Zhone Technologies Reports Third Quarter 2012 Financial Results

Zhone Technologies Reports Third Quarter 2012 Financial Results

OAKLAND, Calif.--(BUSINESS WIRE)-- Zhone Technologies, Inc. (NAS: ZHNE) , a global leader in FTTx network access solutions, today reported its financial results for the third quarter ended September 30, 2012.

Revenue for the third quarter of 2012 was $29.2 million compared to $30.8 million for the second quarter of 2012 and $30.2 million for the third quarter of 2011. Net loss for the third quarter of 2012, calculated in accordance with generally accepted accounting principles ("GAAP"), was $4.2 million or $0.14 per share compared with a net loss of $2.1 million or $0.07 per share for the second quarter of 2012 and a net loss of $2.7 million or $0.09 per share for the third quarter of 2011. Adjusted earnings before stock-based compensation, interest, taxes, and depreciation ("adjusted EBITDA") was an adjusted EBITDA loss of $3.2 million for the third quarter of 2012, compared to an adjusted EBITDA loss of $1.7 million for the second quarter of 2012 and an adjusted EBITDA loss of $1.3 million for the third quarter of 2011.

"During the quarter, we restructured our business to focus on our core copper and fiber based product lines with a major emphasis on FiberLAN and next generation broadband products," stated Mory Ejabat, Zhone's chief executive officer. "As a result of that restructuring, we believe that we can return to profitability in the fourth quarter through better gross margins and substantially lower operating expenses."

Cash, cash equivalents and short-term investments at September 30, 2012 was $10.3 million compared to $18.2 million at December 31, 2011.

Zhone will conduct a conference call and audio webcast today, October 17, 2012, at approximately 2:00 p.m. PT / 5:00 p.m. ET to review its third quarter 2012 results. This call is open to the public by dialing +1 (866) 713-8564 for U.S. callers and +1 (617) 597-5312forinternational callers and then entering passcode 36366758. 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) 286-8010for U.S. callers and +1 (617) 801-6888for international callers and then entering passcode 17842684. 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. (NAS: 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, 2011 and the Company's quarterly report on Form 10-Q for the quarters ended March 31, 2012 and June 30, 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.


Unaudited Condensed Consolidated Statements of Comprehensive Loss
(In thousands, except per share data)


Three Months Ended


Nine Months Ended

September 30, June 30, September 30,September 30, September 30,
2012 2012 2011 2012 2011
Net revenue$29,198$30,835$30,204$87,095$91,070
Cost of revenue20,92021,55619,901$61,14859,101
Stock-based compensation 46   7   29  $63   50 
Gross profit 8,232   9,272   10,274   25,884   31,919 
Operating expenses:
Research and product development (1)5,0904,8205,294$14,83516,259
Sales and marketing (1)4,9764,8255,557$14,51616,450
General and administrative (1) 2,305   1,719   2,154  $6,118   6,318 
Total operating expenses 12,371   11,364   13,005   35,469   39,027 
Operating loss(4,139)(2,092)(2,731)$(9,585)(7,108)
Other expense, net (45)  6   (4) $(66)  (9)
Loss before income taxes(4,184)(2,086)(2,735)(9,651)(7,117)
Income tax provision (benefit) 14   16   13  $63   (33)
Net loss$(4,198)$(2,102)$(2,748)$(9,714)$(7,084)
Other comprehensive loss (7)  (20)  (30) $(23)  (37)
Comprehensive loss$(4,205) $(2,122) $(2,778) $(9,737) $(7,121)
Weighted average shares outstanding
Earnings per common share net income (loss)
(1) Amounts include stock-based compensation costs as follows:
Research and product development2124189$297189
Sales and marketing18233174$250279
General and administrative 394   182   639  $656   936 
GAAP net loss$(4,198)$(2,102)$(2,748)$(9,714)$(7,084)
Stock-based compensation8342639311,2661,454
Interest expense2693353110
Income taxes14161363(33)
Depreciation 77   80   447   234   1,343 
Non-GAAP Adjusted EBITDA loss$(3,247) $(1,734) $(1,324) $(8,098) $(4,210)


Condensed Consolidated Balance Sheets
(In thousands)

 September 30, December 31,



Current assets:
Cash, cash equivalents and short-term investments$10,274$18,190
Accounts receivable26,10631,598
Prepaid expenses and other current assets 2,619   2,672 
Total current assets64,37879,853
Property and equipment, net637608
Restricted cash-58
Other assets 214   213 
Total assets$65,229  $80,732 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable$11,663$11,797
Line of credit10,00015,000
Accrued and other liabilities 8,363   10,029 
Total current liabilities30,02636,826
Other long-term liabilities 4,018   4,379 
Total liabilities 34,044   41,205 
Stockholders' equity:
Common stock3131
Additional paid-in capital1,072,7861,071,390
Other stockholders' equity213237
Accumulated deficit (1,041,845)  (1,032,131)
Total stockholders' equity 31,185   39,527 
Total liabilities and stockholders' equity$65,229  $80,732 

Zhone Investor Relations:
+1 510-777-7013
+1 510-777-7001 (Fax)
Zhone Public Relations:
+1 404-460-8578

KEYWORDS:   United States  North America  California


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