DZSI DZS Inc

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 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, 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 revenue 18,436 17,875 21,556 36,311 40,228 Stock-based compensation   -       -       7       -       17   Gross profit   11,612       10,504       9,272       22,116       17,652   Operating expenses: Research and product development (1) 3,920 3,660 4,820 7,580 9,745 Sales and marketing (1) 5,073 4,822 4,825 9,895 9,540 General and administrative (1)   1,525       1,689       1,719       3,214       3,813   Total operating expenses   10,518       10,171       11,364       20,689       23,098   Operating income (loss) 1,094 333 (2,092 ) 1,427 (5,446 ) Other expense, net   2       (71 )     6       (69 )     (21 ) Income (loss) before income taxes 1,096 262 (2,086 ) 1,358 (5,467 ) Income tax provision   40       32       16       72       49   Net income (loss) $ 1,056     $ 230     $ (2,102 )   $ 1,286     $ (5,516 ) Other comprehensive income (loss)   (78 )     (5 )     (20 )     (83 )     (16 ) Comprehensive income (loss) $ 978     $ 225     $ (2,122 )   $ 1,203     $ (5,532 )   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 development $ - $ - $ 41 $ - $ 85 Sales and marketing - - 33 - 68 General and administrative   134       178       182       312       262   $ 134 $ 178 $ 256 $ 312 $ 415   GAAP net income (loss) $ 1,056 $ 230 $ (2,102 ) $ 1,286 $ (5,516 ) Stock-based compensation 134 178 263 312 432 Interest expense 10 39 9 49 27 Income taxes 40 32 16 72 49 Depreciation   92       82       80       174       157   Non-GAAP Adjusted EBITDA income (loss) $ 1,332     $ 561     $ (1,734 )   $ 1,893     $ (4,851 )  

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 investments $ 12,722 $ 11,119 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  

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