Zhone Technologies Reports Third Quarter 2013 Financial Results

  Zhone Technologies Reports Third Quarter 2013 Financial Results

Business Wire

OAKLAND, Calif. -- October 17, 2013

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

Revenue for the third quarter of 2013 was $31.5 million compared to $30.0
million for the second quarter of 2013 and $29.2 million for the third quarter
of 2012. Net income for the third quarter of 2013, calculated in accordance
with generally accepted accounting principles (“GAAP”), was $1.6 million or
$0.05 per share compared with net income of $1.1 million or $0.03 per share
for the second quarter of 2013 and a net loss of $4.2 million or $0.14 per
share for the third quarter of 2012. Adjusted earnings before stock-based
compensation, interest, taxes, and depreciation (“adjusted EBITDA”) was an
adjusted EBITDA profit of $1.8 million for the third quarter of 2013, compared
to an adjusted EBITDA profit of $1.3 million for the second quarter of 2013
and an adjusted EBITDA loss of $3.2 million for the third quarter of 2012.

"For the fourth quarter in a row, we’re pleased to announce that we achieved
or exceeded our revenue, gross margin and expense targets thereby generating
positive net income and free cash flow from operations, all of which further
strengthens our financial position," stated Mory Ejabat, Zhone's chief
executive officer. "We expect that our fourth quarter will be the most
profitable quarter of the year and will close out 2013 with record
profitability and financial performance."

Cash and cash equivalents at September 30, 2013 was $14.3 million compared to
$11.1 million at December 31, 2012.

Zhone will conduct a conference call and audio webcast today, October 17,
2013, at approximately 2:00 p.m. PT / 5:00 p.m. ET to review its third quarter
2013 results. This call is open to the public by dialing +1 (800) 510-9691 for
U.S. callers and +1 (617) 614-3453  for  international callers and then
entering passcode 95480925. 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 18385530. 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 (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 quarters ended March 31,
2013 and June 30, 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                    Nine Months Ended
                 September   June 30,    September    September   September
                 30,                       30,          30,          30,
                 2013         2013         2012         2013         2012
Net revenue      $ 31,515     $ 30,048     $ 29,198     $ 89,942     $ 87,095
Cost of          19,608       18,436       20,920       55,919       61,148
revenue
Stock-based      —           —           46          —           63       
compensation
Gross profit     11,907      11,612      8,232       34,023      25,884   
Operating
expenses:
Research and
product          3,934        3,920        5,090        11,514       14,835
development
(1)
Sales and        4,644        5,073        4,976        14,539       14,516
marketing (1)
General and
administrative   1,702       1,525       2,305       4,916       6,118    
(1)
Total
operating        10,280      10,518      12,371      30,969      35,469   
expenses
Operating        1,627        1,094        (4,139   )   3,054        (9,585   )
income (loss)
Other expense,   (25      )   2           (45      )   (94      )   (66      )
net
Income (loss)
before income    1,602        1,096        (4,184   )   2,960        (9,651   )
taxes
Income tax       6           40          14          78          63       
provision
Net income       $ 1,596      $ 1,056      $ (4,198 )   $ 2,882      $ (9,714 )
(loss)
Other
comprehensive    (30      )   (78      )   (8       )   (113     )   (24      )
income (loss)
Comprehensive    $ 1,566     $ 978       $ (4,206 )   $ 2,769     $ (9,738 )
income (loss)
Weighted
average shares
outstanding
Basic            31,480       31,222       31,086       31,273       30,927
Diluted          33,344       32,696       31,086       32,599       30,927
Earnings per
common share
Basic            $ 0.05       $ 0.03       $ (0.14  )   $ 0.09       $ (0.31  )
Diluted          $ 0.05       $ 0.03       $ (0.14  )   $ 0.09       $ (0.31  )
(1) Amounts
include
stock-based
compensation
costs as
follows:
Research and
product          $ 1          —            $ 212        $ 1          $ 297
development
Sales and        1            —            182          1            250
marketing
General and      53          134         394         365         656      
administrative
                 $ 55         $ 134        $ 788        $ 367        $ 1,203
GAAP net         $ 1,596      $ 1,056      $ (4,198 )   $ 2,882      $ (9,714 )
income (loss)
Stock-based      55           134          834          367          1,266
compensation
Interest         25           10           26           74           53
expense
Income taxes     6            40           14           78           63
Depreciation     92          92          77          266         234      
Non-GAAP
Adjusted         $ 1,774     $ 1,332     $ (3,247 )   $ 3,667     $ (8,098 )
EBITDA income
(loss)


                                                          
ZHONE TECHNOLOGIES, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In thousands)
                                                             
                                             
                                             September 30,   December 31,
                                             2013            2012
Assets
Current assets:
Cash and cash equivalents                    $    14,301     $   11,119
Accounts receivable                          29,356          25,820
Inventories                                  21,179          21,404
Prepaid expenses and other current assets    2,411          2,590      
Total current assets                         67,247          60,933
Property and equipment, net                  642             583
Other assets                                 251            208        
Total assets                                 $    68,140    $   61,724 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable                             $    11,545     $   7,229
Line of credit                               10,000          10,000
Accrued and other liabilities                8,650          8,836      
Total current liabilities                    30,195          26,065
Other long-term liabilities                  2,688          3,719      
Total liabilities                            32,883         29,784     
Stockholders’ equity:
Common stock                                 31              31
Additional paid-in capital                   1,073,387       1,072,839
Other comprehensive income                   103             216
Accumulated deficit                          (1,038,264  )   (1,041,146 )
Total stockholders’ equity                   35,257         31,940     
Total liabilities and stockholders’ equity   $    68,140    $   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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