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


OAKLAND, Calif., Aug. 09, 2018 (GLOBE NEWSWIRE) -- 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, 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.

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

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands, except per share data)

 Three Months Ended Six Months Ended
 June 30,
 March 31,
 June 30,
 June 30,
 June 30,
Net revenue$76,257  $59,504  $59,941  $135,761  $112,053 
Cost of revenue         
Products and services52,939  37,616  40,355  90,555  74,084 
Amortization of intangible assets153  153  153  306  306 
   Total cost of revenue53,092  37,769  40,508  90,861  74,390 
Gross profit23,165  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 assets131  131  544  262  1,037 
   Total operating expenses20,557  21,502  20,236  42,059  40,995 
   Operating income (loss)2,608  233  (803) 2,841  (3,332)
Interest income75  86  20  161  46 
Interest expense(560) (323) (256) (883) (530)
Other income (expense), net(427) 140  264  (287) (17)
Income (loss) before income taxes1,696  136  (775) 1,832  (3,833)
Income tax (benefit) provision341  (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:         
Basic16,438  16,416  16,380  16,425  16,380 
Diluted16,672  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 administrative361  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 compensation377  363  220  740  475 
Interest expense, net485  237  236  722  484 
Income tax (benefit) provision341  (5) 99  336  539 
Depreciation and amortization682  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.

Unaudited Condensed Consolidated Balance Sheets
(In thousands)

  June 30,
 December 31,
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