DZS (DZSIQ) Q2 2024 earnings summary

Executive summary

• All restated and delayed SEC filings are now current through Q2 2024, closing a period of financial restatement and delayed reporting.

• Divested Asia business in April 2024, which represented about 50% of consolidated business, to focus on North America, EMEA, Australia, and New Zealand.

• Acquired NetComm in June 2024 for $8.2 million, adding strategic technology, marquee Tier 1 customers, and expected to be accretive with early cross-selling synergies.

• Trading of common stock on Nasdaq was suspended on August 8, 2024, and the company is subject to delisting.

• Focus for the remainder of 2024 and into 2025 is on achieving NetComm synergies, reducing inventory, and strengthening the balance sheet.

Financial highlights

• First half 2024 revenue from continuing operations was $58.7 million, down 21% year-over-year from $74.9 million.

• Q2 2024 revenue was $31.1 million, flat year-over-year, with orders rising 6% to $38 million.

• Adjusted gross margin improved to 39.8% in H1 2024 from 38.1% in H1 2023; Q2 2024 GAAP gross margin was 33.6%.

• Adjusted EBITDA loss improved to $11 million in H1 2024 from $20 million loss in H1 2023; Q2 2024 adjusted EBITDA loss was $7.3 million.

• GAAP net income for Q2 2024 was $23.1 million, compared to a loss of $22.6 million prior year, primarily due to a $41.5 million bargain purchase gain from NetComm.

Outlook and guidance

• Management expects the NetComm acquisition to be accretive and to drive positive sales and inventory conversion in H2 2024 and 2025.

• Focus remains on converting $150 million of scheduled backlog and $75 million of paid inventory to cash.

• Gross margins anticipated to improve versus 2023 but slightly lower than H1 2024; operating expenses projected at $15–$17 million exiting 2024.

• Targeting positive cash flow in H2 2024 and aiming for break-even by year-end.

• Existing cash and working capital are expected to be sufficient for at least the next 12 months.