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DZS (DZSI)

Participants
Pei Hung VP of Finance and Investor Relations
Yung Kim Chief Executive Officer
Michael Golomb Chief Financial Officer
Christian Schwab Craig-Hallum Capital
Greg Baufield Northland Securities
Call transcript
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Operator

Good day, and welcome to DASAN Zhone Solutions, Inc. Fourth Quarter and Fiscal Year 2018 Conference Call. I'm Jonathan and I will 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 toward the end of the conference call. reminder, call a for being As purposes. replay Instructions] this is conference recorded [Operator like the to your now would I turn host, call Ms. to over Pei Vice President Finance Investor Hung, of Relations. and proceed. Please

Pei Hung

you and afternoon fourth operator, XXXX call. earnings us you, Thank quarter everyone. Thank on for good our joining

Golomb, afternoon, XXXX on today announcing XXXX. of fourth quarter Michael the its me issued fiscal a Kim, CEO; are results Joining DZS Yung press and year the and call CFO. release this its

online in Company's release Investor can Relations the press You access of the website, Section the www.dasanzhone.com.

based will results During actual our the call, are uncertainties. this These course and subject X-K cause could to expectations. of differ refer Factors we to to that risks are other obligation SEC undertakes forward-looking statements expressed call detailed current forward-looking our Company on statements our financial on that any revise this non-GAAP in to or Please we basis. The no also statements. note are a measures certain filings. and today, on update use filed in

We our earnings these have in financial release. non-GAAP to GAAP provided financial press measures measures reconciliations of

results that XXXX and CEO on adopted introduce of January modified in comments XXXX, note Yung? our With guidance Kim, mind, ASC basis. forward-looking which those fiscal retrospective QX like on Xst, provided year would I we now a 'XX XXX, Yung are Finally, under and to the DZS.

Yung Kim

Pei, you, afternoon good Thank everyone. and

and PON we was introduced of broadband generation to delivered organization we year, progress strong out perspective, From research, believe ONTs. it solutions in accomplish. a year of team for the a our I product new our OLTs XXXX, what both made we results. with XXG business our the on plans set beginning our At reflect of I to As and products, DZS. elevate

to in the Given value largest sets gateways complement service the portfolio. one are we of provider, selection industry, and existing we finding of add to our customers, interoperable interoperability the ways and offer, feature

technology Stadium SuperBowl to our connect win the we weeks video Mercedes-Benz access few the points, including a customers largest over continue world's for front, including wireless XX, to the FiberLAN X,XXX FiberLAN deploying ago. On at display

introduced plug-and-play the newly also switches. the enterprise FL-XXX FiberLAN our We generation offerings of launch FiberLAN of market series for designed the with a

to LAN. plug-and-play plug-and-play are customers. small-to-medium from our the nature particularly generate legacy FiberLAN high of solutions for for switching out human focus large is will savings, significant manageability while designed value to for vision resources I'm improve networks on our ROI increase also enterprises Our projects. The valuable IT copper-based enterprise that pleased it to freeing and fiber-based cost

introduced also help philosophy in existing interoperability, their customers Home of suite our broadband hardware our customers and Whole of our the provider connection service neutral most And to WiFi configurable out get We is our solutions. keeping of platform our DZS completely infrastructure. open with offering

demonstrate continue wireless as On XG the LG the with deploy Korea mobile XG win switches our U contract out signed latency the backhaul our to market. we U South first to in MXXXX customer ultra-low leadership. significant carrier-grade rolls network commercial We side, plus LG a plus

We me. excites to selected than XX,XXX more provide high the schools Korea or connect of to and wired that win Ministry were across based Education recent infrastructure a Networking elementary, wireless the highlight to SDN wanted and by also middle, We South country. Software-Defined

SDN used be infrastructure, part that expect modernizing our in based the critical will solution to and Over promote generation next to a proud years, Korea's next I I'm three play network South learning. us schools'

as Operating leadership Officer including formalizing we adding business, role, our Head deepened to Asia-Pac management our Chief On the our Asia of a Korea. as well new bench, lead front, excluding

advised private Fortune is in the XXXX, Europe two well-respected an the other partner include one companies, telecommunications including to in firm, Board and and operating XXX our who is particularly executive at broadened we the technology manufacturing directors has industry. who Additionally, new in investment

also closed his our Manager and will Lothar year, of We new the anchor General this the of DZS-KEYMILE, earlier leaders Schwemm, KEYMILE European acquisition on headquarters.

and We also are value our already We finding proud ways financial Europe which customers $XXX.X globally. in XXXX million, growth. approximately to finished XX% of a I'm reflects perspective, of a From deliver collectively to achievements. with more full our year approximately year-over-year revenue

We also strides on make continue to profitability.

For we adjusted million $XX XXXX, full year in generated EBITDA.

the year-end see future. customers. from XXXX to and financials, With heading for our We that into results me continue Michael momentum guidance Michael? brief provide with our financial our let financial more to and the product the quarter for details and the turn side the same call the to overview, about positive fourth

Michael Golomb

Yung. you, Thank

Before that results contribution and figures any organic DASAN want reviewing do we reflect Solutions be will you from the I begin, include I Zhone KEYMILE. to with not note today that

We of million. which range $XX forma million, gross guidance provided GAAP and will XX%, $XX in between combined financials and a XXXX, $XX and operating KEYMILE, XXXX of adjusted of expected for be margin for call in our between inclusive pro filing million between X-K revenue expenses to our be million mid-March. We XX% providing $XX QX

adjusted report XXXX between in came line revenue million our I'm to with the that approximately X% year-over-year EBITDA growth. $X million, million. range reflects at QX For an applied which guidance $X of pleased $XX.X to

North of XXXX perspective, the million, $XX.X XX% quarter of in out revenue XXXX From for for our is collectively of that to the Asia-Pacific customer Korean or accounted momentum XXXX. total of EMEA, combined XX% no QX inclusive KEYMILE, than single America, a approximately customer we would which which reflect QX our our revenue $XX.X of XX% million contributed revenue. more our see our generated America, approximately revenue. continue Latin During markets, strong a

Korea, This SK contributed QX to quarter. Communications, Vietnam, leading of timing and MX carrier large Broadband, leading orders depending XXXX, revenue, each in Now for a carrier XX% time excluding XX% will in a time and from KEYMILE, approximately happen South of on respectively.

our XX.X% year Broadband or the For was full KEYMILE, $XX of the revenue. excluding approximately customer significant million XXXX, SK only

$XXX.X line Asia. with including the This year Japan, India, we in robust activity also This for generated year guidance year from full XXXX. our XXXX, million approximately the XXXX. up full Southeast For out Asia-Pacific, revenue from was of of XX% benefited we or

Asia-Pacific Our from XX% in XXXX. significantly business XXXX, growing scale

saw saw the For high-single America year America relatively XXXX, last year. North was EMEA also digit, and year-over-year solid double-digit from growth, full flat Latin

In quarter, gross to Asia-Pacific our margin contributed our XX%, margin. of from turning the of gross proportionate fourth Now its reflects revenue, amount customers.

margin We truly experienced global are Company, a geographic diversification. our according fluctuations to

generated like our than year. XX.X% this India range, margin is staff plus lower further, in gross year in in gross to that global even with which our For is XX% more line we the the gross we in of One full the XXXX, footprint. be range are implied margin for XXX profitable and point Vietnam, can we continue even margin, expand half drive of because we benefit from emerging a truly members based Japan. presence and To our countries Asia, reminder

to basis XXXX, a GAAP on QX $XX.X turning expenses in which million. Now were operating

$X.X a Now includes our accrual is and $X.X $XX of this performance bonus adjusted which in XXXX employees expected $X operating related in this was end than QX a million. million number the approximately low better acquisition to quarter. million between million guidance, merger for expenses came for and both were that KEYMILE $XX.X $XX of the be to special XXXX million and transaction expenses paid million

exclude Our amortization depreciation, non-GAAP expenses. full in and and operating expenses stock-based adjusted QX the year compensation for

be operating of approximately bonus, in GAAP revenue. For this $XX On totaled our and related million paid million quarter. year is or $X.X revenue. Once our expenses this expenses contrast a approximately to GAAP both amount full XXXX, expenses basis, efficiency $XX XX% special We is XX% of related or non-recurring expected of the and our that accrual to in XXXX operating performance million GAAP to focus for again, XXX believe on M&A includes points management. with that expenses continued out this cost point approximately basis in margin operating improvement XXXX

non-GAAP $X in our XX% For or was basis, the quarter which $XX.X On with million, came our for our approximately line EBITDA million guidance. of were the approximately full-year fourth non-GAAP expenses operating a revenue. adjusted XXXX,

of generated least better which For the at adjusted full-year million. of $XX.X XXXX, we came in than million EBITDA, guidance $XX

margins are be XX% range, EBITDA profitable. the still approximately and the were my XXXX, that earlier X% point and for QX in again, underscore we can even low margin gross adjusted Our both full-year with

income Zhone million per net had KEYMILE a those approximately million $X.X QX non-recurring loss position $X.XX performance of from share. earlier, two in to GAAP or $X.X was Solutions of XXXX, resulting XXXX and we bonus. Our expense attributed QX DASAN diluted described special categories In

per Solutions full-year DASAN XXXX, million For attributed DASAN Zhone of or which $X improvement to year-over-year generated net the diluted income Solutions attributed to reflected over saw share, $X.XX Zhone solid a million $X.XX or which net per the share. $X.X XXXX, full year of we income

or Solutions 'XX. Zhone of the organic million the to to approximately XX% $XX quarter first $XX increase ahead to year-over-year expect looking we X% be QX XXXX, from DASAN the million to in range revenue Now

KEYMILE, to non-GAAP expect inclusive impacts million we approximately fully be to the of projected due year, loss be we business, operating range XXXX than the QX significantly million. rest of Inclusive in quarters the adjusted between of KEYMILE, $XX non-GAAP Now expect return to adjusted approximately KEYMILE the to be the expect of simply XXXX. more in of 'XX to $X EBITDA Again, million. GAAP the million negative seasonality to to XXXX for our to million the the to track QX subsequent versus of is DZS income quarter we of gross XXXX driver XX%. business. and and record We EBITDA our much expect XX% EBITDA inclusive which margin expenses The QX profitability QX $XX first adjusted in and KEYMILE, net proven $XX between QX be $XX of

and up cleaning revenue made our that to of regards year to great I strides that our inclusive debt. $XXX wanted up final capital of is structure topic For $XXX in between we the with XXXX, bring million full million, KEYMILE. we One expect have

with growth point, with we business. financing. position we to short-term toward us place the refinancing revolving $XX has facility. to strengthen as funding and expand to our and new senior continued let year refinancing debt facility yesterday, a put Asia, three $XX cash closed we this a a only million and back credit beyond focus an loan turn PNC term This a ABL At in in $XX secured and Bank Yung. call our to wanted support strategic permanent a aim Citibank business will debt our in our me to million million Proceeds facility credit been for long-term go Just for

Yung Kim

we wrap results Thank $XXX.X KEYMILE. revenue million, of where the To we made exclude you, and in to XXXX our EBITDA grew XX% and Michael. up, progress grew financial $XX our adjusted year-over-year million we're to proud these

wrap To growing regions revenue scaling XXXX. are by that for the scale quickly excited up, are our XXXX. for momentum would Home and To to deployment. in say with I profitability are business greenfield million opportunities in see combined Fiber the We The we well We as under-penetrated we continue $XXX see exceeding significant in

In addition, drive will enterprise that recent we launches, segment. expect product particularly penetration the into plug-and-play our FiberLAN deeper

see the of the KEYMILE cross-selling acquisition growth and compelling bringing We also opportunities.

three next network of solutions. network now the drive we Operator, over Korea are the for across and schools of our of South digital are Lastly, tens excited ready based years, by transformation leveraging thousands Q&A? we to SDN

Operator

[Operator comes Craig-Hallum of the from Capital. Christian first Instructions] Our line question Schwab from

Your question please.

Christian Schwab

Great.

I I'm margin gross think QX? the it, was non-GAAP for what missed I sorry, guidance

Michael Golomb

XX%. for margin was QX gross Non-GAAP

Yung Kim

XX%.

Christian Schwab

then, that $XX operating expenses were And correctly be Okay. going for million to I the non-GAAP quarter $XX to did million? hear

Michael Golomb

That's correct.

Christian Schwab

Can material increase up, you that a from all previous of kind kind KEYMILE? rates. of that through step walk run It's is us Okay.

Michael Golomb

to Sure. breakdown. happy provide the I'm you

we the -- and business comes our So for so from rest $XX million a the to million. That's range it's organic had KEYMILE. $XX

Christian Schwab

growth years, of XXXX big look product, we future then, to guys to And thinking the are this a opportunity Company? we three the Okay. two reintroduced access FiberLAN you. points but Perfect. understand out as that for revenue you as have drivers currently, Thank is we've look now I we how

Yung Kim

quick I think question. that's really a

end is new think currently, launched we of in I product don't because our much XXXX just put January. earnings our in

would and I going $X think this easily year significant segments in but is I between maybe way. say, to around term grow in our changes longer think that's have not annum extra a I expect million that come which I our certainly, may revenue. XX% to the per

Christian Schwab

backhaul big opportunity you few in and world remind the success XG it Okay. over everyone in as And to your XG the us moving can is talk how -- the appears next years? of and

Michael Golomb

customer. have we that million I of tenth contract plus, a three-year one LG in exact, The but contract, three content and -- MDI because U over can't it's for three-year be of is years a $X

Christian Schwab

very That's helpful... Interesting.

Michael Golomb

contract. three-year but Speakers] [Multiple not that's is significant, it for

Yung Kim

yeah right, years. three over Right,

Christian Schwab

Yeah.

Okay, perfect. Thank you.

Operator

Thank you.

Our Northland next from line question comes of Tim from Savageaux the Securities.

Your question please.

Greg Baufield

for the Thanks for guys. taking on questions. Good Tim. Greg afternoon, This is

of about the I cadence just was assumptions deals Indian your for guidance? and we contributions I XXXX wondering, what First, Indian should And timing from the are state how guess, rollouts. fiber think in

Yung Kim

the about XXXX So deal -- you're you that -- or it was... Indian XXXX, talking do

Greg Baufield

XXXX.

Yung Kim

Indian XXXX, XX% least we and India, did did from what deal our XX%, planning to $XX we that's expected that grow million at in XXXX. to in we

plan million more. is to about and our So XX% $XX do

Greg Baufield

excluding helpful. out wondering the you And I'm full an in just so break then secondly, Very growth organic KEYMILE? year Great. expectations if for for basis could guidance, so on XXXX, the

Michael Golomb

key we [Indiscernible]. are XX% expected between from grow to business to year-on-year Excluding X% mile, existing

Greg Baufield

wondering quarter you I how in and lastly, this change how XXXX? guess to Perfect. XG the then just expect And Korea is in traction throughout

Yung Kim

by IP... mean you What do

Greg Baufield

XG.

Yung Kim

customer contract mentioned two, but on first and backhauls coming is operators, separated tranche suppliers that all existing radio I the from the and of one are have think XG, the and other OK. earlier suppliers. carriers still we definitive technology they're using And working are I backhaul launching. technology still as radio the XG are five not

So able substitute and place we be in to this technology do to we closely with for carriers other are there. really outside the working Japan, to the in technology we opportunities our and showing And Asia. looking are that, also are some still with

Greg Baufield

then, Got income I wondering, And it. KEYMILE operating guess, was That's to last helpful. XXXX accretive quick be as one. well? will in just I one

Yung Kim

correct. that's Yeah,

Michael Golomb

guidance. Yes, that would to be accretive

of million KEYMILE. when $XXX in inclusive that million So to $XXX we revenue, said

Greg Baufield

you. Got it. Thank

Operator

gentlemen This Thank conclude program. session, program. the your ladies does in as as today's and today's Thank well question-and-answer for you participation you.

Good disconnect. now may You day.