Occam Networks Announces Third-Quarter 2009 Results

November 5, 2009 4:00 PM EST

SANTA BARBARA, Calif.--(BUSINESS WIRE)-- Occam Networks(R), Inc. (Nasdaq: OCNW), a leading broadband access supplier offering multiservice access platform (MSAP) solutions based on pure packet technologies, today reported financial results for the third quarter ended September 30, 2009.

Revenue for the third quarter was $21.7 million, compared with revenue of $25.1 million for the same period a year ago and with revenue of $21.0 million for the second quarter of 2009. Third-quarter 2009 revenue reflected the impact of a revenue deferral of $1.3 million of some shipments due to the bankruptcy filing by FairPoint Communications on October 26, 2009. FairPoint has announced that it will continue operations uninterrupted during this process and Occam expects to supply product during the company's post-petition period.

Gross margin for the third quarter was $8.9 million, or 41% of revenue, compared with $10.8 million, or 43% of revenue, for the third quarter of 2008. Gross margin for the second quarter of 2009 was $8.0 million, or 38% of revenue. The increase in gross margin percentage from the second quarter was primarily due to changes in product mix.

As reported under U.S. generally accepted accounting principles (GAAP) and including a previously announced $1.7 million charge related to a settlement of a stockholder class action lawsuit, initially filed on April 26, 2007, net loss attributable to common stockholders for the third quarter of 2009 was $2.6 million, or a loss of $0.13 per basic share, compared with a net loss of $659,000, or a loss of $0.03 per basic share, for the comparable period a year ago. Second-quarter 2009 net loss was $2.4 million, or a loss of $0.12 per basic share.

Non-GAAP net income available to common stockholders for the third quarter of 2009 was $120,000, or $0.01 per basic share, excluding stock-based compensation expense of $1.1 million and the $1.7 million charge to settle the class action lawsuit. This compared with a non-GAAP net loss for third-quarter 2008 of $31,000, or a loss of $0.00 per basic share, excluding stock-based compensation expense of $628,000. For the second quarter of 2009, non-GAAP net loss was $1.3 million, or a loss of $0.06 per basic share, excluding a restructuring charge of $213,000 and stock-based compensation expense of $891,000. A reconciliation of Occam's non-GAAP measures to its GAAP measures is provided in the financial statements portion of this news release.

"Despite the revenue deferral from FairPoint, we were encouraged by higher shipments overall, due to an increase in the order rate by customers during the quarter," said Bob Howard-Anderson, president and CEO of Occam. "In addition, our bottom-line results reflected the steps we have taken in recent months to reduce total operating expenses.

"During the quarter, we announced a number of new products designed to give our customers cost-effective options to incrementally build out their networks or migrate from copper to fiber," continued Howard-Anderson. "We believe that these new offerings should enhance our long-term competitive position in the market for broadband access solutions."

Highlights for the third quarter of 2009 included:

    --  Expansion into European FTTP access markets by building out a network of
        value-added resellers throughout Europe to deploy Occam's expertise in
        Ethernet and GPON broadband infrastructure solutions
    --  Introduction of three new GPON ONTs - the ON 2541, ON 2543 and ON 2544 -
        that offer greater service capabilities in FTTP networks for residential
        subscribers
    --  Announcement of a new, high-density Gigabit Ethernet FTTP Blade - BLC
        6316 - that offers the industry's highest port density in the most
        compact footprint, enabling service providers to serve up to 576
        Ethernet FTTP customers from a 12-rack-unit platform, providing space
        and energy savings
    --  Launch of new VDSL2 Blade - BLC 6216 - that provides double the port
        density of competitive products in a compact form factor with less
        energy consumption
    --  Expanded BLC 6000 FTTH deployments at Farmers Telephone Cooperative,
        Northeast Missouri Rural Telephone and Stayton Telephone Cooperative.

Business Outlook

The company currently expects fourth-quarter 2009 revenue to be relatively flat with third-quarter 2009.

Today's Conference Call

Occam plans to hold a teleconference to discuss its third-quarter results at 5:00 p.m. ET (2:00 p.m. PT) today. The call can be accessed by dialing (480) 629-9724 (for both U.S. and international callers). A live and archived webcast of the call will be available on the Occam website for up to one year after the call. To access the webcast, go to the Investor Relations page at http://www.occamnetworks.com and click on the "3Q 2009 Webcast" link. In addition to the webcast, a phone replay will be available for one week after the live call at (303) 590-3030, code number 4172526.

Non-GAAP Disclosure

Certain non-GAAP financial measures are included in this news release. Occam's GAAP results have been adjusted to exclude stock-based compensation charges associated with the issuance of stock options, restricted stock units, and restricted stock as well charges associated with settlement of a stockholder class action lawsuit. These non-GAAP financial measures are provided to enhance the reader's overall understanding of the company's financial performance and its prospects for the future. Specifically, Occam believes non-GAAP measures can provide useful information to both management and investors by excluding certain non-cash or one-time expenses that are not indicative of the company's core operating results. Further, these non-GAAP financial measures are one of the primary indicators management uses for planning and forecasting future periods. In addition, since Occam has historically reported non-GAAP measures to the investment community, management believes the inclusion of non-GAAP measures provides consistency in Occam's financial reporting. The presentation of this additional information is not meant to be considered a substitute for, or superior to, the financial measures prepared in accordance with GAAP. A detailed reconciliation of non-GAAP net income to GAAP net loss is included below.

Cautionary Note Concerning Forward-Looking Statements

This news release contains forward-looking statements within the meaning of applicable securities laws, including statements about the company's efforts to benefit from anticipated growth in broadband product offerings by service providers and its efforts to improve operating performance. The news release also includes forward-looking statements concerning the company's revenue outlook for the fourth quarter of fiscal 2009. Forward-looking statements involve risks and uncertainties, which could cause actual results to differ materially from those indicated in forward-looking statements. Risks and uncertainties that could adversely affect the company's business, revenues, results of operations and financial condition include, without limitation, the following: (i) the company's revenues and operating results have varied substantially on a quarter-to-quarter basis in the past and are likely to continue to vary in the future based, among other factors, on levels of customer demand, capital investment trends in the telecommunications industry, the size and timing of orders the company receives, and potentially substantial delays from the time the company receives orders until the company may recognize revenue under applicable revenue recognition rules; (ii) capital investment in the telecommunications industry may be reduced if macroeconomic weakness continues in North America; (iii) any inability to remedy previously disclosed internal control deficiencies could have an adverse impact on the reliability of the company's financial statements. The company makes no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made. Please also refer to the company's most recent Quarterly Report on Form 10-Q filed on August 7, 2009, as well as the company's future filings with the SEC, for other important risk factors that could cause the company's actual results to differ materially from those contained in any forward-looking statements.

About Occam Networks, Inc.

Occam Networks' broadband access solutions empower service providers to offer profitable new voice, data and video services over copper and fiber. Occam systems deliver flexibility and scalability in a Triple Play world. Over 2 million BLC 6000 ports are currently deployed at over 300 service providers worldwide. For more information, please visit www.occamnetworks.com.

Occam Networks and Occam BLC 6000 are either registered trademarks or trademarks of Occam Networks, Inc. in the United States and/or other countries.

All other trademarks mentioned are the property of their respective owners.

OCCAM NETWORKS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

                                                    September 30,   December 31,

                                                    2009            2008

                                                      (Unaudited)

ASSETS

Current assets:

Cash and cash equivalents                           $ 38,843        $ 30,368

Restricted cash                                       6,259           13,771

Accounts receivable, net                              16,142          17,391

Inventories                                           10,173          16,761

Prepaid and other current assets                      1,542           3,290

Total current assets                                  72,959          81,581

Property and equipment, net                           9,111           10,834

Intangibles, net                                      180             251

Other assets                                          106             68

Total assets                                        $ 82,356        $ 92,734

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable                                    $ 7,141         $ 6,911

Accrued expenses                                      8,514           8,687

Deferred revenue                                      12,197          17,612

Deferred rent                                         361             394

Capital lease obligations                             25              24

Total current liabilities                             28,238          33,628

Deferred rent, net of current portion                 1,681           1,892

Capital lease obligation, net of current portion      25              43

Total liabilities                                     29,944          35,563

Stockholders' equity:

Common stock, $0.001 par value, 250,000,000 shares
authorized; 20,496,347 and 20,268,488 shares          289             289
issued and outstanding at September 30, 2009 and
December 31, 2008, respectively

Additional paid-in capital                            186,726         183,409

Accumulated deficit                                   (134,603)       (126,527)

Total stockholders' equity                            52,412          57,171

Total liabilities and stockholders' equity          $ 82,356        $ 92,734

OCCAM NETWORKS, INC. AND SUBSIDIARY

GAAP CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

                     Three Months Ended                  Nine Months Ended

                     September  June 30,     September   September  September
                     30,                     30,         30,        30,

                     2009       2009         2008        2009       2008

Revenue              $ 21,673   $ 21,028   $ 25,131      $ 62,120   $ 67,610

Cost of revenue (1)    12,725     13,000     14,380        36,970     38,331

Gross margin           8,948      8,028      10,751        25,150     29,279

Operating expenses
(1):

Research and           3,762      4,035      5,004         12,186     14,337
product-development

Sales and marketing    4,459      4,364      4,677         13,404     14,760

General and            1,760      2,053      2,050         6,179      8,253
administrative

Restructuring          -          213        -             213        -
charges

Loss on litigation     1,700      -          -             1,700      -
settlement

Total operating        11,681     10,665     11,731        33,682     37,350
expenses

Loss from              (2,733)    (2,637)    (980)         (8,532)    (8,071)
operations

Other income           43         104        -             147        (702)
(expense), net

Interest income,       38         91         250           274        885
net

Loss before benefit    (2,652)    (2,442)    (730)         (8,111)    (7,888)
from income taxes

Benefit from income    (21)       (27)       (71)          (35)       (30)
taxes

Net Loss             $ (2,631)  $ (2,415)  $ (659)       $ (8,076)  $ (7,858)

Net loss per share
attributable to
common
stockholders:

Basic                $ (0.13)   $ (0.12)   $ (0.03)      $ (0.40)   $ (0.40)

Diluted              $ (0.13)   $ (0.12)   $ (0.03)      $ (0.40)   $ (0.40)

Weighted average
shares attributable
to common
stockholders:

Basic                  20,273     20,219     19,894        20,214     19,826

Diluted                20,273     20,219     19,894        20,214     19,826

(1) Total
stock-based
compensation
included in:

Cost of revenue      $ 133      $ 104      $ 72          $ 326      $ 290

Research and           297        258        243           778        868
product-development

Sales and marketing    248        247        149           692        557

General and            373        282        164           889        633
administrative

Total stock-based    $ 1,051    $ 891      $ 628         $ 2,685    $ 2,348
compensation

OCCAM NETWORKS, INC. AND SUBSIDIARY

GAAP to Non-GAAP Reconciliation

(In thousands, except per share data)

(Unaudited)

                                      Three Months Ended

                                      September 30,  June 30,     September 30,

                                      2009           2009       2008

GAAP net loss                         $ (2,631)      $ (2,415)  $ (659)

Stock-based compensation expense        1,051          891        628

Restructuring charges                   -              213        -

Loss on litigation settlement           1,700          -          -

Non-GAAP net income (loss)            $ 120          $ (1,311)  $ (31)

GAAP basic net loss per share         $ (0.13)       $ (0.12)   $ (0.03)

Stock-based compensation expense        0.06           0.05       0.03

Restructuring charges                   -              0.01       -

Loss on litigation settlement           0.08           -          -

Non-GAAP basic net income (loss) per  $ 0.01         $ (0.06)   $ (0.00)
share

    Source: Occam Networks, Inc.

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