)

(In thousands, except per share data)
               
                 Three Months Ended                    Six Months Ended
                 June 30,    March 31,   June 30,     June 30,    June 30,
                  2013      2013      2012      2013      2012   
                                                                     
Net revenue      $ 30,048     $ 28,379     $ 30,835     $ 58,427     $ 57,897
Cost of            18,436       17,875       21,556       36,311       40,228
revenue
Stock-based       -         -         7         -         17     
compensation
Gross profit      11,612    10,504    9,272     22,116    17,652 
Operating
expenses:
Research and
product            3,920        3,660        4,820        7,580        9,745
development
(1)
Sales and          5,073        4,822        4,825        9,895        9,540
marketing (1)
General and
administrative    1,525     1,689     1,719     3,214     3,813  
(1)
Total
operating         10,518    10,171    11,364    20,689    23,098 
expenses
Operating          1,094        333          (2,092 )     1,427        (5,446 )
income (loss)
Other expense,    2         (71    )   6         (69    )   (21    )
net
Income (loss)
before income      1,096        262          (2,086 )     1,358        (5,467 )
taxes
Income tax        40        32        16        72        49     
provision
Net income       $ 1,056    $ 230      $ (2,102 )  $ 1,286    $ (5,516 )
(loss)
Other
comprehensive     (78    )   (5     )   (20    )   (83    )   (16    )
income (loss)
Comprehensive    $ 978      $ 225      $ (2,122 )  $ 1,203    $ (5,532 )
income (loss)
                                                                     
Weighted
average shares
outstanding
Basic              31,222       31,118       30,985       31,170       30,871
Diluted            32,696       31,768       30,985       31,859       30,871
                                                                     
Earnings per
common share
Basic            $ 0.03       $ 0.01       $ (0.07  )   $ 0.04       $ (0.18  )
Diluted          $ 0.03       $ 0.01       $ (0.07  )   $ 0.04       $ (0.18  )
                                                                     
                                                                     
(1) Amounts
include
stock-based
compensation
costs as
follows:
Research and
product          $ -          $ -          $ 41         $ -          $ 85
development
Sales and          -            -            33           -            68
marketing
General and       134       178       182       312       262    
administrative
                 $ 134        $ 178        $ 256        $ 312        $ 415
                                                                     
GAAP net         $ 1,056      $ 230        $ (2,102 )   $ 1,286      $ (5,516 )
income (loss)
Stock-based        134          178          263          312          432
compensation
Interest           10           39           9            49           27
expense
Income taxes       40           32           16           72           49
Depreciation      92        82        80        174       157    
Non-GAAP
Adjusted         $ 1,332    $ 561      $ (1,734 )  $ 1,893    $ (4,851 )
EBITDA income
(loss)
                                                                              

ZHONE TECHNOLOGIES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands)

                                              June 30,        December 31,
                                                 2013             2012
                                                                
Assets
Current assets:
Cash, cash equivalents and short-term          $ 12,722         $ 11,119
investments
Accounts receivable                              27,774           25,820
Inventories                                      20,143           21,404
Prepaid expenses and other current assets       1,945         2,590      
Total current assets                             62,584           60,933
Property and equipment, net                      623              583
Other assets                                    185           208        
Total assets                                   $ 63,392       $ 61,724     
                                                                
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable                               $ 7,904          $ 7,229
Line of credit                                   10,000           10,000
Accrued and other liabilities                   9,019         8,836      
Total current liabilities                        26,923           26,065
Other long-term liabilities                     3,011         3,719      
Total liabilities                               29,934        29,784     
Stockholders’ equity:
Common stock                                     31               31
Additional paid-in capital                       1,073,154        1,072,839
Other comprehensive income                       133              216
Accumulated deficit                             (1,039,860 )   (1,041,146 )
Total stockholders’ equity                      33,458        31,940     
Total liabilities and stockholders' equity     $ 63,392       $ 61,724     

Contact:

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