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 https://investor-dzsi.com/#IRevents.
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 https://investor-dzsi.com/#IRevents 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.
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 | ||||