PDYN Palladyne AI Corporation

Paradyne (NASDAQ:PDYN), a leading provider of triple play broadband loop carriers (BLCs) and Ethernet access equipment, today announced second quarter financial results for the period ended June 30, 2005. Highlights for the quarter include: -- Second quarter revenue of $28 million exceeded guidance and Street expectation -- Second quarter GAAP EPS is two cents per share; Non-GAAP EPS is three cents per share -- Paradyne shipped to more than 262 DSL customers in the quarter, including 23 new DSL customers "I am pleased to report that Paradyne had an outstanding second quarter," said Sean Belanger, president and CEO of Paradyne. "Our second quarter results reflect new customers, continued innovations in our products, and the full integration of Net to Net products into our manufacturing facilities, which has helped to increase our gross margin as a percent of revenue to over 41 percent." Paradyne reported second quarter net income of $.8 million representing two cents per diluted share in accordance with generally accepted accounting principles (GAAP), compared with GAAP results of one cent per diluted share for the second quarter of 2004. For the second quarter, the Company reported non-GAAP net income of $1.3 million, representing non-GAAP diluted earnings per share of three cents, outperforming the non-GAAP one cent loss per diluted share as reflected in the guidance and Street consensus. The three cents non-GAAP diluted earnings per share compares with non-GAAP earnings per diluted share of two cents for the second quarter of 2004. Reconciliations between GAAP and non-GAAP results and earnings per share are provided in tables immediately following the Consolidated Statement of Operations. Paradyne's cash position remains healthy at $42.7 million, and the Company is debt free. Product shipment highlights include: -- Total DSLAMs shipped exceeded 3,100 units in the second quarter of 2005 compared to 2,000 DSLAMs shipped in the second quarter of 2004. -- Shipments of standards-based ADSL grew to 144,000 ports shipped in the second quarter of 2005, up 58 percent from approximately 91,500 ports shipped in the second quarter of 2004. Of the second quarter 2005 ADSL port shipments, 113,000 ports were ADSL2+. -- Standards-based ADSL endpoint shipments exceeded 44,000 units in the second quarter of 2005, up from approximately 25,900 shipped in the same period one year ago. -- Shipments of ReachDSL modems and Paradyne's ADSL/R combination modems supporting both standards-based ADSL and ReachDSL, combined for a total of more than 41,800 units shipped in the second quarter of 2005; an increase of 47 percent from the second quarter of 2004. Second Quarter Results Conference Call and Webcast As previously announced, Paradyne will host a conference call on Wednesday, July 20, 2005 at 6:30 p.m. (EDT) to discuss second quarter 2005 results. The call will be broadcast live on the Internet for investors and the general public. This listen-only webcast can be accessed through the investor relations page of the Paradyne website, http://www.paradyne.com. Participants should go to the website at least ten minutes before this event to download and install any necessary audio software. Or, participants may dial into the call at 706-634-1225. An audio replay of the call will be available through July 30, 2005. To access the replay use Conference ID # 7858901. About Paradyne Paradyne provides a broad family of IP-based broadband access solutions, including BLCs, DSLAMs, Ethernet in the First Mile bonded solutions, IADs, and CPE. Paradyne's products support both residential triple play solutions and business class bonded g.SHDSL, ADSL2+ and T1/E1 solutions for LAN extension and cell site data backhaul applications. Paradyne's solutions are designed to enhance carrier revenue streams with full support for Multimedia Traffic Management (MTM) and to lower carrier operational expenses through Operational Intelligence (OpIQ). As previously announced, Paradyne and Zhone Technologies, Inc. have entered into a merger agreement. The transaction is subject to the approvals of both company's stockholders and other closing conditions and is expected to close in the fall of 2005. More information may be obtained by visiting http://www.paradyne.com or by calling +1-727-530-8623. Information about Forward-Looking Statements: This press release contains forward-looking statements that involve a number of risks and uncertainties. These forward-looking statements are made pursuant to the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995 and are made based on management's current expectations and beliefs as well as on assumptions made by, and information currently available to, management. Among the factors that could cause actual future events to differ materially include: risks associated with the proposed acquisition of Paradyne by Zhone Technologies, Inc.; the uncertainty regarding the acceptance of new telecommunications services based on DSL technology; reduction or discontinuation of purchase of our products by NSPs; the failure of NSPs to incorporate our products into their infrastructure; the possibility that Paradyne's competitors may develop competing products that are superior in terms of quality, cost, or both. For a detailed discussion of other risk factors that could affect Paradyne's business, please refer to the risks identified in Paradyne's Current Report on Form 10-K, dated March 16, 2005, the Registration Statement of Zhone Technologies, Inc. on Form S-4, dated July 15, 2005 (which includes a preliminary proxy statement of Paradyne), and in Paradyne's other filings with the Securities and Exchange Commission. Editors Note: Paradyne and the Paradyne Logo are registered trademarks of Paradyne Corporation. -0- *T Paradyne Networks, Inc. Condensed Unaudited Consolidated Statements of Operations (Thousands except per share amounts) Three months Ended Six months Ended June 30, June 30, 2005 2004 2005 2004 Revenues: Sales $26,744 $22,757 $52,228 $43,572 Services 1,247 1,489 2,447 2,971 Royalties 2 0 12 0 --------- -------- -------- -------- Total Revenues 27,993 24,246 54,687 46,543 Total cost of sales 16,391 14,246 33,188 27,326 --------- -------- -------- -------- Gross Margin 11,602 10,000 21,499 19,217 Operating expenses: Research and development (a) 4,359 3,724 8,629 7,506 Selling, general & administrative (a) 6,263 5,382 12,493 11,203 Amortization of intangible asset 515 305 1,031 609 Business restructuring charges 0 0 0 269 Other operating income, net 0 0 (765) 0 --------- -------- -------- -------- Total operating expenses 11,137 9,411 21,388 19,587 --------- -------- -------- -------- Operating Income (Loss) 465 589 111 (370) Other (income) expenses: Interest, net (302) (135) (547) (262) Other, net (21) 44 (66) (1) --------- -------- -------- -------- Income (loss) before provision for income tax 788 680 724 (107) Provision (benefit) for income tax 0 0 0 0 --------- -------- -------- -------- Net income (loss) $788 $680 $724 ($107) ========= ======== ======== ======== Average shares outstanding Basic 46,790 45,195 46,700 44,998 Diluted 47,263 49,550 47,842 44,998 Earnings per common share Basic 0.02 0.02 0.02 (0.00) Diluted 0.02 0.01 0.02 (0.00) Non-GAAP diluted shares 47,263 49,550 47,842 49,047 Non-GAAP diluted net income (loss) per share (1) $0.03 $0.02 $0.04 $0.02 (a) Amounts include stock-based compensation as follows: Research and development $18 $22 $36 $46 Selling, general and administrative 15 15 30 30 --------- -------- -------- -------- $33 $37 $66 $76 --------- -------- -------- -------- Paradyne Networks, Inc. Footnote To Condensed Unaudited Consolidated Statements of Operations (Thousands except per share amounts) (1) Reconciliation of Earnings and Earnings Per Share Following Generally Accepted Accounting Principles With Non-GAAP Financial Measures (Non-GAAP Earnings and Non-GAAP Earnings Per Share) *T Management believes that presenting non-GAAP earnings and non-GAAP earnings per share is useful to investors in addition to the GAAP measures because the non-GAAP measures help investors understand operating results and make comparisons with prior periods. Management believes that excluding each of the below adjustments in calculating non-GAAP results is helpful to investors in comparing the operations of the core business between periods. In addition to providing investors with a helpful comparison, management believes that: -- excluding the amortization of deferred stock compensation is helpful because it is a non-cash item; -- excluding the amortization of intangible assets is helpful because it is non-cash and the intangible asset is not expected to be replaced when fully amortized (as might a depreciable asset); and -- excluding the business restructuring charges is useful because while the category of expense recurs, including such expenditures may actually distort the comparability of expenses from period to period. Paradyne's management uses non-GAAP measures internally to evaluate the Company's net income and operating performance of the core business on a period-over-period basis, and for planning and forecasting future periods. Management does not consider the amortization of deferred stock compensation and intangible assets in its review of the business. Additionally, while management constantly reviews the structure of the business to assure it is properly and efficiently operating, once changes are made, there is no value in comparing restructuring costs from period to period. The value is only in reviewing the expected operating results after making a restructuring change. In order to calculate non-GAAP earnings per share, the Company may also need to calculate non-GAAP diluted shares. Whenever the Company has a net loss, both basic and diluted shares will be the same because the effect of increasing the number of shares for dilution would be to decrease the loss per share (which would be anti-dilutive), since the calculation is net loss divided by the number of shares. When transactions are excluded in computing non-GAAP earnings, in some cases, the exclusion can result in changing a net loss to net income. When this happens, increasing the share count will reduce earnings per share. Therefore, when the Company excludes transactions from its GAAP net loss resulting in non-GAAP net income, the Company calculates non-GAAP diluted shares by increasing the share count by the dilutive effect of stock options. -0- *T Reconciliation of GAAP Earnings to Non-GAAP Earnings Three months Ended Six months Ended June 30, June 30, 2005 2004 2005 2004 Net income (loss), as reported $788 $680 $724 $(107) Increase to net income: Exclusion of amortization of deferred stock compensation and intangible assets 548 342 1,097 685 Exclusion of business restructuring charges - - - 269 -------- -------- ------- -------- Adjustment to net income (loss) 548 342 1,097 954 -------- -------- ------- -------- Non-GAAP net income $1,336 $1,022 $1,821 $847 ======== ======== ======= ======== Reconciliation of GAAP Earnings Per Share to Non-GAAP Earnings Per Share Three months Ended Six months Ended June 30, June 30, 2005 2004 2005 2004 Diluted net income (loss) per share, as reported $0.02 $0.01 $0.02 $(0.00) Exclusion of amortization of deferred stock compensation & intangible asset 0.01 0.01 0.02 0.01 Exclusion of business restructuring charges - - - 0.01 -------- ---------------- -------- Adjustment to net income (loss) 0.01 0.01 0.02 0.02 -------- -------- ------- -------- Non-GAAP diluted net income per share $0.03 $0.02 $0.04 $0.02 ======== ======== ======= ======== Reconciliation of Average Shares Outstanding with Non-GAAP Diluted Shares (Thousands of Shares) Three months Ended Six months Ended June 30, June 30, 2005 2004 2005 2004 Average shares outstanding 46,790 45,195 46,700 44,998 Dilutive effect of stock options 473 4,355 1,142 4,049 -------- ------------------------- Non-GAAP diluted shares 47,263 49,550 47,842 49,047 ======== ========================= Paradyne Networks, Inc. Condensed Unaudited Consolidated Balance Sheets (In Thousands) June 30, December 31, ASSETS 2005 2004 -------------- -------------- CURRENT ASSETS: Cash and cash equivalents $42,714 $43,832 Accounts receivables, net 16,239 16,904 Inventories, net 20,067 17,193 Prepaid & other current assets 1,699 1,246 -------------- -------------- Total current assets 80,719 79,175 Property, plant & equipment, net 2,644 3,495 Intangible assets, net 6,130 7,160 Other assets 463 471 -------------- -------------- Total assets $89,956 $90,301 ============== ============== Research and development (a) Selling, general & administrative (a) Accounts payable $6,640 $7,296 Payroll & benefit related liabilities 1,454 2,214 Other current liabilities 6,609 6,826 -------------- -------------- Total current liabilities 14,703 16,336 -------------- -------------- Total liabilities 14,703 16,336 Stockholders' equity 75,253 73,965 -------------- -------------- Total liabilities and stockholders' equity $89,956 $90,301 ============== ============== *T