Press Release

Zhone Technologies Reports Third Quarter 2013 Financial Results

Oakland, CA — 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.

 
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 30,   June 30,   September 30, September 30,   September 30,
2013 2013 2012 2013 2012
Net revenue $ 31,515 $ 30,048 $ 29,198 $ 89,942 $ 87,095
Cost of revenue 19,608 18,436 20,920 55,919 61,148
Stock-based compensation −−−   −−−   46   −−−   63  
Gross profit 11,907   11,612   8,232  

34,023

  25,884  
Operating expenses:
Research and product development (1) 3,934 3,920 5,090 11,514 14,835
Sales and marketing (1) 4,644 5,073 4,976 14,539 14,516
General and administrative (1) 1,702   1,525   2,305   4,916   6,118  
Total operating expenses 10,280   10,518   12,371   30,969   35,469  
Operating income (loss) 1,627 1,094 (4,139 ) 3,054 (9,585 )
Other expense, net (25 ) 2   (45 ) (94 ) (66 )
Income (loss) before income taxes 1,602 1,096 (4,184 ) 2,960 (9,651 )
Income tax provision 6   40   14   78   63  
Net income (loss) $ 1,596 $ 1,056 $ (4,198 ) $ 2,882 $ (9,714 )
Other comprehensive income (loss) (30 ) (78 ) (8 ) (113 ) (24 )
Comprehensive income (loss) $ 1,566   $ 978   $ (4,206 ) $ 2,769   $ (9,738 )
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 development $ 1 −−− $ 212 $ 1 $ 297
Sales and marketing 1 −−− 182 1 250
General and administrative 53   134   394   365   656  
$ 55 $ 134 $ 788 $ 367 $ 1,203
GAAP net income (loss) $ 1,596 $ 1,056 $ (4,198 ) $ 2,882 $ (9,714 )
Stock-based compensation 55 134 834 367 1,266
Interest expense 25 10 26 74 53
Income taxes 6 40 14 78 63
Depreciation 92   92   77   266   234  
Non-GAAP Adjusted EBITDA income (loss) $ 1,774   $ 1,332   $ (3,247 ) $ 3,667   $ (8,098 )
 
   
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  
 

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.

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

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 product names are all subject to change without notice.

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).

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 http://www.sec.gov/, including without limitation, the Company's annual report on Form 10-K for the year ended December 31, 2012. 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.

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