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TMCNet:  DASAN Zhone Solutions Reports Second Quarter 2017 Financial Results

[August 09, 2017]

DASAN Zhone Solutions Reports Second Quarter 2017 Financial Results

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 June 30, 2017. Revenue for the second quarter of 2017 was $60.1 million, compared to $53.1 million for the first quarter of 2017 and $34.8 million for the second quarter of 2016. "With the successful integration of our businesses, we are seeing improved financial performance led by stronger than expected revenue growth," stated Jim Norrod, Co-CEO of DASAN Zhone Solutions.

Net loss attributable to DASAN Zhone Solutions, Inc. for the second quarter of 2017, calculated in accordance with generally accepted accounting principles ("GAAP"), was $0.9 million or $0.05 per share compared with net loss attributable to DASAN Zhone Solutions, Inc. of $3.5 million or $0.21 per share for the first quarter of 2017 and net loss attributable to DASAN Zhone Solutions, Inc. of $0.5 million or $0.05 per share for the second quarter of 2016. Adjusted earnings before stock-based compensation, interest income (expense), net, income tax provision (benefit), and depreciation and amortization ("adjusted EBITDA") was an adjusted EBITDA income of $0.8 million for the second quarter of 2017, compared to an adjusted EBITDA loss of $1.1 million for the first quarter of 2017 and an adjusted EBITDA income of $0.1 million for the second quarter of 2016. "The merger has also created significant value for our customers and investors," said Yung Kim, Co-CEO of DASAN Zhone Solutions. "Our financial results are already reflecting that value and we expect that the momentum will continue to accelerate through the remainder of the year."

Cash and cash equivalents at June 30, 2017 were $9.9 million compared to $17.9 million at December 31, 2016.

DASAN Zhone Solutions will conduct a conference call and audio webcast today, August 9, 2017, at approximately 2:00 p.m. PT / 5:00 p.m. ET to review its second 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 conference ID 46042204. The audio webcast will be simultaneously available on the Investor Relations section of DASAN Zhone Solution's website at http://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 46042204. An audio webcast replay will also be available online at http://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) 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).

About DASAN Zhone Solutions

DASAN Zhone Solutions, Inc. (NASDAQ: DZSI) 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 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, 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 (News - Alert) filings available at www.sec.gov, including without limitation,�the Company's�annual report 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 Six Months Ended

June 30,
2017

March 31,
2017

June 30,
2016

June 30,
2017

June 30,
2016

Net revenue:
Net revenue $ 55,220 $ 45,769 $ 30,585 $ 100,989 $ 53,733
Net revenue - related parties 4,893 7,305 4,206 12,198 6,851
Total net revenue 60,113 53,074 34,791 113,187 60,584
Cost of revenue:
Products and services 36,931 28,941 21,841 65,872 40,131
Products and services - related parties 3,662 5,627 3,746 9,289 6,173
Amortization of intangible assets 153 153 - 306 -
Total cost of revenue 40,746 34,721 25,587 75,467 46,304
Gross profit 19,367 18,353 9,204 37,720 14,280
Operating expenses:
Research and product development (1) 8,996 9,229 5,019 18,225 9,697
Selling, general and administrative (1) 10,636 10,709 4,284 21,345 8,693
Amortization of intangible assets 544 493 - 1,037 8
Total operating expenses 20,176 20,431 9,303 40,607 18,398
Operating loss (809 ) (2,078 ) (99 ) (2,887 ) (4,118 )
Interest income 20 26 58 46 107
Interest expense (256 ) (274 ) (202 ) (530 ) (397 )
Other expense, net 206 (498 ) (20 ) (292 ) 65
Loss before income taxes (839 ) (2,824 ) (263 ) (3,663 ) (4,343 )
Income tax provision (benefit) 99 440 196 539 (431 )
Net loss (938 ) (3,264 ) (459 ) (4,202 ) (3,912 )
Net income (loss) attributable to non-controlling interest (65 ) 249 33 184 39
Net loss attributable to DASAN Zhone Solutions, Inc. $ (873 ) $ (3,513 ) $ (492 ) $ (4,386 ) $ (3,951 )
Foreign currency translation adjustments (761 ) 2,993 (116 ) 2,232 401
Comprehensive loss (1,699 ) (271 ) (575 ) (1,970 ) (3,511 )
Comprehensive income (loss) attributable to non-controlling interest (65 ) 270 88 205 102
Comprehensive loss attributable to DASAN Zhone Solutions, Inc. $ (1,634 ) $ (541 ) $ (663 ) $ (2,175 ) $ (3,613 )
Earnings per share attributable to DASAN Zhone Solutions, Inc.:
Basic and diluted $ (0.05 ) $ (0.21 ) $ (0.05 ) $ (0.27 ) $ (0.42 )
Weighted average shares outstanding:
Basic and diluted 16,380 16,379 9,493 16,380 9,493

(1) Amounts include stock-based compensation costs as follows:
Research and product development $ 16 $ 14 $ - $ 30 $ -
Selling, general and administrative 204 241 - 445 -
$ 220 $ 255 $ - $ 475 $ -
Reconciliation of Net loss to Adjusted EBITDA:
Net loss $ (938 ) $ (3,264 ) $ (459 ) $ (4,202 ) $ (3,912 )
Stock-based compensation 220 255 - 475 -
Interest income (expense), net 236 248 144 484 290
Income tax provision (benefit) 99 440 196 539 (431 )
Depreciation and amortization 1,171 1,180 195 2,351 463
Adjusted EBITDA $ 788 $ (1,141 ) $ 76 $ (353 ) $ (3,590 )

DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(In thousands)

� �

����June 30,����
2017

December 31,
2016

Assets Current assets: Cash and cash equivalents $ 9,902 $ 17,893 Restricted cash 8,340 6,650 Short-term investments - 993 Accounts receivable, net: Trade receivables 35,543 37,692 Related parties 25,839 13,261 Other receivables: Others 14,234 12,068 Related parties - 171 Inventories 35,138 31,463 Prepaid expenses and other current assets 3,817 � 4,131 � Total current assets 132,813 124,322 Property and equipment, net 6,079 6,288 Goodwill 4,134 4,134 Intangible assets, net 7,447 8,767 Other assets 1,797 � 1,844 � Total assets $ 152,270 � $ 145,355 � Liabilities, Stockholders' Equity and Non-controlling Interest Current liabilities: Accounts payable $ 33,052 $ 31,111 Short-term debt: Others 20,196 17,599 Related parties 1,800 - Other payables: Others 1,438 7,033 Related parties 8,939 1,947 Deferred revenue 2,845 1,901 Accrued and other liabilities 9,631 � 8,526 � Total current liabilities 77,901 68,117 Long-term debt 5,000 6,800 Deferred revenue 1,947 1,674 Other long-term liabilities 2,534 � 2,352 � Total liabilities 87,382 � 78,943 � Stockholders' equity and non-controlling interest: Common stock 16 16 Additional paid-in capital 89,981 89,504 Other comprehensive income (loss) (668 ) (2,848 ) Accumulated deficit (24,732 ) (20,346 ) Total stockholders' equity 64,597 66,326 Non-controlling interest 291 � 86 � Total stockholders' equity and non-controlling interest 64,888 � 66,412 � Total liabilities, stockholders' equity and non-controlling interest $ 152,270 � $ 145,355 �


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