dzsi-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________________

FORM 10-Q

__________________________________________________

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to

000-32743

(Commission File Number)

__________________________________________________

DZS INC.

(Exact name of registrant as specified in its charter)

__________________________________________________


Delaware			22-3509099
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

5700 Tennyson Parkway, Suite 400 Plano, Texas			75024
(Address of principal executive offices)			(Zip code)

(469) 327-1531

(Registrant’s telephone number, including area code)

__________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.001 par value	DZSI	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No x

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes o No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x


As of July 22, 2024, there were 38,024,783 shares outstanding of the registrant’s common stock, $0.001 par value.

Table of Contents

TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3
	Unaudited Condensed Consolidated Balance Sheets	3
	Unaudited Condensed Consolidated Statements of Comprehensive Loss	4
	Unaudited Condensed Consolidated Statements of Stockholders' Equity	5
	Unaudited Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 5.	Other Information	37
Item 6.	Exhibits	37
	Signatures	39

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DZS INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except par value)


	September 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	4,294	$	34,347
Restricted cash	710		3,969
Accounts receivable - trade, net of allowance for credit losses of $18,324 as of September 30, 2023 and $16,184 as of December 31, 2022	69,072		134,471
Other receivables	19,921		16,144
Inventories	107,741		94,288
Contract assets	759		576
Prepaid expenses and other current assets	11,973		7,410
Total current assets	214,470		291,205
Property, plant and equipment, net	6,107		9,478
Right-of-use assets from operating leases	9,462		12,606
Goodwill	12,594		12,594
Intangible assets, net	27,780		31,742
Other assets	15,766		15,536
Total assets	$	286,179	$	373,161
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable - trade	$	95,445	$	118,667
Short-term debt – bank, trade facilities and secured borrowings	11,065		9,706
Current portion of long-term debt	—		24,073
Contract liabilities	10,144		18,705
Operating lease liabilities	4,736		4,834
Accrued and other liabilities	44,952		25,562
Total current liabilities	166,342		201,547
Long-term debt, net of current portion	29,291		—
Contract liabilities - non-current	5,918		7,788
Operating lease liabilities - non-current	8,046		11,417
Pension liabilities	10,717		11,021
Other long-term liabilities	1,793		2,806
Total liabilities	222,107		234,579
Commitments and contingencies (Note 13)
Stockholders’ equity:
Common stock, 72,000 and 36,000 shares authorized, 31,954 and 30,968 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively, at $0.001 par value	31		30
Preferred stock, $0.001 par value, 25,000 shares authorized and no shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively	—		—
Additional paid-in capital	284,134		271,884
Accumulated other comprehensive loss	(8,756)		(4,662)
Accumulated deficit	(211,337)		(128,670)
Total stockholders’ equity	64,072		138,582
Total liabilities and stockholders’ equity	$	286,179	$	373,161

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

DZS INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Loss

(In thousands, except per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net revenue	$	49,448	$	98,890	$	179,608	$	253,828
Cost of revenue	47,517		66,860		138,219		173,122
Gross profit	1,931		32,030		41,389		80,706
Operating expenses:
Research and product development	12,767		15,499		42,660		39,691
Selling, marketing, general and administrative	22,096		23,698		69,946		61,953
Restructuring and other charges	135		601		4,881		1,393
Impairment of long-lived assets	—		827		499		827
Amortization of intangible assets	1,321		1,190		3,913		1,948
Total operating expenses	36,319		41,815		121,899		105,812
Operating loss	(34,388)		(9,785)		(80,510)		(25,106)
Interest expense, net	(1,010)		(399)		(2,844)		(653)
Loss on extinguishment of debt	(375)		—		(375)		—
Other income (expense), net	813		(1,984)		1,653		(2,847)
Loss before income taxes	(34,960)		(12,168)		(82,076)		(28,606)
Income tax provision (benefit)	(947)		(1,214)		591		2,498
Net loss	(34,013)		(10,954)		(82,667)		(31,104)

Foreign currency translation adjustments (a)	(823)		(4,004)		(3,916)		(8,803)
Actuarial loss	(56)		—		(178)		—
Comprehensive loss	$	(34,892)

SEC Form 10-Q filed by DZS Inc.