DZS Press Releases

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.

“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.

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 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.

 

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

 

DASAN Zhone Solutions, the DASAN Zhone Solutions logo, and all 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.

Contact

DASAN Zhone Investor Relations
Pei Hung
+1 510.777.7386
+1 510.777.7001
phung@dasanzhone.com
DASAN Zhone Strategic Communications
Matt Glover or Najim Mostamand
+1 949.574.3860
dzsi@liolios.com