Zhone Technologies Reports Fourth Quarter 2012 Financial Results

Zhone Technologies Reports Fourth 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 fourth quarter ended December 31, 2012.

Revenue for the fourth quarter of 2012 was $28.3 million compared to $29.2 million for the third quarter of 2012 and $33.4 million for the fourth quarter of 2011. Net profit for the fourth quarter of 2012, calculated in accordance with generally accepted accounting principles ("GAAP"), was $0.7 million or $0.02 per share compared with a net loss of $4.2 million or $0.14 per share for the third quarter of 2012 and a net loss of $4.6 million or $0.15 per share for the fourth quarter of 2011. Adjusted earnings before stock-based compensation, interest, taxes, depreciation and impairment of long-lived assets ("adjusted EBITDA") was an adjusted EBITDA profit of $0.9 million for the fourth quarter of 2012, compared to an adjusted EBITDA loss of $3.2 million for the third quarter of 2012 and an adjusted EBITDA profit of $0.3 million for the fourth quarter of 2011.


"We're very pleased that we met our primary financial goal for 2012 of achieving positive quarterly adjusted EBITDA and at the same time generated positive quarterly GAAP net income," stated Mory Ejabat, Zhone's chief executive officer. "For 2013, our primary financial goal will be maintaining that profitability through revenue growth in the second half of the year based on the continued success of our industry leading MXK and the generation of new revenue from our recently launched FiberLAN Optical LAN Solution."

Cash, cash equivalents and short-term investments at December 31, 2012 was $11.1 million compared to $18.2 million at December 31, 2011.

Zhone will conduct a conference call and audio webcast today, January 23, 2013, at approximately 2:00 p.m. PT / 5:00 p.m. ET to review its fourth 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 44964913. 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 88555818. 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, June 30, 2012 and September 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.

ZHONE TECHNOLOGIES, INC.

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands, except per share data)

Three Months Ended

Twelve Months Ended

December 31,

September 30,

December 31,

December 31,

December 31,

2012

2012

2011

2012

2011

Net revenue

$

28,290

$

29,198

$

33,432

$

115,385

$

124,502

Cost of revenue

17,890

20,920

21,379

79,038

80,480

Stock-based compensation

-

46

11

63

61

Gross profit

10,400

8,232

12,042

36,284

43,961

Operating expenses:

Research and product development (1)

3,707

5,090

5,121

18,542

21,380

Sales and marketing (1)

4,788

4,976

5,847

19,304

22,297

General and administrative (1)

1,100

2,305

1,466

7,218

7,784

Impairment of long-lived assets

-

-

4,236

-

4,236

Total operating expenses

9,595

12,371

16,670

45,064

55,697

Operating income (loss)

805

(4,139

)

(4,628

)

(8,780

)

(11,736

)

Other expense, net

(45

)

(45

)

79

(111

)

70

Income (loss) before income taxes

760

(4,184

)

(4,549

)

(8,891

)

(11,666

)

Income tax provision

61

14

93

124

60

Net income (loss)

$

699

$

(4,198

)

$

(4,642

)

$

(9,015

)

$

(11,726

)

Other comprehensive loss

3

(8

)

(3

)

(21

)

(40

)

Comprehensive income (loss)

$

702

$

(4,206

)

$

(4,645

)

$

(9,036

)

$

(11,766

)

Weighted average shares outstanding

Basic

31,114

31,086

30,766

30,974

30,671

Diluted

31,114

31,086

30,766

30,974

30,671

Earnings per common share

Basic

$

0.02

$

(0.14

)

$

(0.15

)

$

(0.29

)

$

(0.38

)

Diluted

$

0.02

$

(0.14

)

$

(0.15

)

$

(0.29

)

$

(0.38

)

(1) Amounts include stock-based compensation costs as follows:

Research and product development

$

-

$

212

$

55

$

297

$

244

Sales and marketing

-

182

71

250

350

General and administrative

48

394

79

704

1,015

$

48

$

788

$

205

$

1,251

$

1,609

GAAP net income (loss)

$

699

$

(4,198

)

$

(4,642

)

$

(9,015

)

$

(11,726

)

Stock-based compensation

48

834

216

1,314

1,670

Interest expense

49

26

(66

)

102

44

Income taxes

61

14

93

124

60

Depreciation

82

77

467

316

1,810

Impairment of long-lived assets

-

-

4,236

-

4,236

Non-GAAP Adjusted EBITDA income (loss)

$

939

$

(3,247

)

$

304

$

(7,159

)

$

(3,906

)

ZHONE TECHNOLOGIES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands)

December 31,

December 31,

2012

2011

Assets

Current assets:

Cash, cash equivalents and short-term investments

$

11,119

$

18,190

Accounts receivable

25,820

31,598

Inventories

21,404

27,393

Prepaid expenses and other current assets

2,590

2,672

Total current assets

60,933

79,853

Property and equipment, net

583

608

Restricted cash

-

58

Other assets

208

213

Total assets

$

61,724

$

80,732

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

$

7,229

$

11,797

Line of credit

10,000

15,000

Accrued and other liabilities

8,836

10,029

Total current liabilities

26,065

36,826

Other long-term liabilities

3,719

4,379

Total liabilities

29,784

41,205

Stockholders' equity:

Common stock

31

31

Additional paid-in capital

1,072,839

1,071,390

Other comprehensive income

216

237

Accumulated deficit

(1,041,146

)

(1,032,131

)

Total stockholders' equity