DZS Completes Restatement of 2022 and Q1 2023 Financial Results and Files Reports for Remaining Periods in 2023

Rhea-AI Summary

DZS (OTC: DZSI), a developer of Network Edge, Connectivity and Cloud Software solutions, has completed the restatement of its financial results for 2022 and Q1 2023, and filed reports for the remaining periods in 2023. The company is now current with its SEC filings through 2023. Despite facing market challenges in 2023, DZS advanced its technology and accelerated customer trials. The restatement resulted in $17 million of revenue from 2022 being deferred, while in 2023, $200K of previously-deferred revenue was recognized. As of December 31, 2023, DZS had a cash balance of $21 million and approximately $75 million in inventory. The company is focusing on advancing its broadband portfolio, implementing AI and security, and optimizing operational costs.

Positive

• Completion of financial restatement process for 2022 and Q1 2023
• Current status with SEC filings through 2023
• Advancement in technology and acceleration of customer trials despite market challenges
• Focus on broadband portfolio advancement and AI implementation
• Cash balance of $21 million and $75 million in inventory as of December 31, 2023

Negative

• Deferral of $17 million revenue previously recorded in 2022
• $16.8 million of deferred revenue not recognized as of December 31, 2023
• Missed Nasdaq deadline for SEC filings, resulting in delisting
• Challenging market and business environment in 2023
• Divestiture of low margin Asia business

Insights

Financial Analyst

The restatement of financial results is a significant development for DZS, impacting investor confidence and financial transparency. The $17 million revenue deferral from 2022 and the $16.8 million unrecognized revenue as of 2023 year-end are substantial figures relative to the company's size. This adjustment suggests previous overstatement of earnings, which could lead to a reassessment of the company's historical performance.

The $21 million cash balance and $75 million in inventory as of December 2023 indicate liquidity concerns, especially considering the challenging market environment mentioned. The inventory level seems high, potentially tying up capital and increasing carrying costs. The divestiture of the low-margin Asia business and acquisition of NetComm reflect strategic shifts, but their financial impact remains to be seen.

Tech Expert

DZS's focus on fiber and fixed wireless broadband, along with AI and advanced security integration, aligns with industry trends towards edge computing and enhanced network capabilities. The mention of accelerating trials with marquee service providers across multiple regions is promising, suggesting potential for future growth.

However, the company faces challenges from delays in government broadband stimulus programs, particularly the BEAD Program in the US. This could impact near-term growth prospects. The emphasis on operational cost optimization and portfolio advancement indicates a strategic pivot to improve competitiveness. The acquisition of NetComm could strengthen DZS's position in broadband connectivity, potentially offsetting some of the headwinds faced in 2023.

Legal Expert

The completion of the restatement process and filing of reports with the SEC is a critical step in addressing compliance issues. However, missing the Nasdaq deadline for current filings is a serious matter that could lead to potential delisting concerns if not resolved promptly. The company's acknowledgment of enhancements to internal controls and governance following this process is positive, but investors should closely monitor future compliance.

The restatement's impact on revenue recognition, particularly the deferral and non-recognition of significant amounts, raises questions about past accounting practices. While the company has taken corrective action, this situation may increase scrutiny from regulators and auditors, potentially leading to additional compliance costs or legal challenges in the future.

DALLAS, Aug. 13, 2024 (GLOBE NEWSWIRE) -- DZS (OTC: DZSI), a developer of Network Edge, Connectivity and Cloud Software solutions enabling gigabit broadband everywhere, today announced that it has filed with the SEC its restated financial results for the periods from the first quarter of 2022 through the first quarter of 2023 as well as its remaining periods in 2023.

DZS is now current with its Form 10-Q and 10-K filings with the SEC through 2023.

“We took an extremely thorough approach to the restatement process, and now have completed the restatements with respect to 2022 and the first quarter of 2023, as well as the reports for the remaining periods in 2023,” said Charlie Vogt, President and CEO, DZS. “Following a strong top line revenue growth environment in 2021 and 2022, 2023 represented a challenging market and business environment. Despite the market challenges in 2023, we advanced our technology and accelerated numerous marquee customer trials. We believe that 2023’s slowdown in capital investments from service providers was primarily caused by an over-rotation of inventory, delays with government broadband stimulus programs, including the United States Broadband Equity, Access and Deployment (BEAD) Program, and distractions surrounding our financial statement restatement. Notwithstanding, DZS continued to implement its vision and optimize its business in 2024, divesting our low margin Asia business and acquiring broadband connectivity leader NetComm. I am thankful for the commitment of our employees and support from our customers that have enabled us to remain resilient and better prepared for the future.”

DZS is capitalizing on new opportunities fueled by the accelerating demands of emerging applications, the industry evolution moving bandwidth and intelligence closer to the network edge and the operational requirements to deliver enhanced network assurance for improving the subscriber experience.

From a technology, customer and operational perspective, DZS is focused on advancing its fiber and fixed wireless broadband portfolio, implementing AI and advanced security across its portfolio, accelerating active trials with marquee service providers spanning North America, Europe/Middle East/Africa (EMEA) and Australia/New Zealand (ANZ), and continuing to optimize operational cost.

“Although we missed the required deadline imposed by Nasdaq to be current with our SEC filings, which has been disappointing, the process has yielded necessary actions which have resulted in enhancements to our internal controls and governance,” said Misty Kawecki, CFO, DZS.

The specific changes resulting from the restatement of DZS financial statements are in DZS filings.

The following summarizes certain effects: 

• On an annualized basis, $17 million of revenue previously recorded in 2022 is deferred and not recognized in 2022
• For 2023, on an annualized basis, $200K of previously-deferred revenue is being recognized which is the result of $2.9 million in net recognized revenue for the Americas and EMEA and net $2.7 million in net deferred revenue for Asia
• $16.8 million of deferred revenue will not be recognized by DZS as of December 31, 2023 of which we anticipate $15 million will be attributable to the Asia business at the time of divestiture

The revenue above are annualized and do not include revenue deferred in one quarter and recognized in another within a given year. As of December 31, 2023, DZS had a cash balance of $21 million along with approximately $75 million in inventory.

About DZS

DZS Inc. (OTC: DZSI) is a developer of Network Edge, Connectivity and Cloud Software solutions enabling gigabit broadband everywhere.

DZS, the DZS logo, and all DZS product names are trademarks of DZS Inc. Other brand and product names are trademarks of their respective holders. Specifications, products, and/or product names are all subject to change.

This press release contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Private Securities Litigation Reform Act of 1995. These statements reflect the beliefs and assumptions of the Company’s management as of the date hereof. Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” variations of such words, and similar expressions are intended to identify forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. The Company’s actual results could differ materially and adversely from those expressed in or contemplated by the forward-looking statements. Factors that could cause actual results to differ include, but are not limited to, those risk factors contained in the Company’s SEC filings available at www.sec.gov, including without limitation, the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q and subsequent filings.  In addition, additional or unforeseen affects from the COVID-19 pandemic and the global economic climate may give rise to or amplify many of these risks. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date on which they are made. DZS undertakes no obligation to update or revise any forward-looking statements for any reason.

For further information see: www.DZSi.com
DZS on Twitter: https://twitter.com/dzs_innovation
DZS on LinkedIn: https://www.linkedin.com/company/DZSi/

Investor Inquiries:
Ted Moreau, Vice President, Investor Relations
Email: IR@dzsi.com

FAQ

What is the current status of DZS's (DZSI) financial restatement process?

DZS has completed the restatement of its financial results for 2022 and Q1 2023, and filed reports for the remaining periods in 2023. The company is now current with its SEC filings through 2023.

How much revenue did DZS (DZSI) defer from 2022 due to the restatement?

DZS deferred $17 million of revenue that was previously recorded in 2022 as a result of the financial restatement process.

What was DZS's (DZSI) cash balance as of December 31, 2023?

As of December 31, 2023, DZS had a cash balance of $21 million along with approximately $75 million in inventory.

How has the financial restatement affected DZS's (DZSI) Nasdaq listing?

DZS missed the required deadline imposed by Nasdaq to be current with SEC filings, which has resulted in the company's delisting from Nasdaq.

What strategic actions is DZS (DZSI) taking to improve its business in 2024?

DZS is focusing on advancing its fiber and fixed wireless broadband portfolio, implementing AI and advanced security across its portfolio, accelerating trials with marquee service providers, and optimizing operational costs.