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DASAN Zhone Solutions Reports Third Quarter 2017 Financial Results

OAKLAND, Calif.--(BUSINESS WIRE)-- DASAN Zhone Solutions, Inc. (NASDAQ: DZSI), a global leader in fiber access transformation for enterprise and service provider networks, today reported its financial results for the quarter ended September 30, 2017. Revenue for the third quarter of 2017 was $66.4 million, compared to $59.9 million for the second quarter of 2017 and $31.2 million for the third quarter of 2016. The results for the third quarter of 2016 included the combined results of Dasan Network Solutions, Inc. and legacy Zhone Technologies, Inc. from and after September 9, 2016, following the completion of the merger. The Company’s financial results prior to September 9, 2016 do not include the operations of legacy Zhone Technologies, Inc. "With the successful integration of our businesses, we are seeing improved financial performance sooner than expected which has been led by stronger than expected revenue growth," stated Yung Kim, President, CEO and Acting CFO of DASAN Zhone Solutions.

Net income attributable to DASAN Zhone Solutions, Inc. for the third quarter of 2017, calculated in accordance with generally accepted accounting principles (“GAAP”), was $1.4 million or $0.09 per share compared with a net loss of $0.8 million or $0.05 per share for the second quarter of 2017 and a net loss of $4.7 million or $0.42 per share for the third quarter of 2016. Adjusted earnings before stock-based compensation, interest income (expense), net, income tax provision (benefit), depreciation and amortization, and merger transaction costs (“adjusted EBITDA”) was $2.7 million for the third quarter of 2017, compared to $0.9 million for the second quarter of 2017 and ($0.9) million for the third quarter of 2016.

Cash and cash equivalents at September 30, 2017 were $10.1 million compared to $17.9 million at December 31, 2016.

DASAN Zhone Solutions will conduct a conference call and audio webcast today, November 1, 2017, at approximately 2:00 p.m. PT / 5:00 p.m. ET to review its third quarter 2017 results. 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 96204168. 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/.

A replay 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 96204168. An audio webcast replay 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.

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. The IP Zhone is the only solution that enables service providers to build the network of the future today, supporting end-to-end voice, data, entertainment, social media, business, mobile backhaul and mobility service. 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.

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

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, the Company’s ability to realize the anticipated cost savings, synergies and other benefits of the merger of Dasan Networks, Inc. and legacy Zhone Technologies, Inc. and any integration risks relating to the merger, the ability to generate sufficient revenue to achieve or sustain profitability, the ability to raise additional capital to fund existing and future operations or to refinance or repay the Company’s existing indebtedness, defects or other performance problems in the Company’s products, any economic slowdown in the telecommunications industry that restricts the ability of the Company’s customers to purchase its products, commercial acceptance of the Company’s products, intense competition in the communications equipment market, higher than anticipated expenses that the Company may incur, any failure to comply with the periodic filing and other requirements of The Nasdaq Stock Market for continued listing, material weaknesses or other deficiencies in the Company internal control over financial reporting, and the initiation of any civil litigation, regulatory proceedings, government enforcement actions or other adverse effects relating to the Audit Committee investigation or errors in the consolidated financial statements of legacy Zhone Technologies, Inc. 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 filings 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.

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,
2017

June 30,
2017

September 30,
2016 (2)

September 30,
2017

September 30,
2016 (2)

Net revenue:
Net revenue $ 60,513 $ 49,080 $ 24,772 $ 150,834 $ 68,424
Net revenue - related parties 5,925 10,861 6,468 27,657 22,408
Total net revenue 66,438 59,941 31,240 178,491 90,832
Cost of revenue:
Products and services 38,643 32,025 16,483 96,127 48,750
Products and services - related parties 5,569 8,574 5,406 22,851 19,118
Amortization of intangible assets 153 153 51 459 51
Total cost of revenue 44,365 40,752 21,940 119,437 67,919
Gross profit 22,073 19,189 9,300 59,054 22,913
Operating expenses:
Research and product development (1) 8,804 8,995 5,885 27,028 15,583
Selling, general and administrative (1) 11,454 10,453 8,278 32,506 16,691
Amortization of intangible assets 154 544 251 1,191 259
Total operating expenses 20,412 19,992 14,414 60,725 32,533
Operating income (loss) 1,661 (803 ) (5,114 ) (1,671 ) (9,620 )
Interest income 36 20 31 82 137
Interest expense (263 ) (256 ) (204 ) (793 ) (600 )
Other expense, net 60 264 (112 ) 43 (41 )
Income (loss) before income taxes 1,494 (775 ) (5,399 ) (2,339 ) (10,124 )
Income tax provision (benefit) 107 99 (610 ) 646 (1,041 )
Net income (loss) 1,387 (874 ) (4,789 ) (2,985 ) (9,083 )
Net income (loss) attributable to non-controlling interest (12 ) (65 ) (56 ) 172 (17 )
Net income (loss) attributable to DASAN Zhone Solutions, Inc. $ 1,399 $ (809 ) $ (4,733 ) $ (3,157 ) $ (9,066 )
Foreign currency translation adjustments (284 ) (824 ) 2,291 1,782 2,690
Comprehensive income (loss) 1,103 (1,698 ) (2,498 ) (1,203 ) (6,393 )
Comprehensive income (loss) attributable to non-controlling interest (14 ) (64 ) (54 ) 191 48
Comprehensive income (loss) attributable to DASAN Zhone Solutions, Inc. $ 1,117 $ (1,634 ) $ (2,444 ) $ (1,394 ) $ (6,441 )
Earnings (losses) per share attributable to DASAN Zhone Solutions, Inc.:
Basic and diluted $ 0.09 $ (0.05 ) $ (0.42 ) $ (0.19 ) $ (0.90 )
Weighted average shares outstanding:
Basic and diluted 16,382 16,380 11,139 16,380 10,046
___________________________________________________
(1) Amounts include stock-based compensation costs as follows:
Research and product development $ 12 $ 16 $ 3 $ 42 $ 3
Selling, general and administrative 183 204 125 628 125
$ 195 $ 220 $ 128 $ 670 $ 128
Reconciliation of net income (loss) to Adjusted EBITDA:
Net income (loss) $ 1,387 $ (874 ) $ (4,789 ) $ (2,985 ) $ (9,083 )
Stock-based compensation 195 220 128 670 128
Interest income (expense), net 227 236 173 711 463
Income tax provision (benefit) 107 99 (610 ) 646 (1,041 )
Depreciation and amortization 752 1,172 628 3,105 1,165
Merger transaction costs 3,536 3,536
Adjusted EBITDA $ 2,668 $ 853 $ (934 ) $ 2,147 $ (4,832 )

(2) The results for the third quarter of 2016 included the combined results of Dasan Network Solutions, Inc. and legacy Zhone Technologies, Inc. from and after September 9, 2016, following the completion of the merger. The Company’s financial results prior to September 9, 2016 do not include the operations of legacy Zhone Technologies, Inc.

DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(In thousands)

September 30,
2017

December 31,
2016

Assets
Current assets:
Cash and cash equivalents $ 10,145 $ 17,893
Restricted cash 13,058 6,650
Short-term investments 993
Accounts receivable, net:
Trade receivables 43,478 38,324
Related parties 12,941 13,311
Other receivables:
Others 13,851 12,068
Related parties 22 171
Inventories 31,966 31,032
Prepaid expenses and other current assets 3,198 4,131
Total current assets 128,659 124,573
Property and equipment, net 5,812 6,288
Goodwill 3,977 3,977
Intangible assets, net 7,174 8,767
Other assets 1,536 1,842
Total assets $ 147,158 $ 145,447
Liabilities, Stockholders' Equity and Non-controlling Interest
Current liabilities:
Accounts payable:
Others $ 35,224 $ 30,681
Related parties 106 430
Short-term debt:
Others 18,382 17,599
Related parties 3,544
Other payables:
Others 1,691 2,040
Related parties 210 6,940
Deferred revenue 2,073 1,901
Accrued and other liabilities 10,108 8,163
Total current liabilities 71,338 67,754
Long-term debt 5,000 6,800
Deferred revenue 1,875 1,674
Other long-term liabilities 2,581 2,351
Total liabilities 80,794 78,579
Stockholders’ equity and non-controlling interest:
Common stock 16 16
Additional paid-in capital 89,873 89,174
Other comprehensive income (loss) (1,052 ) (2,815 )
Accumulated deficit (23,080 ) (19,923 )
Total stockholders’ equity 65,757 66,452
Non-controlling interest 607 416
Total stockholders’ equity and non-controlling interest 66,364 66,868
Total liabilities, stockholders’ equity and non-controlling interest $ 147,158 $ 145,447

View source version on businesswire.com: http://www.businesswire.com/news/home/20171101006812/en/

DASAN Zhone Investor Relations:
Tel: +1 510-777-7013
Fax: +1 510-777-7001
investor-relations@dasanzhone.com
or
DASAN Zhone Public Relations:
Tel: +1 760-814-8194
carla.vallone@portavocepr.com

Source: DASAN Zhone Solutions, Inc.