News & Press

DASAN Zhone Solutions Reports Third Quarter 2016 Financial Results

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 ended September 30, 2016.

Due to the continuing post-merger consolidation of the operations and financial reporting of Legacy Zhone and DASAN Network Solutions, Inc. (DNS), the Company intends to file its Quarterly Report on Form 10-Q for the nine months ended September 30, 2016 after market close on Monday, November 14, 2016, which is five days later than the required filing deadline. On November 10, 2016, the Company will file the requisite Form 12b-25 with the Securities and Exchange Commission in connection with the filing delay.

The Merger has been accounted for as a reverse acquisition under which DNS was considered the accounting acquirer of Legacy Zhone. As such, the financial results of the Company for the three and nine months ended September 30, 2016 reflect the operating results of DNS and its consolidated subsidiaries only for the period commencing on the first day of the applicable period through September 8, 2016 and include the operating results of both DNS and Legacy Zhone for the period September 9 through September 30, 2016. Such results are compared to the financial results for DNS and its consolidated subsidiaries for the three and nine months ended September 30, 2015. The balance sheet of the Company reflects the fair value of its assets and liabilities as of the merger date. Those assets include the value of acquired intangible assets and goodwill. Additionally, all historical equity accounts of DNS and its subsidiaries, including par value per share, share and per share numbers, have been adjusted to reflect the shares of the Company’s common stock issued in connection with the Merger.

Revenue for the third quarter of 2016 was $32.2 million, compared to $35.3 million for the second quarter of 2016 and $22.6 million for the third quarter of 2015. Net loss for the third quarter of 2016, calculated in accordance with generally accepted accounting principles (“GAAP”), was $4.9 million or $0.06 per share compared with net income of less than $0.01 million or $0.00 per share for the second quarter of 2016 and net loss of $2.8 million or $0.01 per share for the third quarter of 2015. Adjusted earnings before stock-based compensation, interest, taxes, depreciation and amortization and merger transaction costs (“adjusted EBITDA”) was an adjusted EBITDA loss of $0.5 million for the third quarter of 2016, compared to an adjusted EBITDA profit of $0.7 million for the second quarter of 2016 and an adjusted EBITDA loss of $2.0 million for the third quarter of 2015.

Cash and cash equivalents at September 30, 2016 were $34.4 million compared to $10.0 million at December 31, 2015.

DASAN Zhone Solutions will conduct a conference call and audio webcast to discuss further details of its third quarter 2016 results at approximately 2:00 p.m. PT / 5:00 p.m. ET on Wednesday, November 9, 2016. 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 95210950. The audio webcast will be simultaneously available on the Investor Relations section of DASAN Zhone Solution's website at http://www.zhone.com/investors/.

A recording 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 providing passcode 95210950. An audio webcast recording will also be available online at http://www.zhone.com/investors/ for approximately one week following the original call.

 

DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands, except per share data)


 
 


Three Months Ended
Nine Months Ended



 
 


 


September 30,
June
30,

September 30,
September 30,   September 30,


2016
2016
2015
2016
2015
Net revenue
$ 32,166

$ 35,297

$ 22,591

$ 93,256

$ 93,339
Cost of revenue
  22,693  
  25,588  
  16,774  
  68,997  
  69,287  
Gross profit
  9,473  
  9,709  
  5,817  
  24,259  
  24,052  
Operating expenses:









Research and product development (1)

5,885


5,018


4,859


15,582


16,546
Selling, general and administrative (1)

8,202


4,284


3,939


16,903


12,458
Amortization of intangible assets
  299  
  -  
  -  
  299  
  -  
Total operating expenses
  14,386  
  9,302  
  8,798  
  32,784  
  29,004  
Operating loss

(4,913 )

407


(2,981 )

(8,525 )

(4,952 )
Interest expense, net

(173 )

(144 )

(87 )

(463 )

(286 )
Other income (expense) , net
  52  
  (20 )
  583  
  117  
  780  
Income (expense) before income taxes

(5,034 )

243


(2,485 )

(8,871 )

(4,458 )
Income tax expense (benefit)
  (153 )
  196  
  295  
  (584 )
  480  
Net income (loss)
$ (4,881 )
$ 47  
$ (2,780 )
$ (8,287 )
$ (4,938 )
Less: Net loss attributable to the non-controlling interests

38


190


-


234


-
Net loss attributable to DASAN Zhone Solutions, Inc.
  (4,919 )
  (143 )
  (2,780 )
  (8,521 )
  (4,938 )
Foreign currency translation adjustments
  2,337  
  (116 )
  1,009  
  2,738  
  107  
Comprehensive loss
$ (2,544 )
$ (69 )
$ (1,771 )
$ (5,549 )
$ (4,831 )
Less: Comprehensive income attributable to the non-controlling interests

44


245


-


303


-
Comprehensive loss attributable to DASAN Zhone Solutions, Inc.
$ (2,588 )
$ (314 )
$ (1,771 )
$ (5,852 )
$ (4,831 )
Basic and diluted net loss per share
$ (0.06 )
$ 0.00

$ (0.01 )
$ (0.10 )
$ (0.01 )
Weighted average shares outstanding used to compute basic net loss per share

81,839


353,678


347,005


81,739


347,005
Weighted average shares outstanding used to compute diluted net loss per share

81,839


353,678


347,005


81,739


347,005
(1) Amounts include stock-based compensation costs as follows:









Research and product development

3


-


-


3


-
Selling, general and administrative
  125  
  -  
  -  
  125  
  -  


$ 128

$ -

$ -

$ 128

$ -
GAAP net income (loss)
$ (4,881 )
$ 47

$ (2,780 )
$ (8,287 )
$ (4,938 )
Stock-based compensation

128


-


-


128


-
Interest expense

204


202


114


600


378
Income taxes

(153 )

196


295


(584 )

480
Depreciation and amortization

628


269


369


1,165


1,143
Merger transaction costs
  3,536  
  -  
  -  
  3,536  
  -  
Non-GAAP Adjusted EBITDA income (loss)
$ (538 )
$ 714  
$ (2,002 )
$ (3,442 )
$ (2,937 )















 

DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except par value)


 
 


September 30,
2016

December 31,
2015
Assets



Current assets:



Cash and cash equivalents
$ 34,375

$ 10,015
Restricted cash
106

345
Other short-term investments and loans
5,112

3,818
Accounts receivable, net
39,306

32,728
Other receivables
12,892

12,690
Inventories
31,957

13,900
Prepaid expenses and other current assets
3,878  
1,279  
Total current assets
127,626

74,775
Property and equipment, net
6,258

2,251
Intangible assets, net
22,573

696
Other assets
3,892  
5,869  
Total assets
$ 160,349  
$ 83,591  
Liabilities and Stockholders' Equity



Current liabilities:



Accounts payable
$ 20,609

$ 14,935
Short-term debt
21,941

21,848
Accrued and other liabilities
26,735  
4,469  
Total current liabilities
69,285

41,252
Long-term debt
5,000

-
Other long-term liabilities
8,024  
510  
Total liabilities
82,309  
41,762  
Stockholders' equity:



Common stock
97,481

56,579
Additional paid-in capital
(8,324 )
(8,890 )
Other comprehensive loss
908

(1,776 )
Accumulated deficit
(12,743 )
(4,222 )
Non-controlling interest
718  
138  
Total stockholders' equity
78,040  
41,829  
Total liabilities and stockholders' equity
$ 160,349  
$ 83,591  

About DASAN Zhone Solutions

DASAN Zhone Solutions, Inc. is a global leader in broad-based network access solutions. The company provides solutions in five major product areas including broadband access, Ethernet switching, mobile backhaul, passive optical LAN (POL) and software defined networks (SDN). More than 750 of the world's most innovative network operators, service providers and enterprises turn to DASAN Zhone Solutions for fiber access transformation. DASAN Zhone Solutions is committed to building the fastest and highest quality All IP Multi-Service solution for its customers. DASAN Zhone Solutions is headquartered in Oakland, California.

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, 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 specific to the communications, networking, internet and related industries. 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 most recent reports 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.

Contacts:

DASAN Zhone Public Relations
+1 760-814-8194
carla.vallone@portavocepr.com
DASAN Zhone Investor Relations
+1 510-777-7013
+1 510-777-7001
investor-relations@zhone.com

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 calculated on a GAAP basis and adjusted EBITDA on a non-GAAP basis is provided in a table immediately following the Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss).