EX-99.1 2 q2_18xearningsreleaseex991.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1
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Contacts
 
 
Pei Hung, DASAN Zhone Investor Relations
 
DASAN Zhone Strategic Communications:
Tel: +1 510.777.7386
 
Matt Glover or Najim Mostamand, CFA
Fax: +1 510.777.7001
 
Tel: +1 949.574.3860
E: phung@dasanzhone.com
 
E: dzsi@liolios.com


DASAN Zhone Solutions Announces Strong Second Quarter 2018 Financial Results; Raises Revenue Guidance for Full Year

Oakland, Calif., August 9, 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 three months ended June 30, 2018 and provided its outlook for the three months ending September 30, 2018 as well as a revised revenue outlook for the full year ending December 31, 2018.

Second Quarter 2018 Financial Performance:
•
Second quarter revenue was $76.3 million, which was at the higher end of guidance, and reflected an increase of 27.2% year-over-year.
•
GAAP gross margin for the quarter was 30.4%, which was at the mid-range of guidance, and reflected a decrease compared to 32.4% in the prior year period.
•
GAAP operating profit and margin for the quarter was $2.6 million and 3.4%, respectively, as compared to a loss of $(0.8) million and a negative margin of (1.3)% for the second quarter of 2017.
•
GAAP net income attributable to DASAN Zhone Solutions, Inc. for the quarter was $1.4 million, or $0.08 per diluted share, as compared to a net loss of $(0.8) million, or a loss of $(0.05) per diluted share for the second quarter of 2017.
•
Non-GAAP adjusted operating expenses for the quarter were $19.8 million, which came in significantly below guidance of $20.7 million to $21.5 million.
•
Non-GAAP Adjusted EBITDA for the quarter was $3.2 million and non-GAAP Adjusted EBITDA margin was 4.2%, which exceeded Adjusted EBITDA guidance of between $1 million to $2.5 million. It was also a favorable compare on a year-over-year basis with non-GAAP Adjusted EBITDA and margin of $0.9 million and 1.4%, respectively, for the second quarter of 2017. Non-GAAP financial measures are reconciled to GAAP in the tables set forth in this release.
•
Total cash and cash equivalents (excluding restricted cash) as of June 30, 2018 were $27.3 million, compared to $17.5 million as of December 31, 2017. Including restricted cash, total cash and cash equivalents as of June 30, 2018 were $38.9 million, compared to $31.4 million as of December 31, 2017.

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"We delivered on the higher end of our Q2 revenue expectations with continued momentum from our core fiber-to-the-home Broadband Access business, where we continue to see tremendous global success, particularly in India in the quarter,” said Yung Kim, CEO of DASAN Zhone Solutions, Inc. “The outsized 27% double-digit revenue growth seen in the quarter was driven by a sizable contract with the Indian State Government of Andhra Pradesh to build out their next-generation high-speed optical fiber network infrastructure. The India market is an exciting one for us given significant greenfield opportunities, but we view India to be only opportunistically additive to our existing core business that is strong, globally diverse, and one that benefits from broad based opportunities across our 1,000 plus customers.”

“As our Q2 results for the quarter demonstrate, we are making steady progress in growing our profitability. We achieved the mid-point of our guidance for gross margin of 30.4%, which reflected the impact of geographic mix. We successfully contained our adjusted operating expenses in the quarter by more than $1 million against prior guidance. As a result, we generated $3.2 million of Adjusted EBITDA, which greatly exceeded the guidance range of $1 million to $2.5 million,” said Michael Golomb, CFO of DASAN Zhone Solutions, Inc. “We remain focused on growing our bottom-line as we scale our business over the long-term.”

Business Outlook:
DASAN Zhone Solutions, Inc.’s Business Outlook is based on current expectations. The following statements are forward-looking, and actual results can differ materially based on market conditions and factors set forth under “Forward-Looking Statements” below.
•
Third Quarter 2018: Revenue target of $70 million to $74 million, GAAP gross margin target of 32%, and adjusted operating expenses target of $20 million for an implied Adjusted EBITDA range of $2.4 million to $3.7 million
•
Revised Full Year 2018 Revenue Guidance: Revenue target of $280 million to $285 million, which reflect 13% to 15% year-over-year growth, as compared to prior revenue guidance provided on May 30th of $272 million to $280 million, which reflect 10% to 13% year-over-year growth.

Conference Call:
To access the conference call, please dial 1-888-306-9369 (U.S. toll-free) or 1-503-406-4059 (international) and entering the access code 6188804. 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/.

An audio replay will be offered for seven days, by dialing 1-855-859-2056 (U.S. toll-free) or 1-404-537-3406 (international) and entering the access code 6188804. An audio webcast recording will also be available online at http://www.dasanzhone.com/about/investor-relations/investor-events/ for approximately one week following the original call.



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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 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.

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. 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. 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, quarterly reports on Form 10-Q and current reports on Form 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.

About DASAN Zhone Solutions, Inc.
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 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.

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DASAN ZHONE SOLUTIONS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands, except per share data)
 
Three Months Ended
 
Six Months Ended
 
June 30,
2018
 
March 31,
2018
 
June 30,
2017
 
June 30,
2018
 
June 30,
2017
Net revenue
$
76,257

 
$
59,504

 
$
59,941

 
$
135,761

 
$
112,053

Cost of revenue
 
 
 
 
 
 
 
 
 
Products and services
52,939

 
37,616

 
40,355

 
90,555

 
74,084

Amortization of intangible assets
153

 
153

 
153

 
306

 
306

Total cost of revenue
53,092

 
37,769

 
40,508

 
90,861

 
74,390

Gross profit
23,165

 
21,735

 
19,433

 
44,900

 
37,663

Operating expenses:
 
 
 
 
 
 
 
 
 
Research and product development (1)
8,714

 
8,977

 
9,141

 
17,691

 
18,523

Selling, general and administrative (1)
11,712

 
12,394

 
10,551

 
24,106

 
21,435

Amortization of intangible assets
131

 
131

 
544

 
262

 
1,037

Total operating expenses
20,557

 
21,502

 
20,236

 
42,059

 
40,995

Operating income (loss)
2,608

 
233

 
(803
)
 
2,841

 
(3,332
)
Interest income
75

 
86

 
20

 
161

 
46

Interest expense
(560
)
 
(323
)
 
(256
)
 
(883
)
 
(530
)
Other income (expense), net
(427
)
 
140

 
264

 
(287
)
 
(17
)
Income (loss) before income taxes
1,696

 
136

 
(775
)
 
1,832

 
(3,833
)
Income tax (benefit) provision
341

 
(5
)
 
99

 
336

 
539

Net income (loss)
1,355

 
141

 
(874
)
 
1,496

 
(4,372
)
Net income (loss) attributable to non-controlling interest
(61
)
 
34

 
(65
)
 
(27
)
 
184

Net income (loss) attributable to DASAN Zhone Solutions, Inc.
$
1,416

 
$
107

 
$
(809
)
 
$
1,523

 
$
(4,556
)
 
 
 
 
 
 
 
 
 
 
Earnings (losses) per share attributable to DASAN Zhone Solutions, Inc.
 
 
 
 
 
 
 
 
 
Basic
$
0.09

 
$
0.01

 
$
(0.05
)
 
$
0.09

 
$
(0.28
)
Diluted
$
0.08

 
$
0.01

 
$
(0.05
)
 
$
0.09

 
$
(0.28
)
Weighted average shares outstanding
 
 
 
 
 
 
 
 
 
Basic
16,438

 
16,416

 
16,380

 
16,425

 
16,380

Diluted
16,672

 
16,626

 
16,380

 
16,645

 
16,380

___________________________________________________
 
 
 
 
 
 
 
 
 
(1) Amounts include stock-based compensation costs as follows:
 
 
 
 
 
 
 
 
 
Research and product development
$
16

 
$
15

 
$
16

 
$
31

 
$
30

Selling, general and administrative
361

 
348

 
204

 
709

 
445

 
$
377

 
$
363

 
$
220

 
$
740

 
$
475

Reconciliation of net income (loss) to Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
Net income (loss)
$
1,355

 
$
141

 
$
(874
)
 
$
1,496

 
$
(4,372
)
Stock-based compensation
377

 
363

 
220

 
740

 
475

Interest expense, net
485

 
237

 
236

 
722

 
484

Income tax (benefit) provision
341

 
(5
)
 
99

 
336

 
539

Depreciation and amortization
682

 
699

 
1,172

 
1,381

 
2,353

Adjusted EBITDA
$
3,240

 
$
1,435

 
$
853

 
$
4,675

 
$
(521
)
 
 
 
 
 
 
 
 
 
 
Reconciliation of operating expense to Adjusted operating expense:
 
 
 
 
 
 
 
 
 
Total operating expense
$
20,557

 
$
21,502

 
$
20,236

 
$
42,059

 
$
40,995

Depreciation and amortization (2)
(429
)
 
(444
)
 
(1,099
)
 
(873
)
 
(2,204
)
Stock-based compensation
(377
)
 
(363
)
 
(220
)
 
(740
)
 
(475
)
Adjusted operating expense
$
19,751

 
$
20,695

 
$
18,917

 
$
40,446

 
$
38,316

(2)For the three months ended March 31,2018 and for the three and six months ended June 30, 2017, the depreciation amounts have been adjusted to exclude depreciation and
amortization expense associated with cost of revenues.

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DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In thousands)
 
 
June 30,
2018
 
December 31,
2017
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents and restricted cash
 
$
37,734

 
$
29,900

Accounts receivable, net
 
67,163

 
61,755

Other receivables
 
25,257

 
12,658

Inventories
 
38,187

 
25,344

Prepaid expenses and other current assets
 
4,137

 
3,652

Total current assets
 
172,478

 
133,309

Property and equipment, net
 
5,432

 
5,873

Goodwill
 
3,977

 
3,977

Intangible assets, net
 
6,217

 
6,785

Long-term restricted cash
 
1,136

 
1,512

Other assets
 
7,676

 
7,671

Total assets
 
$
196,916

 
$
159,127

Liabilities, Stockholders' Equity and Non-controlling Interest
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
50,799

 
$
32,792

Short-term debt
 
45,669

 
19,790

Other payables
 
2,875

 
3,988

Contract Liabilities
 
2,600

 
3,279

Accrued and other liabilities
 
9,431

 
11,174

Total current liabilities
 
111,374

 
71,023

Long-term debt
 
6,800

 
9,787

Contract Liabilities
 
1,773

 
1,883

Other long-term liabilities
 
2,699

 
2,667

Total liabilities
 
122,646

 
85,360

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

 
16

Additional paid-in capital
 
91,126

 
90,198

Other comprehensive income (loss)
 
(399
)
 
1,871

Accumulated deficit
 
(16,988
)
 
(18,852
)
Total stockholders’ equity
 
73,755

 
73,233

Non-controlling interest
 
515

 
534

Total stockholders’ equity and non-controlling interest
 
74,270

 
73,767

Total liabilities, stockholders’ equity and non-controlling interest
 
$
196,916

 
$
159,127


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