DZS (DZSIQ) Q2 2024 earnings summary

Executive summary

• 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 to focus on North America, EMEA, Australia, and New Zealand, expected to improve gross margin.

• Acquired NetComm in June 2024 for $8.1 million, anticipated to be accretive with early cross-selling synergies and a $41.5 million bargain purchase gain.

• Prioritized monetizing $75 million of paid inventory and optimizing cost structure.

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

Financial highlights

• Q2 2024 revenue was $31.1 million, flat year-over-year; 1H 2024 revenue declined 21% to $58.7 million.

• Q2 2024 GAAP gross margin improved to 33.6% (vs. 32.7% prior year); 1H 2024 gross margin rose to 39.2% (vs. 36.3%).

• Adjusted EBITDA loss improved to $7.3 million in Q2 2024 and $11.1 million in 1H 2024.

• GAAP net income of $23.1 million in Q2 2024 (vs. $-22.6 million prior year), driven by the NetComm bargain purchase gain.

• Cash balance at June 30, 2024, was $8.1 million; paid inventory stood at $75 million.

Outlook and guidance

• Management expects the NetComm acquisition to be accretive and to drive positive sales and inventory conversion in 2H 2024 and 2025.

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

• Operating expenses projected at $15–$17 million exiting 2024; targeting break-even by year-end.

• Anticipate benefits from government stimulus programs, especially in 2025.

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