EX-99.1 2 q4_17xearningsrelease.htm EXHIBIT 99.1 PRESS RELEASE Exhibit


Exhibit 99.1
newdzsilogoa03.jpg
q117earningsreleaseimage2a02.jpg
Contacts
 
DASAN Zhone Investor Relations:
DASAN Zhone Public Relations:
Tel: +1 510.777.7013
Tel: +1 760.814.8194
Fax: +1 510.777.7001
E: carla.vallone@portavocepr.com
E: investor-relations@dasanzhone.com
 

DASAN Zhone Solutions Reports Fourth Quarter and Full Year 2017 Financial Results

Oakland, CA - February 28, 2018 - DASAN Zhone Solutions, Inc. (NASDAQ: DZSI or the "Company"), a global leader in fiber access transformation for enterprise and service provider networks, today reported its financial results for the quarter and year ended December 31, 2017.

Revenue for the fourth quarter of 2017 was $68.6 million compared to $66.4 million for the third quarter of 2017 and $59.5 million for the fourth quarter of 2016. Revenue for the fiscal year 2017 was a record $247.1 million compared to the $150.3 million for fiscal year 2016.

"As I reflect on 2017, I am proud that it has been such a watershed moment for us from a focus and execution perspective, and also as importantly, from a financial perspective. We generated record high quarter and annual revenue and are seeing tremendous platform benefits from the combination of Dasan Network Solutions and Zhone Technologies,” said Yung Kim, CEO of DASAN Zhone Solutions, Inc. “The thesis behind the merger of building a world-class, global communications equipment leader with greater scale, faster speed to innovation, and enhanced product portfolio is playing out very well.”

Net income attributable to DASAN Zhone Solutions, Inc. for the fourth quarter of 2017, calculated in accordance with generally accepted accounting principles (“GAAP”), was $4.2 million or $0.26 per share compared with net income of $1.4 million or $0.09 per share for the third quarter of 2017 and net loss of $6.3 million or a loss of $0.38 per share for the fourth quarter of 2016. Adjusted earnings before stock-based compensation, interest income (expense), net income tax provision (benefit), and depreciation and amortization, and merger related costs (“adjusted EBITDA”) was $2.6 million for the fourth quarter of 2017, compared to $2.7 million for the third quarter of 2017 and a loss of $3.6 million for the fourth quarter of 2016.


1


"2017 has been a turning point for the Company from a profitability perspective. We turned profitable in 2017 from an operating income, adjusted EBITDA, and net income perspective as we benefited from the platform benefits as a combined company,” said Michael Golomb, CFO of DASAN Zhone Solutions, Inc. “I am highly encouraged that we achieved a record level of profitability on an adjusted EBITDA basis in the fourth quarter as we continue to be extremely focused on growing revenue on a profitable scale.”

Cash and cash equivalents at December 31, 2017 were $17.5 million compared to $17.9 million at December 31, 2016.

DASAN Zhone Solutions, Inc. will conduct a conference call and audio webcast to discuss further details of its fourth quarter 2017 results at approximately 2:00 p.m. PT / 5:00 p.m. ET on Wednesday, February 28, 2018. 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 passcode 5797437. The audio webcast will be simultaneously available on the Investor Relations section of DASAN Zhone Solution's website at http://www.dasanzhone.com/about/investor-relations/investor-events/.

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 entering passcode 5797437. An audio webcast replay will also be available online at http://www.dasanzhone.com/about/investor-relations/investor-events/ for approximately one week following the original call.

Non-GAAP Financial Measures
To supplement DASAN Zhone's consolidated financial statements presented in accordance with GAAP, DASAN Zhone uses adjusted EBITDA, a non-GAAP measure DASAN Zhone believes is appropriate to enhance an overall understanding of DASAN 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

2


prepared in accordance with GAAP. A reconciliation between net income (loss) and adjusted EBITDA is provided in a table immediately following the Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) below.

About DASAN Zhone Solutions
DASAN Zhone Solutions, Inc. (NASDAQ: DZSI) is a global leader in network access solutions for service provider and enterprise networks. The company provides a wide array of reliable, cost-effective networking technologies-including broadband access, Ethernet switching, Passive Optical LAN, and software-defined networks-to a diverse customer base that includes more than 1,000 of the world’s most innovative network operators. DASAN Zhone Solutions is headquartered in Oakland, California, with operations in more than 20 countries worldwide.

DASAN Zhone Solutions, the DASAN Zhone Solutions logo, and al DASAN Zhone product names are trademarks of DASAN Zhone Solutions, 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, the Company’s ability to realize the anticipated cost savings, synergies and other benefits of the merger of Dasan Networks, Inc. and legacy Zhone Technologies, Inc. and any integration risks relating to the merger, the ability to generate sufficient revenue to achieve or sustain profitability, the ability to raise additional capital to fund existing and future operations or to refinance or repay the Company’s existing indebtedness, defects or other performance problems in the Company’s products, any economic slowdown in the telecommunications industry that restricts the ability of the Company’s customers to purchase its products, commercial acceptance of the Company’s products, intense competition in the communications equipment market, higher than anticipated expenses that the Company may incur, any failure to comply with the periodic filing and other requirements of The Nasdaq Stock Market for continued listing, material weaknesses or other deficiencies in the Company internal control over financial reporting, and the initiation of any civil litigation, regulatory proceedings,

3


government enforcement actions or other adverse effects relating to the Audit Committee investigation or errors in the consolidated financial statements of legacy Zhone Technologies, Inc. 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 filings on Forms 10-K, 10-Q and 8-K. 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.


4


DASAN ZHONE SOLUTIONS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands, except per share data)
 
Three Months Ended
 
Twelve Months Ended
 
December 31,
2017
 
September 30,
 2017
 
December 31,
2016
 
December 31,
2017
 
December 31,
2016
Net revenue:
 
 
 
 
 
 
 
 
 
Net revenue
$
64,898

 
$
60,513

 
$
53,246

 
$
215,732

 
$
121,670

Net revenue - related parties
3,725

 
5,925

 
6,226

 
31,382

 
28,634

Total net revenue
68,623

 
66,438

 
59,472

 
247,114

 
150,304

Cost of revenue:
 
 
 
 
 
 


 
 
Products and services
42,512

 
38,643

 
35,665

 
138,639

 
84,415

Products and services - related parties
3,490

 
5,569

 
5,620

 
26,341

 
24,738

Amortization of intangible assets
153

 
153

 
153

 
612

 
204

Total cost of revenue
46,155

 
44,365

 
41,438

 
165,592

 
109,357

Gross profit
22,468

 
22,073

 
18,034

 
81,522

 
40,947

Operating expenses:
 
 
 
 
 
 
 
 
 
Research and product development (1)
8,409

 
8,804

 
9,813

 
35,437

 
25,396

Selling, general and administrative (1)
11,382

 
11,454

 
10,657

 
43,888

 
27,348

Amortization of intangible assets
284

 
154

 
1,297

 
1,475

 
1,556

Gain from sale of assets
—

 
—

 
(304
)
 
—

 
(304
)
Total operating expenses
20,075

 
20,412

 
21,463

 
80,800

 
53,996

Operating income (loss)
2,393

 
1,661

 
(3,429
)
 
722

 
(13,049
)
Interest income
47

 
36

 
46

 
129

 
183

Interest expense
(226
)
 
(263
)
 
(230
)
 
(1,019
)
 
(830
)
Other income (expense), net
(774
)
 
60

 
(104
)
 
(731
)
 
(145
)
Income (loss) before income taxes
1,440

 
1,494

 
(3,717
)
 
(899
)
 
(13,841
)
Income tax provision (benefit)
(2,718
)
 
107

 
2,528

 
(2,072
)
 
1,487

Net income (loss)
4,158

 
1,387

 
(6,245
)
 
1,173

 
(15,328
)
Net income (loss) attributable to non-controlling interest
(70
)
 
(12
)
 
15

 
102

 
(2
)
Net income (loss) attributable to DASAN Zhone Solutions, Inc.
$
4,228

 
$
1,399

 
$
(6,260
)
 
$
1,071

 
$
(15,326
)
 
 
 
 
 
 
 
 
 
 
Earnings (losses) per share attributable to DASAN Zhone Solutions, Inc.:
 
 
 
 
 
 
 
 
 
Basic
$
0.26

 
$
0.09

 
$
(0.38
)
 
$
0.07

 
$
(1.32
)
Diluted
$
0.26

 
$
0.09

 
$
(0.38
)
 
$
0.07

 
$
(1.32
)
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
16,391

 
16,382

 
16,375

 
16,383

 
11,637

Diluted
16,445

 
16,382

 
16,375

 
16,396

 
11,637

___________________________________________________
 
 
 
 
 
 
 
 
 
(1) Amounts include stock-based compensation costs as follows:
 
 
 
 
 
 
 
 
 
Research and product development
$
17

 
$
12

 
$
13

 
$
59

 
$
16

Selling, general and administrative
215

 
183

 
195

 
843

 
320

 
$
232

 
$
195

 
$
208

 
$
902

 
$
336

Reconciliation of net income (loss) to Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
Net income (loss)
$
4,158

 
$
1,387

 
$
(6,245
)
 
$
1,173

 
$
(15,328
)
Stock-based compensation
232

 
195

 
208

 
902

 
336

Interest income (expense), net
179

 
227

 
184

 
890

 
647

Income tax provision (benefit)
(2,718
)
 
107

 
2,528

 
(2,072
)
 
1,487

Depreciation and amortization
712

 
752

 
2,008

 
3,817

 
3,173

Merger transaction costs
—

 
—

 
(2,263
)
 
—

 
1,273

Adjusted EBITDA
$
2,563

 
$
2,668

 
$
(3,580
)
 
$
4,710

 
$
(8,412
)
 
 
 
 
 
 
 
 
 
 
Reconciliation of operating expense to Adjusted operating expense:
 
 
 
 
 
 
 
 
 
Total operating expense
$
20,075

 
$
20,412

 
$
21,463

 
$
80,800

 
$
53,996

Depreciation and amortization
(712
)
 
(752
)
 
(2,008
)
 
(3,817
)
 
(3,173
)
Stock-based compensation
(232
)
 
(195
)
 
(208
)
 
(902
)
 
(336
)
Adjusted operating expense
$
19,131

 
$
19,465

 
$
19,247

 
$
76,081

 
$
50,487



5


DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In thousands)

 
 
December 31, 2017
 
December 31, 2016
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
17,475

 
$
17,893

Restricted cash
 
13,219

 
6,650

Short-term investments
 
—

 
993

Accounts receivable, net:
 
 
 
 
Trade receivables
 
48,257

 
38,324

Related parties
 
13,498

 
13,311

Other receivables:
 
 
 
 
Others
 
15,722

 
12,068

Related parties
 
71

 
171

Inventories
 
25,344

 
31,032

Prepaid expenses and other current assets
 
3,652

 
4,131

Total current assets
 
137,238

 
124,573

Property and equipment, net
 
5,753

 
6,288

Goodwill
 
3,977

 
3,977

Intangible assets, net
 
6,905

 
8,767

Non-current deferred tax assets
 
2,954

 
—

Non-current restricted cash
 
718

 
—

Other assets
 
1,582

 
1,842

Total assets
 
$
159,127

 
$
145,447

Liabilities, Stockholders' Equity and Non-controlling Interest
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable:
 
 
 
 
Others
 
$
31,441

 
$
29,428

Related parties
 
1,351

 
1,683

Short-term debt
 
22,777

 
17,599

Other payables:
 
 
 
 
Others
 
2,919

 
2,040

Related parties
 
1,070

 
7,107

Deferred revenue
 
3,279

 
1,901

Accrued and other liabilities
 
11,174

 
7,996

Total current liabilities
 
74,011

 
67,754

Long-term debt - related parties
 
6,800

 
6,800

Deferred revenue
 
1,883

 
1,674

Other long-term liabilities
 
2,666

 
2,351

Total liabilities
 
85,360

 
78,579

Stockholders’ equity and non-controlling interest:
 
 
 
 
Common stock
 
16

 
16

Additional paid-in capital
 
90,198

 
89,174

Other comprehensive income (loss)
 
1,871

 
(2,815
)
Accumulated deficit
 
(18,852
)
 
(19,923
)
Total stockholders’ equity
 
73,233

 
66,452

Non-controlling interest
 
534

 
416

Total stockholders’ equity and non-controlling interest
 
73,767

 
66,868

Total liabilities, stockholders’ equity and non-controlling interest
 
$
159,127

 
$
145,447


Note: Certain prior period balances have been reclassified to conform to current period presentation.

6