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DZS (DZSI)

Participants
Kirk Misaka Chief Financial Officer
Yung Kim Chief Executive Officer
Call transcript
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Operator

Good day ladies and gentlemen and welcome to the Third Quarter 2017 DASAN Zhone Solutions Inc. Conference Call. I’m LaToya and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode.

We will be facilitating a question-and-answer session towards the end of the conference. reminder, call a for being As purposes. replay Instructions] this is conference recorded [Operator like your to Kirk now would I introduce proceed. Misaka, host Please today, for

Kirk Misaka

future Thank Kim. here current business today third the the CEO about to of Solutions and the Zhone state earnings begin with you, and Solutions, in DASAN [ph] DASAN comments Yung Inc., I’m DZSIs XXXX for will his Zhone the call. conference of operator. Hello Yung of the quarter company. priority welcome with

dial-in release Following I the the our be the and discuss available quarter. financial third on for we today. are and issued available instructions DZSIs quarter prepared recorded next being following questions will replay for replay available will online our Yung’s week. purposes for answers. be will press replay will comment call. is results This conclude with audio for An and webcast for provide After approximately conference remarks www.DASANzhone.com also at The one guidance

we the Act we Securities course mention statements Harbors of that XXXX the created of Securities the Act begin, of XXXX. during under that Safe and call, make forward-looking the may to Exchange this I’d Before subject are to like

to profitability, by could addition, legacy stock performance company’s risk technologies These purchase existing network results financial competition of ability fund reporting benefit material the future the to additional government the generate of to in to telecommunications existing incur, filing indebtedness. to differ statements In of that for cautioned the are materially market, company’s ability The relating product. [Indiscernible] financial solutions deficiencies the repay to forward-looking ability technologies in products. the higher not revenue and audit or other or the Inc., effects include any other to initiation and of results over that the customers but and raise or the the statements consolidated those Commercial the for controls revenue realize team industry Factors anticipated listing, re-finance other the equipment committee others margins, merger to expenses litigation, investigation the any and weaknesses economic in in company’s NASDAQ the may facts other acceptance or in or regulatory the statements. cause actual refer Inc. civil actual financial failure limited sustained among from integration relating legacy estimates, in or achieve company’s statements zone synergies arrears adverse market requirements of to savings, the or that company’s restrict its other to other sufficient looking forward to the include with comply to the company operation merger. capitals ability any expenses continued of to that of are slowdown of anticipated DASAN contemplated any the differ zone actions product; or and projections proceedings, the communications cost than periodic for items. Intense financial internal Company’s that could expressed Listeners enforcement

and statements including to factors at SEC the the available In are risk Forms addition, without on reason. Listeners for filings as not which the contained X-K. XX-K, are of XX-Q any reliance they on undue any to obligation forward-looking or the to on filings which undertakes please The Company in any refer speak forward-looking www.sec.gov, Company’s Company’s update revise only limitation, date cautioned place statements, made. no

decision results meaningful, company’s for information to appropriate we for financial the to cash the understanding development adjusted because financial non-GAAP of its invest operating to EBITDA that greater operational to in they our operational company’s with management also are enhance used the will ability by provide These making are providing making. non-GAAP and the and and supplemental GAAP capital of management course These decisions, of performance regarding in is transparency flow prospects believe results past research the performance supplemental the adjustments information make intent overall During we to as uses provide among to primary and to measure this made an including company’s a expenditures. basis call, the reference indicators and future. fund

meant financial measures comparison information of historical non-GAAP with in additional prepared be isolation to not as financial GAAP. performance competitors these company’s results. is in internal addition, to of and the measures a to In management’s comparisons this operating accordance results considered or presentation facilitate operating for The substitute

information adjusted GAAP was at Yung for mind, release Kim. within website on posted those have provided comments now been With EBITDA which in would www.DASANzhone.com press the reconciliation Yung? We like introduce I to our

Yung Kim

Technologies the since Zhone Kirk and you, create DASAN, products, expected the selling practices, the call. in the over we and providers innovative adoption value those year most Thank of and Solutions and a generated merger equipment on greetings successful cross world. just communications, of products those Network integration best to largest through our a participating of of greater Its’ one to customers. to merged The than our been today’s complimentary

by expected stronger sooner seeing improved has than expected been financial than revenue growth. also are led We which performance

share minute. growth profitability base the of of improved growth exceed portfolio an well dramatically from the to because the in companies topline has began we broader discuss product customer in spending merger. discussed of contributors Prior million as market the those $XXX In annual year’s the loyal to third combined have geographic of major company to XXXX. now sales team That environment. as Kirk were million. details are grown gaining after the cost Revenue reaching annual the in career we efficiency quarter comes expected time will to and major a immediately generating cross about combined revenue company’s region the before, and a unified with support $XXX selling revenue. every were each merger, As a and

We force revenue are that for came by geographic from strength all to together. our the quarter collaborating of see global regions driven encouraged sales

provider was of telecom leading the Korea one in Asia largest DASAN the equipment Japan tier carriers region and with a representing know, and three Pacific including other region the largest in carriers you As the and carriers in some in customers the Vietnam.

So in alternative on carriers the hand Americas, other was leading Middle carriers and and the player tier East. to East in several in the Middle with addition X Europe the Africa

product about strength the As excited about base, are as customer breadth our are equally the and of our of we breadth and portfolio. strength excited we

portfolio service providers, the networks for of enabled efficiently enterprises resulted mentioned, to them Zhone I complementary manage and the technologies their in demand bandwidth. migrate to and combination latest DNS As to product exploding while more satisfy the allowing a effectively robust that to

defined continue driven or passive the will in software on will [Indiscernible] efforts best-in-class and mobile by that optical to product near or we areas. We growth switching, SDN. products five catalysts. our our Ethernet two product In major LAN delivering continue future, Broadband to backhaul, focus be networks key access, revenue expect

to First, we and cross switching will Zhone products continue to sell legacy Ethernet mobile customers. DASAN’s backhaul

to sales in will our optical the broadband grow our access to be of other Second growth that continue LAN product the global enable portfolio enhanced in through revenue product Meanwhile, expect core our force. the business our passive we we product will segment.

our financial quarter the more details for turn overview back With Kirk? results the to the our to and financial provide call Kirk about the brief me for third future. guidance let

Kirk Misaka

of for Yung. $XX upwardly higher Revenue from million. our was XX% quarter $XX.X XXXX then million, million approximately third Thanks, much the guidance revised revenue of $XX.X up quarter of second and

continue As Yung is mentioned, from expected XX% our and revenue confidence increase, revenue million. over forma to grow Annual will Backlog the fourth $XX of us merged will annually XXXX all and combined also revenue increase million companies. upwardly revenue revenue the came geographic regions now strength than by forecast that exceed to easily of categories. pro product to $XXX quarter about giving revised more all

XXXX higher well on norms. of margin XXXX this we for strong third and our quarter mentioned approximately quarter third next depreciation compensation for second amortization growth and business expenses the should on total to of higher of to quarter expansion manufacturing costs. from for the Operating $XXX,XXX. largely gross of XX%. way and due roughly are same $XXX,XXX also longer-term than around and few that and to we than closing strong last XX.X% the include of seeing our benefits are XX% earnings economy at beginning to Earlier those reductions discuss as with focus call. quarters being and be should captured. scale and XX% fourth and expenses cost of our plan will We forecast Operating accounting our for to which now margins the the legal on million Gross product come approximately year are XX% topline out a year our $XX.X much historical stock-based margins were for unexpected forma quarter were compared the till XXXX roughly pro you Gross

quarter we continue about for should continue Depreciation $XXX,XXX should stock-based to quarter. to the be and be amortization For about and XXXX by about operating expenses expect fourth to lower the compensation $XXX,XXX. $XXX,XXX be fourth

second significantly EBITDA of better adjusted was quarter the non-GAAP profit the $XXX,XXX quarter. Our third than $X,XXX,XXX for

expect on in attributable quarter. as of We positive our that net also financial GAAP basic posting became adjusted a and will and compared even GAAP fourth profitable guidance, to the $X.XX DZSI a of to DZSI $XXX,XXX in be net attributable income share net we and better on based revised to second diluted quarter. $X,XXX,XXX the per EBITDA Based loss income the

talked immediate about and was goal. we’ve primary all our is As financial year profitability and

sooner than integration businesses. of We’re the expected quick and able of because profitability achieve to our successful

driven As growing expense through that call that call. mobile to now optical from new Q&A backhaul economies the of questions. improved the open the operating synergies portion growth cost the cost in and was please reductions LAN, of margins opportunities passive gross up cross-selling and revenue merger. from Yung and scale by manufacturing like mentioned With markets and associated overview begin with to Operator reductions we’d profitability

Operator

Christian question Thank you. Schwab The from Craig-Hallum first of Capital. Instructions] [Operator is

is open. Your line

Unidentified Analyst

of Thanks. is on Tyler This behalf Hi. Christian.

Let me ask couple of questions.

update possibly a or plan CEO portion, is First, any the timeline? there on there

Yung Kim

Yes.

November. We and literally And listed short that days start decision. making we in now that, we away with people are both two them have know can of from

both So are public yes, accounting. And in them have of well. progressing company we experiences

Unidentified Analyst

three or that rank two to to forward? Great. All possibly drive growth on and could right. maybe focusing Then topline you’re things talk you specifically going us

Yung Kim

lots place. few backhaul some we also U.S. in a a enterprise say Vietnam of things one is our though it even can two areas; first carrier The for couple it Ethernet backhaul mobile of see call the In do or application We enterprises backhaul, also other in we sales and as enterprise mobile in we that. so for I Taiwan, topline to would already used a and mobile that, doing be and trials.

one that’s So area.

optical successful other passive we did The big launch area next a year stadiums a are to simplified catching enterprises smaller and install have that with is one the but is one LAN. version very easy and sizes. going to we campuses, This more of university

if would a is that one another do be We’ll cross-selling think switching. of to I one increases I Ethernet may put to customers the know. and some

Unidentified Analyst

lastly, All modeling right. And you. Thank of little then more a question. maybe Great. bit

expecting mentioned inflection at base? is foreseeable point to the for could future? of you and that you that you cost kind of line. that see lower is QX you and level expect Would spending out XXX,XXX growth if the base, be here So profitability a the Do OpEx that you I on the is come more revenue know you support think to the

Kirk Misaka

We is XXXX we at stay that growth leverage at expect that significant The And additional fourth on can a level think would that level in that quarter. at OpEx would we stay that approximately level. XXX,XXX the that topline. least and that or in expect the at Yes. reduction

Unidentified Analyst

Perfect. That’s right. me. from All all

Kirk Misaka

Thanks.

Operator

like Thank further call to showing remarks. questions the for Yung would this closing I’m at [Operator time. Instructions] back not over you. turn I any to

Yung Kim

accomplished. and for successful Thank continued you joining integration companies us has our that and again support great been of for your today merger two

for value investors. fully unified and prepared The to going customers We compete a company has forward. in created also a are merger our stronger significant and successfully now

call financial continue will next conference momentum with plan speaking goal. are Thank Our will you financial our we We year. when and the business reflecting to value expect earnings results discuss you. already we on and again the that next look XXXX into forward quarter’s

Operator

today. for conference you your the concludes participation. That Thank