Zhone Technologies Reports First Quarter 2016 Financial Results

OAKLAND, Calif.--(BUSINESS WIRE)--

Zhone Technologies, Inc. ZHNE, a global leader in the fiber access market, today reported its financial results for the quarter ended March 31, 2016.

Revenue for the first quarter of 2016 was $20.6 million, compared to $24.0 million for the fourth quarter of 2015 and $27.1 million for the first quarter of 2015. Net loss for the first quarter of 2016, calculated in accordance with generally accepted accounting principles ("GAAP"), was $3.4 million or $0.10 per share compared with net income of $0.4 million or $0.01 per share for the fourth quarter of 2015 and net loss of $0.6 million or $0.02 per share for the first quarter of 2015. Adjusted earnings before stock-based compensation, interest, taxes, and depreciation ("adjusted EBITDA") was an adjusted EBITDA loss of $0.7 million for the first quarter of 2016, compared to an adjusted EBITDA income of $1.0 million for the fourth quarter of 2015 and an adjusted EBITDA loss of $0.1 million for the first quarter of 2015.

Cash and cash equivalents at March 31, 2016 were $9.3 million compared to $10.1 million at December 31, 2015.

Zhone will conduct a conference call and audio webcast today, April 20, 2016, at approximately 2:00 p.m. PT / 5:00 p.m. ET to review its first quarter 2016 results. This call is open to the public by dialing +1 (888) 306-9369 for U.S. callers and +1 (503) 406-4059 for international callers, and then providing conference ID 77088539. 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 (855) 859-2056 for U.S. callers and +1 (404) 537-3406 for international callers, and then providing conference ID 77088539. 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 income 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. ZHNE is a global leader in fiber access transformation for service provider and enterprise networks, 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, 2015. 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
		March 31,    2016				December 31, 2015				March 31,    2015
Net revenue		$	20,599			$	24,013			$	27,122
Cost of revenue		12,347				14,397				16,947
Stock-based compensation		1				1				4
Gross profit		8,251				9,615				10,171
Operating expenses:
Research and product development (1)		3,558				3,504				4,050
Sales and marketing (1)		3,802				3,735				4,382
General and administrative (1)		4,253				1,818				2,277
Total operating expenses		11,613				9,057				10,709
Operating income (loss)		(3,362		)		558				(538		)
Interest expense, net		(5		)		(8		)		(53		)
Other expense, net		(36		)		(12		)		11
Income (loss) before income taxes		(3,403		)		538				(580		)
Income tax provision		29				135				22
Net income (loss)		$	(3,432	)		$	403			$	(602	)
Other comprehensive loss		(35		)		(113		)		(89		)
Comprehensive income (loss)		$	(3,467	)		$	290			$	(691	)
Weighted average shares outstanding
Basic		33,841				33,527				32,605
Diluted		33,841				33,957				32,605
Earnings per common share
Basic		$	(0.10	)		$	0.01			$	(0.02	)
Diluted		$	(0.10	)		$	0.01			$	(0.02	)
(1) Amounts include stock-based compensation costs as follows:
Research and product development		$	13			$	13			$	13
Sales and marketing		26				31				25
General and administrative		2,496				206				131
		$	2,535			$	250			$	169
GAAP net income (loss)		$	(3,432	)		$	403			$	(602	)
Stock-based compensation		2,536				251				173
Interest expense		8				11				55
Income taxes		29				135				22
Depreciation		191				190				210
Non-GAAP Adjusted EBITDA		$	(668	)		$	990			$	(142	)

ZHONE TECHNOLOGIES, INC. AND SUBSIDIARIES Unaudited Condensed Consolidated Balance Sheets (In thousands)
		March 31,    2016				December 31, 2015
Assets
Current assets:
Cash and cash equivalents		$	9,330			$	10,113
Accounts receivable		24,827				28,209
Inventories		14,576				14,802
Prepaid expenses and other current assets		3,044				1,914
Total current assets		51,777				55,038
Property and equipment, net		2,223				1,358
Other assets		249				249
Total assets		$	54,249			$	56,645
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable		$	10,226			$	10,053
Line of credit		2,000				5,000
Accrued and other liabilities		6,070				5,742
Total current liabilities		18,296				20,795
Other long-term liabilities		2,698				1,693
Total liabilities		20,994				22,488
Stockholders' equity:
Common stock		34				34
Additional paid-in capital		1,080,024				1,077,459
Other comprehensive loss		(391		)		(356		)
Accumulated deficit		(1,046,412		)		(1,042,980		)
Total stockholders' equity		33,255				34,157
Total liabilities and stockholders' equity		$	54,249			$	56,645

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