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DZS (DZSI)

Participants
Ted Moreau VP, IR
Charles Vogt President, CEO & Director
John Marchetti Stifel, Nicolaus & Company
Dave Kang B. Riley Securities
Christian Schwab Craig-Hallum
Timothy Savageaux Northland Capital Markets
Ryan Koontz Needham & Company
Call transcript
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Operator

Good day and welcome to DZS First Quarter 2021 Earnings Conference Call. [Operator Instructions].

As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Ted Moreau, Head of Investor Relations at DZS. yours. is floor the Sir,

Ted Moreau

Thank you, XXXX DZS Quarter to and Conference Call. welcome Earnings the First Laura,

Joining are CFO, Tom us Vogt; Cancro. Charlie today DZS President CEO, and and

well first We business, global the our and financial discuss remainder pleased initiatives driving and our transformative outlook are results in to trends as our as market, our of insights performances quarter for XXXX.

HorizonsXX that and XX. to for will section participate on the morning, dzsi.com. and remind like you we DZS our shareholder plan conferences report As the we at this Day host published XXXX of in Relations May our quarters, we've the Thursday, investor past done virtual I'd quarter X of for website Investor Needham, Craig-Hallum first QX. our Stifel Investor on the to Analyst during And also

contained GAAP, contained over turn will together with stockholders. materially Please to indicated, a on current and you we During those future identify factors The are in or other statements. that items, risk the unless the on well on this to from otherwise call, now the differ corresponding important the materially. such financial reconciliation could to These XX-Q you provide or on Please letter recent section that company and the or documents results to provided metrics statements Relations The Form and call including events will report with SEC, company. the forward-looking These Investor the Forward-looking regarding was of call basis. actual only actual to performance website. events expectations, future results cautions may being that statements other projections files our as differ available determined section our company most of shareholder this that filed that company's in X-K of GAAP note Charlie. cause the are XX-K financial its Statements forward-looking as numbers to in reports I and being documents the a projections non-GAAP are refer

Charles Vogt

Ted, analysts you, welcome, investors, guests. and and Thank

As Ted update quarter for prior quarterly our shareholder business open, first the released of to mentioned, report, XXXX. and market providing financial the DZS

Our report results. as provide product sustainable financial and enhancements -- changes And updates executed and become insights, and and performance. business XXX%. the increasing record value. with the strong, of our the shareholders of designed delivering backlog, analysts backdrop, market to XX%. revenue The long-term we've EBITDA. our are prospective and half to XXXX second to foundation With during shareholders, encouraging delivering backlog, the management is record with that $XXX yielding and a gross become transformational Growth a of exponentially sequential shareholder mobile and ever, margin highest start quarter XXX% better-than-expected orders, first revenue was Orders of strong year, and our million adjusted XXXX the was year-over-year, in increased increase positive

that million to increase. and XXXX as the our to guidance. consecutive and connectivity coupled customer quarter, has relationships for new adjusted date, also not is pandemic enabled supply our services, $X.X chain with availability health business, health that positioned connectivity view and these has and optimistic half In networking provides February, million, of gross customers, exceeded forecasting million high-speed how workplace Optelian out with to a people and North the acquisitions With innovative delivery strategically and quarter limited we March, global million emerging the forever During to growth. solutions. its a are mobile and exposure results transformed global with chain. wireline increases, ruling RIFT. education, now, broadband surge statement with in the software-defined edge demand for the pandemic, connectivity the of of process, the manufacturing, compared high-capacity, our for XXXX. experiencing care, $XX the challenged -- support for transport portfolio requirements supply guidance and component enhanced $XX and our EMEA customer with fluid. trends, enhances mobile edge current entertainment. RIFT acquired second strongest mobile have America transport, ecosystem These we well and networks. we connectivity third supply Revenue and of Optelian robust $XX acquisition our and XX e-sports have added year-over-year These mix said, And To rely EBITDA a resulting Better-than-expected deviations our mobile price XX% previous logistics revenue, Aligned the a lifestyle a solutions. DZS communication as the was global on technology challenges, well as geographic strong temperature-hardened an we unexpected transport is and follow portfolio operational and our customers lineup and chain broadband XXXX software positive two networking broadband with wireless The execution representing delays. of mobile long-reach our in strong environment deliver complements portfolios. and acquired in guidance, fast-growing into our accelerates us favorable of remainder above edge which and XX%, of Offsetting margins favorable

be orchestration, a TELUS, providers new automation. as our communication TELUS cloud one software Cloud RIFT management DZS we application of will announced customer. Canada's and for service deploying Following acquisition, DZS premier network

the RIFT call, earnings are of complete. both nearly of this Optelian integration and of As

proceeds $XX X debt eliminating executed AT&T to new million In quarter, our addition our LUMEN gross these TELUS, lineup and strengthening balance Also offering, sheet. customers. and acquisitions of equity marquee we to the follow-on add a in

we favorable began Germany, will in margins and we our the earnings of beyond. manufacturing facility which quarter, anticipate consolidation XXXX deliver the high-cost During in and

now Tom X, Manager; Cancro, Line As Technology Analyst learn over Ted part Financial with Day, our visit as please Bender, to for stated Andrew call XX. To our May Chief that, announced have. and and Thursday, I, turn the customers of Officer; on the you and event. facilitate more moderator marquee will our to for virtual is you our call, inaugural Investor register, to April the which Horizons Investor and Officer; Alonso, questions scheduled we may along back Miguel Chief Product several be I'll joining our any page. Thank Relations with this presenting

Operator

[Operator Instructions].

first will question come from Your the John of Stifel. line from Marchetti

John Marchetti

efforts. wondering spend Charlie, of minute software a you I was if these could on some

now. Given the some market. and accelerated acquisition the stands But of of know the portfolio guess, where TELUS, know certainly that the look in of overall how time there's stands, maybe portfolio RIFT, efforts that where I'm -- I there? the software what for some really I you that curious of already if but software just portfolio And highlighted much now. should that is others still contributing. we to I

Charles Vogt

products John. that software really thesis said, you the opened analytics. in and would focused you lifestyle fixed business. tell within primarily you, most network. side. did sales play of it orchestration, cycle certainly pipeline up automation, part RIFT, prior the was -- was the and the I the What as in their was That will Yes. a And into on accelerate network we that management well for around Well, life What million that of to on of portfolio. first opportunity, a to wireless have that TELUS RIFT that big deployed was there especially focused you really a wireless our projections the part of if with world, pretty unlock year's XX And RIFT wireline wireline the are the fixed really significant we us value really to data broader dive opportunity us was have the investment helped the the our as effort that our all, great underway I products is, the software around thank around tell network this participate opportunity development really

us So opportunity with And pretty R&D as team attract a look, it is the value we've a presence and result stronger it. existing customers. to a in got more certainly giving our that's Bangalore a to in deliver substantial lot network an of

John Marchetti

or could up for And maybe I you Great. if either Tom. follow just for there

here the in year business. in I'm bit do maybe the what little that we're stand-alone to just versus getting outlook, has Optelian RIFT seeing the curious full bump with from what much how Given of the of you're raise and

Charles Vogt

from a standpoint? revenue about talking you Are

John Marchetti

I'm yes. Yes. sorry,

Charles Vogt

perspective, Yes. additional $X an And and analysts forecast transactions. Optelian shareholders and we year's this into and we RIFT RIFT think we've way don't. spend of the all, of incremental year I we as is I a baked of OpEx of added should we're this of not still million result to have think a from anything didn't -- both the mean -- well, first

a modest plan. as had we from did well pipeline, of anything revenue an that the revenue Optelian as have we this So customers in other year's we see plugged as that recognized perspective, into see that's upside. From TELUS would we amount from

we're we didn't of optimistic, into year. that that hope these have provide the and upside early baked cautiously our in So we plan both some transactions

John Marchetti

And over. ask I more, and then I'll could it if turn one maybe just

you curious maybe can to just overall program. that success metric see You gotten, that side, mentioned particularly from of what's guess, that those you sort North have tied America a of the just -- letter I there's helps I'm to that specifically the in on Has some orders starting us North way? against if share shareholder real the you're RDOF that Can in in along it track measure that about in momentum customers? America. RDOF-based you lines

Charles Vogt

global analysts initiative of around which much ADTRAN from think about of last Calix, our specifically years and of markets rural to with efforts, QX what Tier service a joined as sales alignment that lot XX DZS, we've compare in world. U.S. to as customers. on That the North on know, focused U.S., look the got North and a especially we spent to need think a and And you by all QX, I to grew the DZS Xs took our if America have our support the for last America. big RDOF I guys relates a nearly it mean I revamp small company when player. record a mean, XX I to XXX% is a as year us you revenue, XX% year-over-year. the innovation lot the comes you amount And I our and efforts, orders said, was sequentially That at of was

suggest is, builders, another of RDOF that I the look estimate and that or relates ADTRAN. and or those There's the Calix utility think But least that also we And customers funds would worth you spending customers were at nontraditional fiber I active. participation not that prospective are XX% ground I of RDOF and we is at that new pattern. about providers, for that RDOF as others were scale close our rural size ours, noting, area and to the XX the us. to their important certainly, to ILECs, these fertile it of or Nokia, have that are customers operators of meaning these traditional awarded all RDOF service customers are customers think

So that's with a of where spending time in Xs spending we're well as much America. as the of Tier our North time our lot

Operator

Dave the B. come will from question line next Your of Kang from Riley.

Dave Kang

is a little bit. your My you're about regarding visibility first lock, quarter your flat guiding outlook. kind debt commentaries Despite down second and of question strong to

based So was that's if surprising chip situation? be such on conservatism, too I factors other which or wouldn't as perhaps wondering

Charles Vogt

I don't know forecasting decline. we're if

somewhat ever earlier, unknown. is confidence -- entered the continue our year report. the I we but quarter, that our into in the into cautious certainly I shorter are have next as as our we go shared get a our year. it's outlook ability were be quarter taking QX think look, optimistic backlog deliver But with that and into able upside. prior deliver consistent closer to certainly think to stronger we've I and gives But we with strongest cycles we approach -- remain, to we where us And to I QX about mean, to the you what you shareholder QX kept to

So I should that the forecast to. think forecast align analysts a that the we is provided

Dave Kang

availability pinch prices some that's the about as some other going Because Got of far Can talk as concerned chip companies, up the their as well is equipment margins. they are you comm as just impacting feeling it. situation?

Charles Vogt

of a Yes. still But for I those they're for I is and with gone partner mean -- them, them Broadcom. X prices And in navigate least articulate up. the used had COVID. factors. at higher-than-expected we as the some And prices got the is QX. communications to through mean of went a as at that look us, ecosystem well margin unexpectedly everything were up semiconductor that I consumer-related delivering mean from around a months certainly markets is sector to our and relationship the But from helps. all then XXXX. networking increases, mean we certainly it real. impacts surge us behind continues stacked out to largest in able semiconductor profile which demand both I our to have you have it's we've QX, great

going I forecasting tell you I the to of Now year. I back lot do got mix we're September impacts with going there's would in now a that we the job with due be you require, last what or think our a rest and and the back and to chain. down what really ecosystem would impacts supply to forecasting to far thought how us. right in we of sat like. so And did has curve, of of the I we're chain that were good are on aggressive supply partners, feel August, tell expecting has impairment we you well August, not XXXX and in that When ahead year that joined I first forecasting was an we helped where for

Dave Kang

And how just you like mix far some Can between provide is as versus my the as backlog, mobile? follow-up looks broadband it. regarding Got $XXX million. your question color

Charles Vogt

top have know do roughly off don't of do Eric, head. you I what speaking? is, roughly the that -- that would have you I say -- it's right my

Unidentified Company Representative

be would broadband. It XX-XX, about

Charles Vogt

mobile. XX-XX -- XX versus

expect -- this that expect ship year. to most We and of we

Dave Kang

a guess so, situation couple on then in has -- pretty current I ago, that COVID last to regarding would you this Got you recover down. market gone guess, is India. big And if years the with it. for my Asia, And of year? expect cases? India a And with was question I their specifically status, what's

Charles Vogt

XXXX India, the we government did project I personnel large a for record, mean, just frame, really have give us project, Well, we with in our FTTx back increased to entities really notable the in India the have in sales of large time one the India. in And footprint. XXXX one which

We X India. with the have then since engaged in Xs Tier

from with very the becoming seeing the guys anti-China. significant States, I anything has you forecasting that, And fact increased. are India, not India are our like probably We despite United pipeline that think especially

lot And are a a for of so we getting of that ago. opportunities new year pulled part weren't into we projects

Operator

from Your Craig-Hallum. next will question Christian come of from line Schwab the

Christian Schwab

quantify about tell Charlie, because you Congrats we results. opportunities just impact you vendors? just potentially of Can update, positive the solid on of Chinese new what Can just talked there? us or

Charles Vogt

our Well, time across I bit speaking and more outside doubled. and I'm region, and you, spoke of would I APAC on and tell I region a call, the were than we think of pipeline, specifically this Japan, that Korea has last EMEA the sales the the

to real driving best suited Central regions, participate. across are India with a opportunities alignment probably we so lot perspective, be activity, -- Those we are projects that And Europe, across of product X the seeing India. from able are the European Europe a and are, most probably near-term to regions the

Christian Schwab

to share existing Or Okay. any just the is potential as of of the wallet on due list a it new that? Is That's customers fair. customers?

Charles Vogt

about XX you we announced? the Are new customers talking

Christian Schwab

opportunities do existing Yes. are China any just the really -- last Is is on customer discussed Or customers? of some you with Are of those at as opportunities or with that to -- and opportunities? have new more quarter? the elaborated marketplace first

Charles Vogt

the stage mobile takes gotten new to mean mean where tell not there's significant Tier time. in to were a I announced we log I -- wins. we where new primarily Huawei that can represent of just are come we notable we from share pretty haven't were fixed design any I the presence, those people customers, credibly especially as are Huawei in some can on customers across now, embarking and And relative activity X customers EMEA, announce regions the of understand, large and have East. X most any operators. India, that in can win Well, right you Europe to think, and that but a saw really had process we customers Huawei. the those America and pretty a Middle we it most XX that design I I these strong that of mean North the

Christian Schwab

has Okay. help and year quantify how what big do us My expect this forward? to Can analytics guys rates going there will opportunity question and you fair. last with you That's be growth cloud. type of that would you for

Charles Vogt

cycle mobile XG at I of think that comes least the opportunity just this tempered, year the with longer software the automation should sales and the based network side the orchestration slicing. and on along be

think opportunity our plans wireline beyond. to relates embed and I that in into the fixed software meaningful XXXX us it there's our As portfolio, to a for attributes

Operator

next will Your of Capital. from Savageaux line question Tim the Northland come from

Timothy Savageaux

as Congrats the on results well.

couple a of made spending with call to You time. to earlier regard X opportunities, in the one references Tier

there Huawei in sales and best or well. made specificity. the aggregate, with in or color position I be would size as and there's in to on in U.S. think when -- us with talk about that opportunities, can in be interested any of Focusing more you your course, might wonder EMEA, something in if any there is update might cycle opportunities, update but individually give be if there, And then on to here, the reference of you you realizing a principally there a either those decisions the maybe

Charles Vogt

would And the you what based that X of as would we're operators. it are Huawei on the I being just on currently network, to frame, Yes. time we're working all involved to a QX to where we that is. most and is cycle projects tell that that QX Tier relates able I consider likely say cap that in in, would the as grow projects

years. sizable period for those be opportunity of over could a the So projects

Timothy Savageaux

U.S. opportunities. those previously, for we in -- have drivers Right. And different the Huawei obviously, those not operating

smaller the U.S. So or America comments U.S. in to expected, I that any a feeling the are both to with you strong interesting. particular. regard off X? about than to wonder, the in dynamic have your of fruit, terms in investments that on a bit same seem how in -- in it have of among I North borne big of -- access, would gotten pretty appears have that quicker carriers you several sales start efforts may guess, carriers be that Tier Is given

Charles Vogt

now Canada. Calix right ADTRAN Nokia, lagging, and progress. we're going I a you encouraged U.S. technology that's the footprint pretty are your the arguably we we're And I on like historically. focus we're a these from and I And portion to and and for operators of Xs their operators a sales of mean and better we some company sizable, the a the coming subscribers, I are forecast the and great Yes. of those regional that was fortunate, tell making where of think on perspective. on align operators. curve we have year that I the on networks. relatively they're ILECs significant. we've mean several what's with technology some helped X getting tell Tier point, And in that from that you attributed are expanding that's would from would split of feel than to this But perspective. larger And relationships U.S. next And have service you've you've got thousands Tier small we're that millions in have the are really a just customers and several robust have fostered that of I our and where year pretty got network subscribers. that we more think the have us with And

Operator

[Operator Instructions].

the Company. Ryan come will & Needham line from question next of Your from Koontz

Ryan Koontz

you qualitative months? you trying Charlie, much in to to give customers if little a maybe bit. of is the as revenue roughly at longtime slice versus understand customers last different the us Can maybe your some a look today insights -- it XX, it newer Zhone XX mix dynamics DASAN and to trying how way

Charles Vogt

being incumbent there's capture revenue historical could sustainable able can say I trying way mean a that network. probably an be is to to to being supplier wedge being a I much opportunity than because someone lot said in. the their about portion to participate we've you larger gives -- that you projects most -- a it value the globally other certainly adjacent appreciate, their that's more been of able revenue would as easily you're of show in your that to

I I probably our we doing if we're tell coming XX% lot So and of last Softbank I mean of XX% been evolving the is coming us you to revenue think I new continues Rakuten a existing at think that with introduced the the And come think that of large would expecting. some products And that some operators and year. there upside over when attributed XX-XX, and the would overall to the look is have you projects customers that say able a I go LGU, of in like and from we've about our represent is new bulk existing mobile you customers. were from given product. network to of lot mix, it's revenue what from scale we've customers revenue more than our newer

Ryan Koontz

great. That's

current So you've with dollar good a seen lot your expansion customers. of a rate pretty

Charles Vogt

$XXX you a when we I $XX rough can was of estimate ended our I order Yes. million. factor we success profile million into at had that probably but I mean profile in at the in December QX. continue and orders, March especially ended of QX, back highlight that we we don't you in mean to what backlog

a had line the quarter. exceeded revenue pretty ratio we the bookings of in QX. our range Still So significant top for

Ryan Koontz

Yes.

have -- just typically as longtime relationships the there? area? seen bet. Middle strength Chinese in the landscape do of think in East. You on quick another and a by competitive have your And you big that dominated and that you Or shifts I follow-up multinationals region the that's customer in

Charles Vogt

STC. to been has does years. Mobilia And customer, a XX continue as and [indiscernible] So they longtime grow

at us, for So throw us. it's meaningful a it's really continue strong for and region to region projects they new us, a and

the Middle East. being in deemphasized I seeing So am Huawei

least -- what those I for suppliers, we're you those So thought. have are Chinese might what and have with especially customers mean, at more deemphasizing customers recalled, than seeing three -- may the maybe you

Operator

am I like at And I time. would remarks. for Vogt Charlie the showing Mr. questions no hand back conference the closing to this to further

Charles Vogt

delivering I I thanks team say Well, to want an DZS quarter. to outstanding guess, the just for

fantastic and were I We we're acquired existing a for RIFT accelerate company, great said Optelian, with And as we especially as of areas very and and continue upside, the acquisitions go portfolio a this navigate fits about is into doing earlier, they to of that an optimistic X the to I us we're opportunity what the products XXXX. I think remainder that about particular I helps of those into when into think technology technology that what think lot us we within XXXX. year gives

Board want if continue of the and got that got well We'll participating. we're member DZS, a a but our customers analysts, hours as interest got think. I our to are it'll X thank succeed win It's shareholders appreciate the and Investor our a detail detail I our have. it, a opportunities. will also number relates more lot more marquee to We've we product and going various to I that's spent we And we've of believe the of about why remember the against So portfolio, lot talk -- competitive time go just it that participate, going on landscape. employees we've to can you that be May the to XX, afford Day into

that So as we're well. excited about

time afternoon. guess thanks just the say I'd for with this So that, I

Operator

you, thank sir. This so Thank you, presenters. participating. concludes today's again, everyone, for you Thank conference. much, And

have You a may lovely day. Stay now safe disconnect. and