Release Date: November 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- DZS Inc (DZSI, Financial) reported a 23% increase in revenue quarter over quarter, reaching $38.1 million.
- The company achieved a nongaap adjusted gross margin of 36.7%, up by 6.5% from the previous quarter.
- DZS Inc (DZSI) successfully divested its network assurance and in-home Wi-Fi management portfolio, securing $34 million in an all-cash transaction.
- The acquisition of Netcomm has added market-leading fiber extension, home broadband, and fixed wireless access technology to DZS Inc (DZSI)'s portfolio.
- The company has a growing sales pipeline and a robust backlog, indicating potential for future revenue growth.
Negative Points
- Operating expenses increased due to costs associated with the Netcomm acquisition and final restatement-related costs.
- Adjusted EBITDA was unfavorable by $2 million compared to Q2 2024 due to backlog shipment conversion issues.
- The company faced challenges from an over-rotation of inventory and higher costs of capital.
- DZS Inc (DZSI) reported a loss of $9.3 million in adjusted EBITDA for the third quarter.
- Days payable outstanding (DPO) remained high at 242 days, indicating potential cash flow management issues.
Q & A Highlights
Q: What's your current visibility into the first half of 2025 in the US market? Are you seeing any improvements in the market climate?
A: Charles Vogt, President and CEO, responded that they have completed their preliminary 2025 Annual Operating Plan, which includes scheduled backlog, pipeline analysis, and synergies from the Netcomm acquisition. He noted that customers are working through excess inventory, and they are cautiously optimistic about the first half of 2025, particularly in the US, Europe, and Middle East markets.
Q: Can you discuss any large opportunities in Europe and the Middle East that DZS is competing for?
A: Charles Vogt mentioned that DZS is engaged with three incumbent operators in the Middle East and Europe. They expect a large design win from last year to begin deployments in the first half of 2025, which should generate significant revenue over the next 5 to 7 years. They are also involved with large incumbents in France and Spain, with projects expected to evolve in 2025.
Q: What does the competitive landscape look like for Netcomm's fixed wireless products?
A: Charles Vogt explained that their fixed wireless portfolio focuses on licensed spectrum, competing more with traditional players like Nokia rather than smaller companies like Cambium, which focuses on unlicensed spectrum. Tarana is emerging as a competitor with a proprietary platform, but DZS sees more competition from traditional incumbents.
Q: Can you provide commentary on the gross margin trajectory going forward?
A: Charles Vogt stated that margins would have been in the 40s if not for inventory reserves taken during the quarter. The margin profile is expected to return to expected levels, with a goal of sustaining margins close to 40% as they divested the lower-margin Asia software business.
Q: Are there any further questions?
A: The operator noted that there were no further questions, concluding the Q&A session.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
