DZS (DZSIQ) Q3 2024 earnings summary

Executive summary

• Q3 2024 revenue reached $38.1 million, up 23% quarter over quarter and 67.8% year over year, driven by the NetComm acquisition.

• Adjusted gross margin improved to 36.7%, a 6.5% sequential increase and up from 17.4% a year ago; GAAP gross margin was 29%.

• Adjusted EBITDA loss narrowed to $9.3 million from $17.5 million in Q3 2023, a 46.8% improvement.

• Divested network assurance and in-home Wi-Fi management portfolio for $34 million, reducing debt and adding cash.

• Completed restatement process, integrated NetComm, and focused on cost optimization and balance sheet strength.

Financial highlights

• Revenue from continuing operations was $38.1 million, up from $31.1 million in Q2 2024; YTD revenue was $96.9 million.

• Adjusted operating expenses increased due to NetComm acquisition; non-GAAP operating expenses were $23.3 million.

• Inventory at quarter-end was $79 million; working capital stood at $24 million; cash balance was $5.7 million.

• Quarterly interest expense was $2.2 million; long-term debt at quarter-end was $30 million.

• Net loss from continuing operations was $25.6 million for Q3 2024; diluted GAAP EPS loss was $(0.67).

Outlook and guidance

• Q4 2024 revenue and profitability expected to improve sequentially, with break-even Adjusted EBITDA targeted in 2025.

• Service provider spending expected to normalize in 2025, with government stimulus programs accelerating in the second half.

• Inventory conversion to cash projected over the next four to five quarters.

• Management believes cash and working capital are sufficient for at least the next 12 months.