Yung Kim CEO
Blair King VP, Finance
Tyler Burmeister Craig-Hallum
Dave Kang B. Riley FBR
Jon Gruber Gruber McBaine
Call transcript
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Good afternoon. Welcome to DASAN Zhone Solutions Third Quarter 2019 Earnings Conference Call. My name is Latif and I will be your operator for today's call.

Joining us for today's presentation are the Company's CEO, Yung Kim; Vice President Finance, Blair King; Philip Yim the Company's COO; and Corporate Controller Jerry Borja.

Following their remarks, we will open up the call for questions from DASAN Zhone’s institutional analysts and investors.

to call like King. to would I turn over the Blair Now, please Sir, proceed.

Blair King

Latif. Thank Okay. you,

future begin, statements we this projections statements caution financial will during to Company. the call, provide the reports We regarding performance forward-looking of the expectations other that Before and and like press only we I'd XX-Q to such documents you point and you or future are We events out materially. refer recent section statement actual current forward-looking release. most files the events SEC with of differ and results our or XX-K results may preliminary including that DZS today's

items note These we could call on filed those X-K. today's that contained cause with together indicated, documents corresponding basis. GAAP the release materially are provide that on press website non-GAAP are that posted projections determined and GAAP from factors contained differ on important identify actual in in Form on results reconciliation the Please or have this SEC unless our financial a risk otherwise to metrics to These a our numbers with statements. we forward-looking and

and We historical regarding business other financial operations. statistical will our information and discuss also

press this recorded be release Some in information call. of the included information the of this available remainder of is version and a the will on

Yung? with So our to that, I'll turn over Yung Kim. the CEO, call

Yung Kim

everyone. Good afternoon, Blair. Thank you,

near-term financial $XX our with million. results third below million disappointing agenda, Our to quarter growth the $XX for our revenue a to preliminary of million, of reflect the range expected well $XX.X setback

the technology our has to of copper to is a access technologies. to the the and new QX XG for growth. move fiber-based and move That precursor network upgrade grown than the large network we a of targeted portion is believe in expected, faster pipeline where have We next-generation support much deal broadband access the to softness

switches deploy process in actively the to we the it to Most above new ultra-low our deal see surprised good is customers transport planning specifically, quarter as Coincidentally, the more XG pipeline where the to running That's news. progressed, engage services. mobile significantly be. for were we expected latency

The and commence requiring has service for in next transitioning which a plans provider, stalled to for planning customers our [ph] during increasingly extensive as fiber-to-the-home a mega saw is the is news [indiscernible] trend preparation, equipment the bad investment to Similarly, that in network. quarter, we generation [indiscernible] a Europe technology. elsewhere XG

we technology in just these In trends business than a turbulence our summary, more have anticipated months ago. created few

setting [ph] most to innovative and actively of back operational complexities. approaches the consider to really and are largest Some new our new customers of important services associated delivery

this are we with as navigate the through. in So, an one transition and the the pleased a business are sharpen on execution the really while encouraged other, hand on we need to by through we activity near-term will see area our trend; is to

separately same time, during quite carrier the spending. in was at an the unforeseen Now, slowdown quarter global secondary challenge

conditions Specifically, And recent in certainly this change the current weeks heightened we’ve deals quarter. while we several the business few saw level seen some in final quarter. in of anticipated caution improvement, of our postponed the

strategic reorganized be region. the coverage, drive, outperform warranted Finally, Americas better we And developed as breadth the to structural Americas our [ph] quarter action, to and last execution, expect it the to complexity better and business our sales we positioned relates month, recognized visibility visibility enable organization. during emerging growth. some to the of improved and that we Consequently, after in across markets changes

deployment, we $X contribution These to and the annual account with paired Company, XG expanding reduce to the adjusted manufacturing measures several business. anticipate XXXX. implemented in EBITDA for we menu for addition, million reductions personnel included cost optimize at well This continued as focused anticipated In our across cost as when overhead. of measures business savings growth from our margin [ph]

business. new call this controller pending turn encouraged Board wealth publicly bring provide I to unit Blair we XX two American controller finance having an Officer is GE would our company have But the report [ph] served over, that resolution. multidisciplinary Company, and two to for served shortly. update Research, senior look XXX a as in individual individual you and a This for a identified a and announcement I’m divisional Prior of color more Verizon, forward a appointment outlook coming licensing formal weeks. before Electric will We as and company. CFO that, previously QX in Mastech, on roles Fortune research will like CFO I engineering finance our our technology experience global search. individual General well both of as making and GE companies, to IT Chief business to of Fortune on traded construction companies the and including CFO Accounting infrastructure multinational for at all

Blair through that, for third you With financials will quarter Blair? the XXXX. of walk the

Blair King

Yung. Thank you,

prior and XXXX. with $XX September primarily And of net in extent QX APAC This range $XX $XX.X of now the preliminary from region, to from growth turning Net the million On of XX% quarter the QX the lesser a for to Year-over-year by Americas. comparable from down the year. our to a down million, revenue was revenue due in somewhat financial the our decline last below original offset and guidance EMEA. we decrease in X% decline revenue million a just quarter $XX.X was the provided was which well in as was basis, XX, October revenue is to third and mentioned, early million. results ended Yung in line

Korea. of our XX was South and was customer customer the on both continued the customers represented in the a in of represented which LG XX% of total The standpoint, From QX led from year. XX% in primarily up quarter, same revenue, top last revenue period increase XX% U+ momentum Japan through total

for from North our coming XX% the market standpoint, quarter revenue America. a XX% accounted with segmentation the From remaining international third market from in

in international the Korea third the for APAC America XX% was accounted total X% XX%, XX%, quarter. was other EMEA market, revenue of and Latin was Within

we standpoint, GAAP was volumes, quarter The than from From less the was gross experienced And resulted less customer year. overhead XX.X% to mix margin reflects last year-ago is period. and expected a to product gross in in of in than favorable XX.X% attributable the down in decline margin when a absorption. lower compared third XX%, lower the QX which in of course the XX.X%, margin quarter to of guidance largely which

going improve the the as of the Now, Yung on QX, anticipate efficiency our forward. while we anticipate to see impact through touched restructuring taken year. as steps we some we to of the full And we've benefits earlier, realizing exit

$XX.X from service we the were expenses not increase or professional So, revenue, other as severance also expenses XX.X% as $XX.X in of over GAAP inclusion last at of our operating included total incurred were in and to million and of third due in the XX.X% KEYMILE, X of or of expenses. year-ago GAAP nonrecurring looking quarter, period. compared terminations, year. expenses expenses lease which fees. And, million in relocation quarter the of in well to the QX was early total The operating the million XXXX revenue primarily

to as cost or in stock-based $XX.X QX start total Non-GAAP quarter the operating were $XX.X depreciation implemented or well approximately XXXX. amortization, and The compensation we optimization million operating revenue should total of $X at million, of of reduce by expenses, million exclude of XX.X% this revenue, as measures which XX% compare the our annually. and expenses

to $X.X $XXX,XXX compared in of totaled the XXXX the million third quarter QX of in loss EBITDA Adjusted of XXXX. gain

in customers. than million with contract million lower course to added in increasing XXXX of $XX per was million days to Our loss some to moving position to The to diluted calculation. third $X.XX approximately days sales share. $X.XX compared $X attributable quarter compares accounts or receivables of QX GAAP payment assets from terms million. favorable from share. in $XXX QX net $X.X of net of This Cash for XXXX increase to $X.X The largely at quarter diluted GAAP XX was income awarded due XXX attributable to the expected to outstanding receivable per Days increased XXXX. million AR DSO was of to sales or approximately our approximately end less $XX.X million DZSI DZSI XXs from

we’d the maximum break lower P&C. Here, [Ph] worth credit in not expected the than did the our agreement bank [indiscernible] ratio and revenue quarter, remiss to be covenant mention the given leverage we that It also quarter noting the for is during

let's So, our financial outlook. to turn now

million to expect $X.X we of operating non-GAAP to million, the XX.X% revenue fourth of million gain million $X.X and at to $XX.X $X.X $XX expenses of million million, to margin of net EBITDA EBITDA million XX%, $XX.X and XXXX $XX XX% $X.X million of GAAP a $XX of expenses adjusted to and XX.X%, to of gross gross $XX to margin quarter adjusted million. loss million operating of For

expect $XX.X year to $X.X full $XX.X million to EBITDA million. million, million operating million to to of adjusted of $XX.X revenue $XXX.X of to $XXX operating of million, $XXX.X $XXX million the gross XX.X% GAAP margin million, million XX.X%, and and XX.X% XX.X% EBITDA of of expenses of to For expense $XX.X million non-GAAP adjusted to million, gross $X.X and we XXXX, of margin net

first fourth of As to from for a quarter quarter spending orders anticipated the certain balance including reminder levels this than XXXX. XXXX customer XXXX lower of the guidance the reflects customer shifting of

to back before we And to with the I’ll call Yung? move Yung that, turn Q&A.

Yung Kim

Thank you.

in have Despite very access solid. turbulence and market XG, are in of we're we some in fiber cycle made and we multiyear these business, in the the early near-term The technologies innings investments broadband are the our solution. investment seeing appeal a

Our actively than anticipated. being we engaged, built is customer our faster base is pipeline

planning visibility our impacted. will As our it to be technologies, incorporates customer that new cycle relates

the in trend However, ahead. past, has demand as ensuing are history strong with we the demonstrated success

our intact. focused QX, are remains while direction and QX and the we by firmly our outlook not So, pleased strategic results for

business We a largely paired with position are we of a opportunities refreshed serve. the and well offering armed pipeline growing new the a product in markets competitively leadership exciting strong differentiated and with

top of are we bottom-line the increasingly business. such, in and confident As our growth future

Q&A. Operator, we are for ready


Burmeister comes Our Tyler Thank you, first sir. from Instructions] [Operator Craig-Hallum. of question

open. Your line is

Tyler Burmeister

letting ask Hi, me question. guys. Thanks for

you'd And about? about we So, sequential is there QX, it as look anything visibility through growth pushed XXXX, in But, should of correct? the sounds we quarter the QX, thinking think orders some revenue be of into into we should understand if another the that's year, expect limited. might how out then, be trend if with the like I

Yung Kim

the a in from customer, products to our I overall that big also impact delays experiencing I of the months of though slightly. by [indiscernible] delay the of delayed delay Japan we One the is even supplier subsequently is the our rollout XXXX, pushes think, don't and which is is have moved deployment. customer But QX from we some in in QX, XG some some think also that year. [indiscernible] XXXX the that the the from while will for other general see

still XXXX. we So, in growth see

Tyler Burmeister

a That's bit Okay. guess. little I just clarification then, great. And

of OpEx think You mentioned QX savings, is $X about? of that should million we the off levels reported

Blair King

No. Oh, Yung. go ahead,

Yung Kim


So, $X from exiting the the start million the savings, QX. will

a But which bit there it little offset the of not is with So, is restructuring. think, that savings -- incurred in that be is I expenses QX. will the by

improvement. to So, any see you should not be able

So, I will savings take QX the restructuring. so, to any not in think -- required expenses because into I do of account

about So, $X million $X the quarter every beginning XXXX, million. say let's of

Blair King

Tyler, answer question? your does that

Tyler Burmeister

That's all sense. guys. appreciate perfect I me, you. it. Thank makes That for


you. Thank

Our question Riley B. of FBR. Kang comes Dave next from

Dave Kang

afternoon. Good you. Thank

sequential from go specifically, XG million your $XX $XX just some assumptions; wondering you of your to Can that much Just regarding quarter contracts? is growth. fourth over how outlook of million

Blair King

continue. [indiscernible] think, I

number I And top significant. to from amount Telecom of well. small I part hundred QX QX as is start customer the But in couple And but be Telecom Korea [indiscernible] be Korea would second also, will we we maybe Korea not their into more Japan, are year obviously, now the from XG. next more XG of like XG. real That the in Korea is honestly a next XG will supplies year became [indiscernible] to for Telecom. because was a that the QX amount. reason think, of telecom biggest thousand, they say, strength

Ku Kang

fiber other Got you any LAN, us? Lagrange to share then, besides that regarding want with it. And partners

Yung Kim

is have are all we We just we kind of starting from are. And Because agreement that there to U.S. big another in are structure can’t company them yes, those similar company conditions the I -- [indiscernible] but discussing deal. that that reveal, in France.

[indiscernible] into is think I integrated So, the and the into their most -- training get the for efforts of our [indiscernible]. [indiscernible] system products

America. one So, in there ones say I there in would more, targeted that already have that Europe big and one are we North two and announced are one and

Ku Kang

And their it. corporate gross are in up is margins. of that average. just then LAN margins Got XG, My terms at understanding fiber next and year’s

target two about ramping? how next as we with margin year gross So, should think these

Yung Kim

XG think Japan, and Asia Latin And the attacked much I America and companies predefined be But I the margins. year coming said very we of we last Chinese South in Korea our because I not with saw as I the to was cautious portion by Pac. with fact, will plan. were in think in much mostly XG impact America,

we So, and our year hasn’t between last year X [indiscernible] I mean overall my biggest will the margins to with market points. from margin improve, is expect much coming, But, to high increased I X next margin, XXXX. think aim probably improve


of Capital [Operator from Management. Instructions] Our Northland next question line Timothy of Savageaux comes the

line open. Your is

Unidentified Analyst

you wondering of was see if XX% know Hi. guys if phone cetera. breakout that like actually it the revenue, -- Steven us Tim. APAC you give could you was much I the give how of I a Japan, that This mentioned was et could India, region. of is on for

Yung Kim

QX mean you you were For talking or about year-to-date?

Unidentified Analyst

year-to-date, and you wouldn’t QX if mind.

Yung Kim


QX, is small. we've think I Japan way over not been from was and all impacted Taiwan with $XX business excluding APAC, Thailand. usual offset which was million, run but And So, reasonably India rate. our was strong Korea, to very enough down it APAC by including nearly

answer question? does So, your that

Unidentified Analyst


get can think, some I I there.

Yung Kim

And year-to-date has also apart Japan, and the Korea been overall underperforming. from APAC

Unidentified Analyst

guys color I in contract like Can then, here mentioned ramp? we win And that Okay. know another any you like size, get more on September.

Yung Kim

referring you Which portion to? are

Unidentified Analyst

[ph] early September. in Group GTB I event was the it believe

Yung Kim

[Indiscernible] Egypt cycle… than that Telecom was Egypt QX. for orders ultra-low the to a Other [ph], LAN in have distributor been in we supply big that deployment. the switches qualified, XG the [ph] beginning significance that’s in our win fiber latency of That's Korea we've

Unidentified Analyst


Thanks. that's I it for think me.


of McBaine. [Operator from line Jon the Gruber Instructions] Next of comes Gruber question

is open. Your line

Jon Gruber

revenue the update Q, afternoon. Japan in you the Could announced Good positively believe I Elephant. on and orders us picture? potential they an impact XG and Company's do you orders, give potential when the already Soft

when You does haven't announced announced. that get

Yung Kim


last in their think their get system, changed at system our coming. orders business. some that for our procurement tool working deliver through They was we issues [indiscernible] reason with is their is until [indiscernible] been has integration it in asset going why management also potential other actually we're actually they’re night management order and actually were which hierarchy. And But, has areas, and we’ve looking customer, So, that the to XG. immediately the through now time. relative whatever delayed having delayed one. And they the into customer seen that But, going I and the [indiscernible] asset

press So, two going say would I the release, the it’s between companies. that

announcing I processes [indiscernible]. or sorry those could announce. something is I’m that as soon as [indiscernible] they So, this thought be October I well haven’t we before think we we in think but it that will

Jon Gruber

start that on do shipping we start when And when on you that? contract, actually

Yung Kim


Jon Gruber

when? I’m sorry

Yung Kim

the of of the next because intent letter system QX We're developing received. actually year. we

not that officially. development…. not the it the work has has But, just formal order stopped, arrived it's So,

Unidentified Analyst

very you you. Thank Thank much.


concludes his the this over Mr. call our now like I Kim remarks. to back turn closing time, question-and-answer this would At for session. to

Yung Kim

Thank you on today. call. for employees, Thanks, our joining to would Latif. customers, We Thank like updating and look support. to shareholders next you us thank for forward I you. their our partners continued global


quarter third DASAN joining for Solutions for you XXXX us the Thank Zhone today call. conference

now disconnect. may You