Release Date: September 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- DZS Inc (DZSI, Financial) has successfully completed its restated and delayed periodic reports, ensuring compliance with SEC requirements.
- The company has made significant progress in reducing operating expenses by approximately 29% during the second half of 2023.
- DZS Inc (DZSI) reported an improvement in adjusted gross margins from 38.1% in the first half of 2023 to 39.8% in the first half of 2024.
- The acquisition of NetComm is expected to be accretive, adding significant scale and new revenues to DZS Inc (DZSI)'s connectivity products.
- The company anticipates double-digit growth in orders and revenue in the second half of 2024, driven by the inclusion of NetComm and the timing of fiber to the home and enterprise projects.
Negative Points
- DZS Inc (DZSI) experienced a decline in revenue, with first half 2024 revenue at $58.7 million compared to $74.9 million in the first half of 2023, a 21% year-over-year decrease.
- The company recorded a $2.8 million loss on the sale of its Asia business during Q2 2024.
- DZS Inc (DZSI) faced a significant charge for excess inventory of $25 million in 2023, impacting gross margins.
- The restatement process and associated delays have caused disappointment among customers, suppliers, and shareholders.
- The company reported an adjusted EBITDA loss of $11 million in the first half of 2024, although this was an improvement from a loss of $20 million in the first half of 2023.
Q & A Highlights
Q: Charlie, it looks like Europe is showing some resilience here, in first half '24, nice uptick in 2Q. Well, the Americas business is down just maybe a little bit more than the broader market. Maybe can you shed some light on your thoughts about fiber core fiber opportunity across those two markets where you're most excited about you had some Tier one traction going in Europe. Last we heard from you maybe give us an update on some of the fiber opportunities as you see it, that could impact say the next few quarters?
A: Sure. It was good to hear from you, Ryan. Well, first, I think the most important thing for everybody to appreciate is just the dynamics that happened in 2023. As I sort of highlighted in my scripted remarks, the first half of 2023, we had a lot of backlog that we were aligned to. And we obviously went into 2023, with an outlook that a lot of the pacing of a lot of the trials that we're involved with convert during the second half. That didn't happen, I think, frankly, for a lot of reasons, I think one was just where a lot of service providers were, the management of the inventory that they had acquired over the previous, let's call it 12 months. And so there was, in our view a different sort of pacing in the second half of '23, and maybe into the first half of this year, with the general sort of grouping of at least our customers. As it relates to a lot of the new trials that we've invested a lot of time and energy into over the last 18 months. We're still very optimistic about the outcome of those. I would say that a lot of those in '23, have got pushed out just because they were prioritizing their core business and just deploying as much inventory as they had before. They brought on a new technology supplier like us. We certainly feel like I'm getting through this restatement, which was obviously very unfortunate and disappointing for all of us. Has created, I guess, a bit more resilience in everything that we're doing. But at the same time, we feel like a lot of the larger scale, Tier one and Tier two trials that we've talked about, Back in late '22, and early '23, are still very much intact. And we believe that a lot of those will convert in the second half of this year giving us an opportunity to deploy and ship in 2025. As it relates to the comment that you had around just the mix, I would say that it was our goal in the second half of '23, in the first half of this year, to ship as much as we could to those who had the ability to take products. And that still had a very active deployment schedule that wasn't dependent on and reliant on the inventory that they already had. So I think a lot of the -- sort of regional mix and the product mix that you saw, I think from us at least in the second half of last year and first half of this year had a lot to do with that. I think as we go forward in the second half of this year, things seem to be a bit more clear. I think most of our customers have worked through the bulk of the excess inventory that they took on -- the previous 12 months. So we feel like the second half of this year will begin to look a bit more traditional. And certainly as we go into next year, we think that next year becomes a much more normalized year for the space and for us.
Q: Got it. That's helpful, Charlie, and on the middle mile opportunity was Sabre. How are you feeling about that product's been shifting for a little while now, kind of narrowed in, your key niche that you're looking to enter that market because I'm sure the products not you have to do everything for everybody. So you have a good feel for where the opportunities are and what the competitive landscape is there for the the new Sabre-4400?
A: Yeah, no. I mean a great question, and I appreciate the question. Look, we launched Sabre to really wedge our way between the gap that we saw in last mile and where the high dense DWDM optical transport metro and long-haul market was. And so what we were beginning to see over the, let's call it two years as more and more XGS Pont was being deployed. And as more service providers and technology companies, we're talking about 25 and 50 gig, it became very evident to us that there was going to be a bottleneck issue at the access edge and that, it was a great opportunity for us, especially with the acquisition of optilian and to turn a lot of the resources to building a next-gen. Access optical transport product that would sit -- co-located right at the OLT and more economically aggregate last-mile fiber in hand that off to the Siennas and the Infinera and the Nokias of the world that are that are driving higher DWDM bandwidth. So we think that's a big market opportunity for us. I would tell you we were probably six months late in getting that product to market. And with most new products, you're looking for two or three new customers to really help validate the product to work out some of the early kinks and issues that don't get determined until your first deployment. And I say we're in we're sort of past that window right now, and we're now into that reference cycle where we now have a couple of customers that are very happy and that we believe will become the references that we need for that. But as it relates to the actual application and design, we think that the market opportunity for Sabre is a very encouraging for us.
Q: Hey, good morning. I wanted to drill down a bit on the second half guidance. We're clearly going to include a full quarter of NetComm here in Q3. That gets an incremental $10 million or so. And I guess the question is in terms of the growth commentary, to what extent extent do you expect the kind of organic DZS business to grow in the second half and kind of what order of magnitude. And if you add all that up along with your OpEx commentary and again, I imagine gross margins will come might come down a bit with what's my full quarter of NetComm and Q3, but it seems like you guys you could have a reasonable shot at breakeven exiting the year. Might be interested in your comments on that.
A: Thanks. Good to hear your voice, Tim, I think you got it right. Obviously, we're purposely being thoughtful about what we're going to guide to it, especially coming out of a pretty challenging, let's call it 12 months. And so our thought process right now is that we would soft guide in the in the second half of this year and hopefully get to a more formalized guidance profiling starting in 2025. I think if you're us and having endured what we just did, there's not a lot of upside for us right now to be overly ambitious with investors and analysts. And so I mean, look, I mean, you're absolutely right. I mean, we've now provided pro forma financial
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
