Loading...
Docoh

DZS (DZSI)

Participants
Pei Hung VP, Finance & IR
Yung Kim CEO, President & Director
Mikhail Golomb CFO, Corporate Treasurer & Secretary
Christian Schwab Craig-Hallum Capital Group
Ku Kang B. Riley FBR, Inc.
Timothy Savageaux Northland Capital Markets
Jon Gruber Gruber & McBaine Capital Management
Call transcript
Due to licensing restrictions, you must log in to view earnings call transcripts.
Operator

Good day, ladies and gentlemen, and welcome to the DASAN Zhone Solutions Q2 2019 Earnings Conference Call. [Operator Instructions].

As a reminder, this call is being recorded. It is now my pleasure to introduce VP of Finance and Investor Relations, Pei Hung.

Pei Hung

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

issued this me are its Golomb, and DZS today the second Chief press Kim, Officer. Joining call Officer; quarter Yung XXXX. on results announcing afternoon the Chief Executive Financial a for release Mikhail

You the online press in section Investor Relations can the company's access of website, release the investor-dzsi.com.

risks that expectations. we undertakes or revise statements update based During cause forward-looking any These are to the detailed to statements course differ Factors in The to will in filed of refer other and subject actual statements. results our company forward-looking to this SEC filings. obligations could today our current uncertainties. our call, are no on and X-K

use a expressed call Please also on note this non-GAAP that on we are certain basis. measures financial

provided reconciliations those release. press GAAP over the Yung. non-GAAP our financial call I'll hand these With in measures to now measures to financial We to earnings comments mind, in have Yung?

Yung Kim

good afternoon, Thank you, everyone. Pei, and

continued in country the perspective, in year. Our million to East, expect elections, but aggressive just trajectory penetration coming strength our level to from May, the top Japan to QX Middle and $XX.X India of on contribution the only same this East of of Pacific half, as guidance Middle in Asia end customers We in particularly million. come the our same given some line activities regions. for second quarter. We investment the million, this of quarter, their have would broadband from our expect revenue significantly in month-long with the not did keep at broadly in $XX saw India, $XX.X we the quarter X trajectory of and QX, rough of the against our strong across XX And same came Taiwan and

U.S. are some prospectives is a for to remember me give our geopolitical we Given Europe time let with that important in in and California, manufacturing well based spend of Oakland, some It in as business. the globally. and to as the U.S. headlines, company you our capabilities

have expect geopolitical we not Asia headwinds such, As and impact do Pacific negative region. in from seen the not

In fact, can country's for particularly buildout. from the Chinese move their away Japan, efforts, believe in given we XG suppliers our accelerate network we

to continue Japan, We where have quarter. in momentum QX top see of XX we strong our in the X customers

we with a a top carrier addition, In transport. mobile recently contract for Japan in tier won XG

revenue years. this "multi-tens over volumes as as believe We unit dollar of upside from X extension. next multi-year there the about are for well from room excited We opportunity" higher further million is

In fact, current we would revenue from contract commercial as we contract than being characterize existing XG future revenue significant potential the have this and prospective. more the

strong, their deployment longstanding an the and cycle. LTE commercial with we last relationship role XG a have play this We in instrumental carrier, in

we can a are in XG play their We continue to network. key pleased, role of the rollout

focused Additionally, solution be X XG recently are in on letter technology other innovative a Japan. with we partner provide mobile XG carrier in intent to signed We anyhaul Tier to of another a Japan. opportunities

of news further coming partnership in share to this expect the We weeks.

this made XG commercial progress is our announced with contract and Korea We extremely the subscribers of X adoption in August Korea with X, far release launch. have available the the press Telecom, world, fastest are recorded XG months Since became in pleased DZS in X on Korea, million in the year, On has the we website. available XG country our with also since South in initiative. investor growth second on in spring exceeding XG the so South we the Korea

we our start terms the diversification global XG presence. largest carriers that fiber-first well given optical and opportunity, to out of considered positioned believe spend, our we XG market additional be usage. XG is our systems, Korea customer and currently on awarded lineage, To strongly global South be to In coverage of in would upgrade when fact, their one close

On turnkey end are FiberLAN the January. won the early to FiberLAN initiative, market in noncarrier we plug-and-play solution with customer contract launched already we the of middle-single-digit at enterprise In the QX, we seeing East. a a million successes some since large Middle the in our

forward, half America, partnerships strategic the have a are of solidified Looking key North XXXX. in we towards reseller in we Europe second finalizing number relationships of in and progressing

Asia looking We the are market. also and Middle at strategically East

an in also win update I School-Net we that you February. on our wanted provide announced to

to across SDN-based were refresher, years. provide more the country we a schools management than the of solutions connect XX,XXX to few over Education network the As elected by Ministry South Korea next

have deployed our bundle and across management the of to are finding software than our system switches opportunities schools more upgrade. We now part network as XX

full schools. expect revenue software connect to We accelerate as and we hardware more

On the access particularly Europe. are fiber, the copper to copper-rich encouraged in like by move and from continued growth U.S. and front, we the secular regions, historically

in are carriers infrastructures. X U.S. announced at after of intent X network us historically copper-rich have build that fiber One in these of invested to their the least strongest the significant to they recently signals Tier

GPON copper acquired we we As fiber-rich fact is help reach one DZS the be of solutions, we the access fiber-based that broadband the to KEYMILE a of on well In the from with have and gap fiber-based continues, will fiber. heritage which to acceleration of leading technology. pioneers interim, the our positioned G.fast given

to execute team strives management's on a what We're we we said do. that would

on gross guidance, significantly pleased report second once met and the revenue, and margin, quarter that guidance I'm adjusted during our EBITDA. to So operating expenses we outperformed our adjusted again

After XXXX, for have the more will full later to $XXX guidance year range of rest million. particularly Now I'd for in go in detail his our little year, opportunities, $XXX million our lower bit a spend like a year our to XXXX broadband into million we $XXX prior access, on full of decided the from to of slightly forecast remarks. to $XXX review million revenue to Mikhail continue to time of which our outlook

guidance pausing The revised carrier driven our was first XX%. impact million to the was of outlook X our XX.X% range things: guidance are has also margin our to stated We tightening its magnitude our by revenue publicly from XX.X% large was business, the single-digit XXXX. has XX.X% our for rest of it that a has gross as peers, plan same given German the Europe to it a diversification. in from in prior although impacted impacted not This CapEx

in million second India. the expected, adjusted That we slower being to The hopeful were QX. post-elections, of prior bit to and would that but in had impact we of year a increasing a QX, full guidance up see in our $XX was than million has our million. resuming from earnest been We ramp EBITDA pace business activities guidance $XX range we said, $XX to $XX from are million business

our QX continue are and outlook it now growth to strongly detail, year I I'll the to Mikhail? full you this strategy to Mikhail know over turn committed scale but that in let results to discuss to wanted delivering we greater to color profitably provide business. our the

Mikhail Golomb

start second Thank you, some our with outlook. by I'll end color our results and Yung. on quarter discussing

million QX to of our XX% was contract a Second against revenue benefited from significant Indian quarter $XX.X million comparison $XX.X $XX.X a difficult we with somewhat year-over-year million XXXX, from an $XX where customer. in from in guidance grew and line of

single XX% in business to revenue more represented with of think very a customer the no this this other accounting we a of discussed, than perspective, customer diversified quarter, LG From year. QX customer enjoy in customer X% reaccelerates Indian as Yung for we a As Uplus base. continue

market Europe East and of markets. revenue, terms in Middle In our segmentation of saw we strength our Asia Pacific,

have XX% approximately our our well million we of $XX we Middle Asia XX or counted Korea, this momentum of saw our X Pacific, in customer Korea. X quarter, we as region single-digit represented total or In EMEA where represented carrier million from Tier The millions contributed backlog. total Pacific, about we approximately X This strong Japan East spoke as list. including top last Within earnings that of that Asia Taiwan revenue. in customers customers call $XX includes and our revenue. the top-XX on from XX%

at of The XX% $XX market included win least, appears a of to X% approximately a also with last, be the This contributes total or said And customer. or have of million our level our CapEx carriers. U.S. not million X peers Latin $X FiberLAN approximately revenue. market Tier line our It noncarrier total American American remains but revenue. sizable the what North in flat with with

of were as QX the period. guidance an to prior gross XX.X% GAAP of reflects margin margins. unusually operating favorable turning GAAP it of range In XX.X%. the $XX.X revenue India same The in when from year our year-over-year expenses was was and in large comparison margin and million. for contribution came Now quarter, approximately at the our XX.X% XX.X% QX XXXX XXXX QX with gross gross in XXXX's to line favorably against XX.X% came

generated than adjusted $X.X our $X came Our guidance operating adjusted $XX.X to of million margins million. between million expenses guidance of better range X% EBITDA We EBITDA of $X million positive million and previous against or our non-GAAP million. adjusted of $XX.X in $XX

EBITDA very non-GAAP in controls difference quarter, this beat significant adjusted outperformance GAAP this of expenses The step-up and includes We tight results reported a and between quarter and approximately discretionary management in this inventory on amortization headcount acquired our compensation, attribute are amortization around and $XXX,XXX. value fair cost of with to pleased particularly and stock-based depreciation spend. noncash

from million a or XXXX XX% attributed foreign positive currency to $X.X income this gain GAAP benefited per totaled diluted million net Our quarter. QX We DZS of share. $X.X for

high Our shareholders $X.X XXXX this pleased or record quarter. again, year's diluted $X.XX we share through this to earnings million to our per non-GAAP totaled attributed net per are income Once QX this deliver share.

ahead XXXX. Now this looking to third quarter

approximately XX% QX million of revenue or growth to year-over-year an expect expected We of $XX XXXX. from and between $XX million XX%

of We XX.X%. XX.X% gross to GAAP QX XXXX expect margin

non-GAAP million. XX% XXXX R&D this projects. to Of accelerating in of XG XX% operating the half adjusted note, around We $XX.X staying be operating second and incremental continued expenses expect expenses in and control revenue, $XX.X cost of spend spite related to leverage of QX with non-GAAP million our reflects of XXXX operating to between

non-GAAP to be or We and $X $X adjusted million X% margins. X.X% between to approximately EBITDA million expect XXXX QX approximately

slightly outlook, Yung year yet but gross increasing As discussed margin our full lowering XXXX and adjusted revenue guidance. we're EBITDA earlier,

and expect which million revised of $XXX year-over-year growth XXXX of between $XXX XX%. revenue XX% $XXX between full reflects year We $XXX million prior versus million million, and of to revenue guidance

from XX%. of our year margin full XX.X% guidance GAAP gross XX.X% to to expect We prior XX.X% of XXXX

We are million from operating million such, expenses on $XX.X XXXX lowering guidance, guidance to prior $XXX to adjusted and of committed million we our our to full are our non-GAAP year million. to delivering as $XX.X profitability $XX

call the full year prior guidance our XXXX increasing of X% to million me this $XX At of guidance We back of $XX to X.X% a approximately million revenue adjusted EBITDA $XX or also point, from million. let million to turn are range $XX total Yung. our to our to

Yung Kim

To Mikhail. for record income you, pleased with and we Thank were generating earnings per net a share guidance company execute strong our on adjusted to quarter, EBITDA significantly second the to a wrap up, beating investors. and high

For to in revenue the accelerated million momentum, We're X particularly of the profitability a guided deliver in XXXX, X half innovative Japan Tier excited are full will solution. these carriers in also dollar to significant in organic shareholder XG partner the that in anyhaul drive year Japan us. and shape, contracts We Korea a for several carrier each see opportunities value. business of Japan opportunities committed with XG-related delivering and to deliver for we for years. XXXX with X to X of We take multi-tens carrier and to commercial next the continue us first to on growth believe of Tier have Korea earnest, that we won, the and with related Tier in XG XG including extremely

We SDN emerging are enterprise accelerating India. with of growing also like solutions focused and further on deployment markets, penetrate the our FiberLAN, to segment our the in

for ready Operator, now we are Q&A.

Operator

comes from Craig-Hallum. Christian [Operator the with Schwab question of Instructions]. And line our first

Christian Schwab

you two network Yung, can to Chinese opportunities trying with clarity Or talked their their already? meaningfully, the customers? further one, us Chinese XG Just at of announce move magnitude question You those did you're shipping suppliers the from you with expense suppliers of customers is on that opportunities XG is the My of buildout. the within potential that wallet customers give customers about that share when at gauge to and opportunities or that. are opportunities away some reason new is, that Japan? the as country

Yung Kim

they and Okay. the are the contract backhaul infrastructure customer nearly next them. Chinese for One vendor, XG been opportunity they is and XX the our has signed year. are transport layer customer a we launching This specially for with to years, that for put replacing an XG and

have means we that choosing or name, us backhaul. can we which Rakuten that letter which a fronthaul one, of other the So sole is they're as intent, anyhaul,

of orders got we We but have not intent. have yet, letter

is -- with the can contract The Softbank that contract so we we actual pocket. in So a our is signed.

finalized. it, we developing already technical have workshops, are and We specs are

So be XXXX. those systems going to early delivered are

Christian Schwab

Okay.

being pick back business advertised? about now, talked momentum up the half QX expect you spend year? there a kind to business everybody Or and back -- you in look geographies come that You just in any right to Is expect the India to as QX down India seen for you when as to of of significant at be would QX. else would

Yung Kim

I province our or the the main customer. that Andhra Pradesh that's think is state

I they be month executing later FiberNet it has thought those is State which will And one position, appointed start two finishing, of I But board yet. to two the supplying roll You election know Limited. not not the us. APSFL, it's they of call of were in a by them. lot that -- And members They are members Andhra will have those there the done think, is a The which vendors board again. Pradesh than those members within government once out was -- appointed June.

to state it think, of the be expect is instead slightly which called we heard, other appointed, And state business soon so thought. different has QX we adjacent and will lately, what model up I And -- Telangana. them. is QX, Telangana in business set after much And the to to think I with the company been that it's a than from they longer government. take more have little But working Telangana up I trying central we have subsidy to state-owned elections, do is it. more going get a pick

their We have MoU in lab. equipments signed, and we have our

start believe will strongly they out, be we pushing of we vendor. think I the one once key

Christian Schwab

-- last and U.S. broadband you presence And you'll as believe access United question, carriers, do Great. going by your in front forward a Yung, stronger that to there? be able spending States fiber comments Okay. initiatives my increased have that The on is to

Yung Kim

the we've fact, U.S. in RFP top customers Yes, response been to the of one for go invited in fiber opportunity. to with

I strong think the market. as seen are competitor the so And U.S. of we in one

I U.S. opportunities I many the of hope beginning that's think other in the --

Operator

Dave next Kang our Riley. And comes from question of B. the with line

Ku Kang

My next Are on FiberLAN Middle first can million that question year and is, X.X? us that contract, still give an update customer, on $XX East just for you you FiberLAN is FiberLAN targeting X.X?

Yung Kim

huge of size because from a roll size learnings the of the features, It some our out. have and carrier is of the that have campus, they include FiberLAN a it's X.X out customer. FiberLAN the not roll X.X. because developing X.X a as will It's will sheer but to inevitably And that FiberLAN cache we FiberLAN similar of software

Ku Kang

year then my for $XX about first Okay. first And X.X? targeting FiberLAN question million next still

Yung Kim

coming this and one [indiscernible] from that end think of meeting in -- distribution number we or resellers at signing fact, I biggest week distributors. towards have Yes, of U.S. big in the a are a least -- I and of

there interest. a strong is So

for using now. up indoor this is I the FiberLAN whole industry the GPON think has picking

Ku Kang

then X customers? it. two strong fiber. U.S. Got And Are Tier transitioning they mentioned sending carriers from about copper signals you your to

Yung Kim

No.

think -- not customers. biggest We, of have fact, I RFP. Tier to one customer they're their reply has in asked our us X to the

Ku Kang

year. small this And thought was outlook it. carrier, customer. the that were for European I of they reasons on Is for revising your Got I think ET? one then large this pretty that

Yung Kim

I yes. mentioned, customer, has competitor yes, I the mentioned that U.S. measured in our same fact,

Ku Kang

last Okay. guess, is. I All question right. my

Yung Kim

Our is not competitors. as our big customer as

Mikhail Golomb

lower-digit very very, million, low. It's a very

sense. a you give to Just

Ku Kang

the market against situation. international Got European sort share you market struggling Can even other and some in it. hearing customers not reevaluating but then, talk are I'm Huawei are of also gain about just Huawei? Chinese opportunities the just And obviously, the

Yung Kim

by to final Northern we customer one the and replace have Europe, Huawei, contract. we the been a signing asked of of Tier in X stage are

expect is next but And that top Japan. also we Northern gaining that revenue, so country year, the as in our plus a difficulties but And as us be be, X concerned, in far for certainly Huawei it Japan, revenue country certainly Tier expect if has not, also, could Japan opportunity from million we top will $XX X Europe.

Ku Kang

year? Next

Yung Kim

Yes.

Ku Kang

it. Got

Operator

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

Timothy Savageaux

around in bit, last organic principally guide. expect previous that contract growth to KEYMILE. of growth your a would an in be fiscal question, magnitude into And say the like on Yung, 'XX or in what you Congrats of cuts are as I around 'XX would the on that, of about assume accelerating wins. also, is of that confirm you contribution also calendar sort based XG that's on just perhaps And and acceleration kind the my out and like I seeds comment, you've a you upticked all kind of from of given in would these comment, your I of I would the XX% calendar has to what Japan, result sense implicit get deployments, coming of and updated 'XX? organic quick also kind on to comment math, XX%, that but expect made your

Yung Kim

get didn't being that Indian X to of reflection carrier QX European full And first reduced QX revenue year a by of about we obviously, the Tier $X guidance cut. business also all spend I and -- from I shifting mean, think the it's I our million.

million want our And to more. margins negative our QX, than our -- margins that's So if a range I go between tightened were consideration about at be but tighter million in to think and look that previous, side if the my to $XX $X XX.X%. also is $X million we you you

our reality. the That momentum. think our I is -- does to like are not I that take I there having -- that mean not reflect earnings business So adjust to

Timothy Savageaux

growth was comparable focused on more organic into 'XX. That's what question rates I -- the

business mentioned Japanese your another be to to you expect way. that this do year? you next the it million $XX me for Let year? is comparable contribution Does the to What what try

Yung Kim

contribution $XX will see $XX million I Japanese million above. think the to we around that

Timothy Savageaux

Great.

I think, I can take it from there.

Yung Kim

than we XX% say year, million, would $XX more business Next about but I Japanese year. will million grow $XX $XX it and plus. outperform expect that next million could plus. there

Operator

comes And Gruber with of our next McBaine. Gruber the from line & Jon question

Jon Gruber

Rakuten will win How are you signed on company, time and you an for Softbank long before long your orders get period One, intent. the sealed How and congratulations think ready question. that aggressive Rakuten. and Quick a the delivery? take? They

Yung Kim

I think working putting to order end model this actual start February, because by order. the they we have And by will sign of to December have deliver we the year. a by sizeable

operating Rakuten, another against that's know against, who you the and with so the company across We are came were which okay? is won sell-side contract which of same is that [indiscernible] in we company. technical Yes, So the in competitive company Softbank, we shows very it globally. we switch, more And same a top one also Softbank. compared

So them. we have beaten

I their think customers. we can chase

Mikhail Golomb

This contracts I'm margin say gross is higher typical but want to margins, you much margins than comment. not those their Mikhail, go one I to expect details, would just from profile. going into

Yung Kim

contracts Japanese, Usually, contract. rather conservative like in be initial was our tend than They the from earlier bullish of revenue being Softbank, millions. And is the you mid-tens initial their know Xx total contract. with experience to

Operator

thank disconnect. for wonderful Everyone, question-and-answer may all we participating that gentlemen, wraps in and And conclude Ladies day. up This have the session. a you and does you like program, today's conference. would our to