UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to000-32743
(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
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes
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 Rulerule 12b-2 of the Exchange Act (Check one
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of April 27, 2022, there were 27,616,165 shares outstanding of the registrant’s common stock, $0.001 par value. |
TABLE OF CONTENTS
Page | ||||
PART I. FINANCIAL INFORMATION | ||||
Item 1. | 3 | |||
3 | ||||
4 | ||||
5 | ||||
6 | ||||
7 | ||||
Item 2. | 18 | |||
Item 3. | 25 | |||
Item 4. | 25 | |||
PART II. OTHER INFORMATION | ||||
Item 1. | 27 | |||
Item 1A. | 27 | |||
Item | 27 | |||
Item 6. | 27 | |||
29 |
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DZS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In thousands, except par value)
September 30, 2017 | December 31, 2016 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 10,145 | $ | 17,893 | |||
Restricted cash | 13,058 | 6,650 | |||||
Short-term investments | — | 993 | |||||
Accounts receivable, net of allowances for sales returns and doubtful accounts of $2,095 as of September 30, 2017 and $1,143 as of December 31, 2016: | |||||||
Trade receivables | 43,478 | 38,324 | |||||
Related parties | 12,941 | 13,311 | |||||
Other receivables: | |||||||
Others | 13,851 | 12,068 | |||||
Related parties | 22 | 171 | |||||
Inventories | 31,966 | 31,032 | |||||
Prepaid expenses and other current assets | 3,198 | 4,131 | |||||
Total current assets | 128,659 | 124,573 | |||||
Property and equipment, net | 5,812 | 6,288 | |||||
Goodwill | 3,977 | 3,977 | |||||
Intangible assets, net | 7,174 | 8,767 | |||||
Other assets | 1,536 | 1,842 | |||||
Total assets | $ | 147,158 | $ | 145,447 | |||
Liabilities, Stockholders’ Equity and Non-controlling Interest | |||||||
Current liabilities: | |||||||
Accounts payable: | |||||||
Others | $ | 35,224 | $ | 30,681 | |||
Related parties | 106 | 430 | |||||
Short-term debt: | |||||||
Others | 18,382 | 17,599 | |||||
Related parties | 3,544 | — | |||||
Other payables: | |||||||
Others | 1,691 | 2,040 | |||||
Related parties | 210 | 6,940 | |||||
Deferred revenue | 2,073 | 1,901 | |||||
Accrued and other liabilities | 10,108 | 8,163 | |||||
Total current liabilities | 71,338 | 67,754 | |||||
Long-term debt - related parties | 5,000 | 6,800 | |||||
Deferred revenue | 1,875 | 1,674 | |||||
Other long-term liabilities | 2,581 | 2,351 | |||||
Total liabilities | 80,794 | 78,579 | |||||
Commitments and contingencies (Note 11) | |||||||
Stockholders’ equity and non-controlling interest: | |||||||
Common stock, authorized 36,000 shares, 16,387 shares and 16,375 shares outstanding as of September 30, 2017 and December 31, 2016 at $0.001 par value | 16 | 16 | |||||
Additional paid-in capital | 89,873 | 89,174 | |||||
Other comprehensive income (loss) | (1,052 | ) | (2,815 | ) | |||
Accumulated deficit | (23,080 | ) | (19,923 | ) | |||
Total stockholders’ equity | 65,757 | 66,452 | |||||
Non-controlling interest | 607 | 416 | |||||
Total stockholders’ equity and non-controlling interest | 66,364 | 66,868 | |||||
Total liabilities, stockholders’ equity and non-controlling interest | $ | 147,158 | $ | 145,447 |
|
| March 31, |
|
| December 31, |
| ||
Assets |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 34,160 |
|
| $ | 46,666 |
|
Restricted cash |
|
| 6,343 |
|
|
| 6,808 |
|
Accounts receivable - trade, net of allowance for doubtful accounts of |
|
| 82,607 |
|
|
| 86,114 |
|
Other receivables |
|
| 9,898 |
|
|
| 10,621 |
|
Inventories |
|
| 66,459 |
|
|
| 56,893 |
|
Contract assets |
|
| 902 |
|
|
| 2,184 |
|
Prepaid expenses and other current assets |
|
| 13,039 |
|
|
| 5,690 |
|
Total current assets |
|
| 213,408 |
|
|
| 214,976 |
|
Property, plant and equipment, net |
|
| 10,277 |
|
|
| 9,842 |
|
Right-of-use assets from operating leases |
|
| 11,751 |
|
|
| 12,640 |
|
Goodwill |
|
| 6,145 |
|
|
| 6,145 |
|
Intangible assets, net |
|
| 4,820 |
|
|
| 5,115 |
|
Other assets |
|
| 9,904 |
|
|
| 8,950 |
|
Total assets |
| $ | 256,305 |
|
| $ | 257,668 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable - trade |
| $ | 63,774 |
|
| $ | 64,258 |
|
Contract liabilities |
|
| 7,103 |
|
|
| 6,091 |
|
Operating lease liabilities |
|
| 3,927 |
|
|
| 4,097 |
|
Accrued and other liabilities |
|
| 16,832 |
|
|
| 16,032 |
|
Total current liabilities |
|
| 91,636 |
|
|
| 90,478 |
|
Long-term debt |
|
| — |
|
|
| — |
|
Contract liabilities - non-current |
|
| 2,881 |
|
|
| 3,044 |
|
Operating lease liabilities - non-current |
|
| 11,029 |
|
|
| 12,103 |
|
Pension liabilities |
|
| 16,106 |
|
|
| 16,527 |
|
Other long-term liabilities |
|
| 3,704 |
|
|
| 3,609 |
|
Total liabilities |
|
| 125,356 |
|
|
| 125,761 |
|
Commitments and contingencies (Note 13) |
|
|
|
|
|
| ||
Stockholders’ equity: |
|
|
|
|
|
| ||
Common stock, 36,000 shares authorized, 27,603 and 27,505 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively, at $0.001 par value |
|
| 27 |
|
|
| 27 |
|
Additional paid-in capital |
|
| 226,163 |
|
|
| 223,336 |
|
Accumulated other comprehensive loss |
|
| (4,793 | ) |
|
| (4,457 | ) |
Accumulated deficit |
|
| (90,448 | ) |
|
| (86,999 | ) |
Total stockholders’ equity |
|
| 130,949 |
|
|
| 131,907 |
|
Total liabilities and stockholders’ equity |
| $ | 256,305 |
|
| $ | 257,668 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
3
DZS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Comprehensive Loss
(In thousands, except per share data)
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net revenue: | |||||||||||||||
Net revenue | $ | 60,513 | $ | 24,772 | $ | 150,834 | $ | 68,424 | |||||||
Net revenue - related parties | 5,925 | 6,468 | 27,657 | 22,408 | |||||||||||
Total net revenue | 66,438 | 31,240 | 178,491 | 90,832 | |||||||||||
Cost of revenue: | |||||||||||||||
Products and services | 38,643 | 16,483 | 96,127 | 48,750 | |||||||||||
Products and services - related parties | 5,569 | 5,406 | 22,851 | 19,118 | |||||||||||
Amortization of intangible assets | 153 | 51 | 459 | 51 | |||||||||||
Total cost of revenue | 44,365 | 21,940 | 119,437 | 67,919 | |||||||||||
Gross profit | 22,073 | 9,300 | 59,054 | 22,913 | |||||||||||
Operating expenses: | |||||||||||||||
Research and product development | 8,804 | 5,885 | 27,028 | 15,583 | |||||||||||
Selling, marketing, general and administrative | 11,454 | 8,278 | 32,506 | 16,691 | |||||||||||
Amortization of intangible assets | 154 | 251 | 1,191 | 259 | |||||||||||
Total operating expenses | 20,412 | 14,414 | 60,725 | 32,533 | |||||||||||
Operating income (loss) | 1,661 | (5,114 | ) | (1,671 | ) | (9,620 | ) | ||||||||
Interest income | 36 | 31 | 82 | 137 | |||||||||||
Interest expense | (263 | ) | (204 | ) | (793 | ) | (600 | ) | |||||||
Other income (loss), net | 60 | (112 | ) | 43 | (41 | ) | |||||||||
Income (loss) before income taxes | 1,494 | (5,399 | ) | (2,339 | ) | (10,124 | ) | ||||||||
Income tax expense (benefit) | 107 | (610 | ) | 646 | (1,041 | ) | |||||||||
Net income (loss) | 1,387 | (4,789 | ) | (2,985 | ) | (9,083 | ) | ||||||||
Net income (loss) attributable to non-controlling interest | (12 | ) | (56 | ) | 172 | (17 | ) | ||||||||
Net income (loss) attributable to DASAN Zhone Solutions, Inc. | $ | 1,399 | $ | (4,733 | ) | $ | (3,157 | ) | $ | (9,066 | ) | ||||
Foreign currency translation adjustments | (284 | ) | 2,291 | 1,782 | 2,690 | ||||||||||
Comprehensive income (loss) | 1,103 | (2,498 | ) | (1,203 | ) | (6,393 | ) | ||||||||
Comprehensive income (loss) attributable to non-controlling interest | (14 | ) | (54 | ) | 191 | 48 | |||||||||
Comprehensive income (loss) attributable to DASAN Zhone Solutions, Inc. | $ | 1,117 | $ | (2,444 | ) | $ | (1,394 | ) | $ | (6,441 | ) | ||||
Basic and diluted net income (loss) per share attributable to DASAN Zhone Solutions, Inc. | $ | 0.09 | $ | (0.42 | ) | $ | (0.19 | ) | $ | (0.90 | ) | ||||
Weighted average shares outstanding used to compute basic and diluted net income (loss) per share | 16,382 | 11,139 | 16,380 | 10,046 | |||||||||||
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Net revenue |
| $ | 77,040 |
|
| $ | 81,031 |
|
Cost of revenue |
|
| 50,215 |
|
|
| 52,936 |
|
Gross profit |
|
| 26,825 |
|
|
| 28,095 |
|
Operating expenses: |
|
|
|
|
|
| ||
Research and product development |
|
| 11,844 |
|
|
| 11,119 |
|
Selling, marketing, general and administrative |
|
| 17,742 |
|
|
| 31,824 |
|
Restructuring and other charges |
|
| 436 |
|
|
| 6,252 |
|
Impairment of long-lived assets |
|
| — |
|
|
| 1,735 |
|
Amortization of intangible assets |
|
| 294 |
|
|
| 262 |
|
Total operating expenses |
|
| 30,316 |
|
|
| 51,192 |
|
Operating loss |
|
| (3,491 | ) |
|
| (23,097 | ) |
Interest income |
|
| 37 |
|
|
| 42 |
|
Interest expense |
|
| (127 | ) |
|
| (249 | ) |
Other income (expense), net |
|
| (800 | ) |
|
| 972 |
|
Loss before income taxes |
|
| (4,381 | ) |
|
| (22,332 | ) |
Income tax provision (benefit) |
|
| (1,333 | ) |
|
| 893 |
|
Net loss |
|
| (3,048 | ) |
|
| (23,225 | ) |
|
|
|
|
|
|
| ||
Foreign currency translation adjustments |
|
| (268 | ) |
|
| (2,270 | ) |
Actuarial loss |
|
| — |
|
|
| (28 | ) |
Comprehensive loss |
| $ | (3,316 | ) |
| $ | (25,523 | ) |
Net loss per share |
|
|
|
|
|
| ||
Basic |
| $ | (0.11 | ) |
| $ | (0.92 | ) |
Diluted |
| $ | (0.11 | ) |
| $ | (0.92 | ) |
Weighted average shares outstanding |
|
|
|
|
|
| ||
Basic |
|
| 27,530 |
|
|
| 25,252 |
|
Diluted |
|
| 27,530 |
|
|
| 25,252 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
4
DZS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
Nine Months Ended | |||||||
September 30, | |||||||
2017 | 2016 | ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (2,985 | ) | $ | (9,083 | ) | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||
Depreciation and amortization | 3,105 | 1,164 | |||||
Stock-based compensation | 670 | 128 | |||||
Unrealized gain (loss) on foreign currency transactions | (185 | ) | 1,655 | ||||
Deferred taxes | — | (1,069 | ) | ||||
Changes in operating assets and liabilities: | — | ||||||
Accounts receivable | (2,948 | ) | 14,450 | ||||
Inventories | (578 | ) | (4,107 | ) | |||
Prepaid expenses and other assets | (101 | ) | 2,320 | ||||
Accounts payable | 6,713 | (5,814 | ) | ||||
Accrued expenses | (4,314 | ) | 13,598 | ||||
Net cash provided by (used in) operating activities | (623 | ) | 13,242 | ||||
Cash flows from investing activities: | |||||||
Cash increase through Merger | — | 7,013 | |||||
Increase in restricted cash | (6,061 | ) | (947 | ) | |||
Decrease in short-term and long-term loans to others | — | 1,891 | |||||
Increase in short-term and long-term loans to others | — | (1,386 | ) | ||||
Proceeds from sale of short-term investments | 1,463 | — | |||||
Purchase of short-term investments | (430 | ) | — | ||||
Proceeds from disposal of property and equipment and other assets | 6 | 98 | |||||
Purchase of property and equipment | (840 | ) | (370 | ) | |||
Purchase of intangible asset | (72 | ) | (92 | ) | |||
Net cash provided by (used in) investing activities | (5,934 | ) | 6,207 | ||||
Cash flows from financing activities: | |||||||
Repayments of borrowings | (15,627 | ) | (23,088 | ) | |||
Proceeds from short-term borrowings | 13,778 | 19,769 | |||||
Proceeds from long-term borrowings | — | 6,800 | |||||
Proceeds from issuance of common stock | 28 | — | |||||
Net cash provided by (used in) financing activities | (1,821 | ) | 3,481 | ||||
Effect of exchange rate changes on cash | 630 | 1,538 | |||||
Net increase (decrease) in cash and cash equivalents | (7,748 | ) | 24,468 | ||||
Cash and cash equivalents at beginning of period | 17,893 | 9,095 | |||||
Cash and cash equivalents at end of period | $ | 10,145 | $ | 33,563 |
|
| Common stock |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
| Total |
| |||||||||
|
| Shares |
|
| Amount |
|
| capital |
|
| loss |
|
| deficit |
|
| equity |
| ||||||
For the three-months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance as of December 31, 2021 |
|
| 27,505 |
|
| $ | 27 |
|
| $ | 223,336 |
|
| $ | (4,457 | ) |
| $ | (86,999 | ) |
| $ | 131,907 |
|
Cumulative effect of ASC 326 adoption |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (401 | ) |
|
| (401 | ) |
Exercise of stock awards and |
|
| 98 |
|
|
| — |
|
|
| 156 |
|
|
| — |
|
|
| — |
|
|
| 156 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 2,671 |
|
|
| — |
|
|
| — |
|
|
| 2,671 |
|
Net income loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,048 | ) |
|
| (3,048 | ) |
Subsidiary dissolution |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (68 | ) |
|
| — |
|
|
| (68 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (268 | ) |
|
| — |
|
|
| (268 | ) |
Balance as of March 31, 2022 |
|
| 27,603 |
|
| $ | 27 |
|
| $ | 226,163 |
|
| $ | (4,793 | ) |
| $ | (90,448 | ) |
| $ | 130,949 |
|
For the three-months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance as of December 31, 2020 |
|
| 21,958 |
|
| $ | 22 |
|
| $ | 147,997 |
|
| $ | (2,124 | ) |
| $ | (52,316 | ) |
| $ | 93,579 |
|
Issuance of common stock in public |
|
| 4,600 |
|
|
| 5 |
|
|
| 59,520 |
|
|
|
|
|
|
|
|
| 59,525 |
| ||
Exercise of stock awards and |
|
| 325 |
|
|
| — |
|
|
| 2,569 |
|
|
| — |
|
|
| — |
|
|
| 2,569 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,352 |
|
|
| — |
|
|
| — |
|
|
| 1,352 |
|
Net income loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (23,225 | ) |
|
| (23,225 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,298 | ) |
|
| — |
|
|
| (2,298 | ) |
Balance as of March 31, 2021 |
|
| 26,883 |
|
| $ | 27 |
|
| $ | 211,438 |
|
| $ | (4,422 | ) |
| $ | (75,541 | ) |
| $ | 131,502 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
5
DZS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
|
| Three months ended |
| |||||
|
| March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (3,048 | ) |
| $ | (23,225 | ) |
Adjustments to reconcile net income (loss) to net cash |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 1,081 |
|
|
| 1,265 |
|
Impairment of long-lived assets and non-cash restructuring |
|
| — |
|
|
| 4,443 |
|
Amortization of deferred financing costs |
|
| — |
|
|
| 12 |
|
Stock-based compensation |
|
| 2,671 |
|
|
| 1,352 |
|
Provision for inventory write-down |
|
| 705 |
|
|
| 666 |
|
Bad debt expense, net of recoveries |
|
| (752 | ) |
|
| 14,228 |
|
Provision for sales returns |
|
| 1,448 |
|
|
| 239 |
|
Provision for warranty |
|
| 121 |
|
|
| 269 |
|
Unrealized loss (gain) on foreign currency transactions |
|
| 874 |
|
|
| (883 | ) |
Subsidiary dissolution |
|
| (68 | ) |
|
| — |
|
Deferred taxes |
|
| — |
|
|
| (134 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Accounts receivable |
|
| 2,761 |
|
|
| (846 | ) |
Other receivable |
|
| 126 |
|
|
| (2,678 | ) |
Inventories |
|
| (10,931 | ) |
|
| (3,239 | ) |
Contract assets |
|
| 1,261 |
|
|
| (267 | ) |
Prepaid expenses and other assets |
|
| (7,577 | ) |
|
| (1,186 | ) |
Accounts payable |
|
| 1,586 |
|
|
| 3,539 |
|
Contract liabilities |
|
| (1,446 | ) |
|
| 32 |
|
Accrued and other liabilities |
|
| 456 |
|
|
| (523 | ) |
Net cash used in operating activities |
|
| (10,732 | ) |
|
| (6,936 | ) |
Cash flows from investing activities: |
|
|
|
|
|
| ||
Purchases of property, plant and equipment |
|
| (1,317 | ) |
|
| (1,266 | ) |
Acquisition of business, net of cash acquired |
|
| — |
|
|
| (4,258 | ) |
Net cash used in investing activities |
|
| (1,317 | ) |
|
| (5,524 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Proceeds from issuance of common stock in public offerings, net of issuance costs |
|
| — |
|
|
| 59,525 |
|
Repayments of short-term borrowings and line of credit |
|
| — |
|
|
| (11,494 | ) |
Repayments of related party term loan |
|
| — |
|
|
| (29,298 | ) |
Payments for debt issue costs |
|
| (178 | ) |
|
| — |
|
Proceeds from exercise of stock awards and employee stock plan purchases |
|
| 156 |
|
|
| 2,569 |
|
Net cash provided by (used in) financing activities |
|
| (22 | ) |
|
| 21,302 |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| (903 | ) |
|
| 404 |
|
Net increase in cash, cash equivalents and restricted cash |
|
| (12,974 | ) |
|
| 9,246 |
|
Cash, cash equivalents and restricted cash at beginning of period |
|
| 53,639 |
|
|
| 54,587 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | 40,665 |
|
| $ | 63,833 |
|
|
|
|
|
|
|
| ||
Reconciliation of cash, cash equivalents and restricted cash to statement of |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 34,160 |
|
| $ | 56,818 |
|
Restricted cash |
|
| 6,343 |
|
|
| 6,848 |
|
Long-term restricted cash |
|
| 162 |
|
|
| 167 |
|
|
| $ | 40,665 |
|
| $ | 63,833 |
|
|
|
|
|
|
|
| ||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
| ||
Cash paid during the period for: |
|
|
|
|
|
| ||
Interest - bank and trade facilities |
| $ | 36 |
|
| $ | 83 |
|
Interest - related party |
|
| — |
|
|
| 94 |
|
Income taxes |
| $ | 283 |
|
| $ | 1,206 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
6
Notes to Unaudited Condensed Consolidated Financial Statements
(1) Organization and Summary of Significant Accounting Policies
(a) Description of Business
DZS Inc. (formerly known as Zhone Technologies, Inc. and referred(referred to, collectively with its subsidiaries, as "DZS"“DZS” or the "Company"“Company”) is a global provider of networkleading-edge access, solutions and communications equipment for service provider5G transport, and enterprise networks.communications platforms that enable the emerging hyper-connected, hyper-broadband world. The Company provides a wide array of reliable, cost-effective networking technologies, including broadband access, Ethernet switching, mobile backhaul, Passive Optical LAN and software-defined networks, to a diverse customer base that includes more than 1,000 customers in more than 50 countries worldwide.
DZS was incorporated under the laws of the state of Delaware in June 1999. On September 9, 2016, the Company acquired Dasan Network Solutions, Inc. ("DNS") through the merger of a wholly owned subsidiary of the Company with and into DNS, with DNS surviving as a wholly owned subsidiary of the Company (the "Merger")1999. At the effective time of the Merger, all issued and outstanding shares of capital stock of DNS held by DASAN Networks, Inc. ("DNI") were canceled and converted into the right to receive shares of the Company's common stock in an amount equal to 58% of the issued and outstanding shares of the Company's common stock immediately following the Merger. In connection with the Merger, the Company changed its name from Zhone Technologies, Inc. to DASAN Zhone Solutions, Inc. For periods through September 8, 2016, Zhone Technologies, Inc. is referred to as "Legacy Zhone." The Company’s common stock continues to be traded on the Nasdaq Capital Market, and the Company’s ticker symbol was changed from "ZHNE" to "DZSI" effective September 12, 2016. The Company is headquartered in Oakland, California.
(b) Basis of the uncertainties set forth above.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principlesU.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 103 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principlesU.S. GAAP for complete financial statements.
All intercompany transactions and balances have been eliminated in consolidation. Certain prior-year amounts have been reclassified to conform to the current-quarter presentation. The unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) that, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. All intercompany transactions and balances have been eliminated in consolidation. The results of operations for the current interim period are not necessarily indicative of results to be expected for
(c) Risks and Uncertainties
The accompanying unaudited condensed consolidated financial statements should be readhave been prepared in conjunctionconformity with U.S. GAAP, assuming the Company will continue as a going concern.
The COVID-19 pandemic continued to adversely affect significant portions of our business and our financial condition and results of operations in the first quarter of 2022. The emergence of the Omicron variant in late 2021 with a resulting increase in COVID cases in early 2022 resulted in re-implementation of various measures, including travel bans and restrictions, limitations on public and private gatherings, business closures or operating restrictions, social distancing, and shelter-in-place orders. The health effects of the pandemic and the above measures taken in response thereto have had an effect on the global economy in general and have materially impacted and will likely continue to impact the Company’s financial condition, results of operations and cash flows. Given the ongoing and dynamic nature of the virus and its variants, and the worldwide response related thereto, it is difficult to predict the full impact of the COVID-19 pandemic on our business.
We have experienced and continue to experience disruptions in our supply chain due to the pandemic, which has also impacted and may adversely impact our operations (including, without limitation, logistical and other operational costs) and the operations of some of our key suppliers. Supply chain pricing, freight and logistics costs, product and component availability, and extended lead-times became a challenge in 2021 and continue into 2022 as the world economy recovers from the COVID-19 pandemic. As we continue to incur elevated costs for components and expedite fees, our supply chain and operations teams continue to focus on managing through a constrained environment, thereby enabling DZS to maximize shipments despite elongated lead times. We remain cautious about continued supply chain headwinds that challenge the industry and anticipate a constrained supply chain environment to persist throughout 2022.
For additional risks to the corporation related to the COVID-19 pandemic, see Item 1A, Risk Factors of our 2021 Form 10-K.
(d) Use of Estimates
The preparation of the unaudited condensed consolidated financial statements ofin conformity with U.S. GAAP requires management to make estimates and assumptions that affect the Company and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission.
7
(e) Disaggregation of Revenue
The following table presents revenues by source (in thousands):
|
| Three Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Products |
| $ | 72,462 |
|
| $ | 76,252 |
|
Services and other |
|
| 4,578 |
|
|
| 4,779 |
|
Total |
| $ | 77,040 |
|
| $ | 81,031 |
|
The following table present revenues by geographical concentration (in thousands):
|
| Three Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Americas |
| $ | 23,061 |
|
| $ | 20,169 |
|
Europe, Middle East, Africa |
|
| 18,649 |
|
|
| 17,918 |
|
Asia |
|
| 35,330 |
|
|
| 42,944 |
|
Total |
| $ | 77,040 |
|
| $ | 81,031 |
|
(f) Concentration of Risk
Financial instruments that potentially subject the Company and its consolidated subsidiaries for periods on or after September 9, 2016.
The Company’s customers include competitive and incumbent local exchange carriers, competitive access providers, Internetinternet service providers, wireless carriers and resellers serving these markets. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Allowances are maintained for potential doubtful accounts. accounts based upon the expected collectability of accounts receivable using historical loss rates adjusted for customer-specific factors and current economic conditions. The Company performs periodic assessments of its customers’ liquidity and financial condition through analysis of information obtained from credit rating agencies, financial statement review and historical and current collection trends.
Activity under the Company’s allowance for doubtful accounts is comprised as follows (in thousands):
|
| Three Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Balance at beginning of period |
| $ | 17,735 |
|
| $ | 3,954 |
|
Charged to expense, net of recoveries |
|
| (752 | ) |
|
| 14,228 |
|
Utilization/write offs/exchange rate differences |
|
| — |
|
|
| (94 | ) |
Cumulative effect of ASC 326 adoption |
|
| 401 |
|
|
| — |
|
Foreign exchange impact |
|
| (326 | ) |
|
| (148 | ) |
Balance at end of period |
| $ | 17,058 |
|
| $ | 17,940 |
|
For the three months ended September 30, 2017, twoMarch 31, 2022, 2 customers represented, 10%accounted for 13% and 9%12% of net revenue, respectively. For the three months ended September 30, 2016, threeMarch 31, 2021, 2 customers represented 18%, 16% (a related-party)accounted for 18% and 12%10% of net revenue, respectively. For the nine months ended September 30, 2017, two
As of March 31, 2022, 0 customers each represented 9%more than 10% of net revenue (oneaccounts receivable. As of which was a related-party). For the nine months ended September 30, 2016, threeDecember 31, 2021, 2 customers represented 23%, 21% (a related-party)26% and 12% of net revenue, respectively.
As of DecemberMarch 31, 2016, two customers represented 13% (a related-party) and 10% of net accounts receivable, respectively.
In 2017, the Company entered into an agreement with a customer in India to supply product for a state sponsored broadband project. The Company substantially completed its obligations under the agreement in 2018. The Company billed the customer, which is a state government sponsored entity, approximately $59.0 million and collected payments of netapproximately $41.7 million by December 31, 2020. In late March 2021, the customer’s state government parent experienced difficulty passing a budget impacting the ability of the customer to make remaining agreed-upon payments to us. In light of this development, the Company recorded an allowance that covered the entire balance unpaid by the customer. Subsequent to March 2021, the Company recovered approximately $1.9 million of accounts receivable related to the customer. As of March 31, 2022 the Company has a recorded allowance for doubtful accounts of $14.8 million related to this receivable. The Company will continue to pursue collection of the entire outstanding balance and any amounts collected will be recognized in the period which they are received. In the event the Company’s efforts to collect from this customer prove unsuccessful, DZS may seek payment through other means, including through legal action.
8
(g) Business Combinations
The Company allocates the fair value of purchase consideration to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets and certain tangible assets such as inventory.
Critical estimates in valuing certain tangible and intangible assets include but are not limited to future expected cash flows from the underlying assets and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
Assets acquired and liabilities assumed are generally measured at their acquisition-date fair values. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Company reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (which cannot exceed one year from the acquisition date), or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognized as of that date.
When the consideration transferred by the Company in a business combination includes a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the total consideration transferred in a business combination. Changes in fair value of the contingent consideration that qualify as measurement period adjustments are made retrospectively, with corresponding adjustments against goodwill. Changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments are made in the current period, with corresponding adjustments recognized in earnings.
(h) Restructuring and Other Charges
Restructuring and other charges primarily consists of severance and other termination benefits and non-cash impairment charges related to right-of-use assets from operating leases related to the restructuring activities in Hanover, Germany and Ottawa, Canada. The Company recognizes contractual termination benefits when it is probable that employees will be entitled to benefits and the amount can be reasonably estimated. The Company recognizes one-time employee termination benefits when (i) management commits to a plan of termination, (ii) the plan identifies the number of employees to be terminated, their job classifications or functions and their locations, and the expected completion date, (iii) the plan establishes the terms of the benefit arrangement in sufficient detail to enable employees to determine the type and amount of benefits they will receive, and (iv) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. These charges are included in restructuring and other charges in the unaudited condensed consolidated statement of comprehensive income (loss).
(i)Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB"(“FASB”) issued Accounting Standards Update ("ASU"(“ASU”) No. 2014-09, Revenue from Contracts with Customers,2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The standard permits the use of either the retrospective or cumulative effect transition method. In August 2015, the FASB issued ASU 2015-14, which defers the effective date of the guidance in ASU No. 2014-09, Revenue from Contracts with Customer, for all entities by one year. With the deferral, the new standard is effective for the Company on January 1, 2018. Early adoption is permitted, butto measure and recognize expected credit losses for financial assets held and not before the original effective date of January 1, 2017.accounted for at fair value through net income. In November 2018, April 2019 and May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients, which provides clarification on how to assess collectibility, present sales tax, treat noncash consideration, and account for completed and modified contracts at the time of transition of ASU 2014-09. The effective date of this updated guidance for the Company is the same as the effective date of ASU 2014-09, which is January 1, 2018. The Company does not plan to early adopt this guidance. The Company is currently assessing the
In November 2015,March 2020, the FASB issued ASU 2015-17, Income Taxes, Balance Sheet ClassificationNo. 2020-04 (Topic 848), Reference Rate Reform - Facilitation of Deferred Taxes,the Effects of Reference Rate Reform on Financial Reporting, which simplifiesprovides temporary optional expedients and exceptions to the classification of deferred tax assetsexisting guidance on contract modifications and liabilitieshedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates, such as non-current in the balance sheet.Secured Overnight Financing Rate. The updated guidancestandard was effective upon issuance and may generally be applied through December 31, 2022, to any new or amended contracts, hedging relationships, and other transactions that reference LIBOR. The ASU is effective for the Company on January 1, 2017, and will be adopted accordingly.
9
(2) Business Combinations
Optelian Acquisition
On February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires that lease arrangements longer than 12 months result in an entity recognizing an asset and liability. The updated guidance is effective for5, 2021, the Company on January 1, 2019,acquired Optelian Access Networks Corporation (“Optelian”), a corporation incorporated under the laws of Canada and early adoption is permitted. Theregistered extra-provincially in the Province of Ontario, pursuant to an acquisition agreement whereby the Company does not plan to early adopt this guidance. The Company expects its assets and liabilities to increase as a resultpurchased all the outstanding shares of Optelian (the “Optelian Acquisition”). Following the closing of the adoptionOptelian Acquisition, Optelian became the Company’s wholly owned subsidiary.
Optelian was a leading optical networking solution provider. This acquisition introduced the “O-Series” to the DZS portfolio of this standard. carrier grade optical networking products with 100 gigabits per second (Gig) and above capability, expanding the DZS product portfolio by providing environmentally hardened, high capacity, and flexible solutions at the network edge.
The Company is currently assessingpurchase price of $7.5 million included cash paid to the potential impactshareholders and option holders of adopting this new guidanceOptelian, cash paid to retire Optelian's outstanding debt on its unaudited condensed consolidated financial statements. the date of acquisition, and contingent payments to shareholders.
The Company is not ablepayment to quantify or cannot reasonably estimate quantitative informationshareholders and option holders includes a $0.3 million holdback and $1.9 million contingent consideration based on a certain percentage of future revenue of certain Optelian products through the end of 2023. We completed the purchase price allocation for Optelian acquisition in 2021. The purchase price allocation resulted in the recognition of goodwill of approximately $1.9 million, which primarily related to the impact of the new standard on its unaudited condensed consolidated financial statements at this time.
RIFT Acquisition
On March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which requires entities to simplify several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on statements of cash flows. The guidance is effective for the Company on January 1, 2017, and has been adopted in the first quarter of 2017. The adoption of this standard had no material impact on the Company's unaudited condensed consolidated financial statements.
Shares | Estimated Fair Value | ||||||
Shares of Legacy Zhone stock as of September 8, 2016 | 6,874 | $ | 40,902 | ||||
Legacy Zhone stock options | 198 | 540 | |||||
Total Purchase Consideration | $ | 41,442 |
Cash and cash equivalents | $ | 7,013 | ||
Accounts receivable | 18,510 | |||
Inventory | 16,456 | |||
Prepaid expenses and other current assets | 2,191 | |||
Property and equipment | 4,339 | |||
Other assets | 125 | |||
Identifiable intangible assets | 10,479 | |||
Goodwill | 3,284 | |||
Accounts payable | (11,021 | ) | ||
Accrued and other liabilities | (7,089 | ) | ||
Other long-term liabilities | (2,845 | ) | ||
Total Indicated Fair Value of Assets | $ | 41,442 |
Useful life (in Years) | Fair Value | |||||
Developed technology | 5 | $ | 3,060 | |||
Customer relationships | 10 | 5,240 | ||||
Backlog | 1 | 2,179 | ||||
$ | 10,479 |
September 30, 2016 | |||||||
(in thousands) | Three Months Ended | Nine Months Ended | |||||
Pro forma total net revenue | $ | 39,740 | $ | 142,530 | |||
Pro forma net loss | (15,569 | ) | (25,504 | ) |
(3) Fair Value Measurement
The Company utilizes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions. The fair value hierarchy consists of the following three levels:
Level 1 | Inputs are quoted prices in active markets for identical assets or liabilities. | |
Level 2 | Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data. | |
Level 3 | Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are |
Assets and Liabilities Measured at fair valueFair Value on the Company’s condensed consolidated balance sheet as of September 30, 2017 and December 31, 2016, but require disclosure of their fair values: cash and cash equivalents, short-term investments, accounts receivable, accounts payable and debt. a Recurring Basis:
The carrying values of financial instruments such as cash and cash equivalents, short-term investments,restricted cash, accounts receivable and other receivables, accounts payable and accrued liabilities approximate their fair values based on their short-term nature.
The carryingCompany classifies its contingent liability from Optelian acquisition within Level 3 as it includes inputs not observable in the market. The Company estimates the fair value of contingent consideration as the present value of the Company's debt approximates theirexpected contingent payments, determined using the revenue forecast for certain Optelian products through the end of 2023. The fair values based onvalue of contingent liability is generally sensitive to changes in the current rates available to the Company for debtrevenue forecast. As of similar terms and maturities.
10
(4) Cash, Cash Equivalents and Restricted Cash
As of March 31, 2022 and December 31, 2021, the Company's cash, cash equivalents and restricted cash consisted of financial deposits. Cash, cash equivalents and restricted cash held within the U.S. totaled $8.7 million and $22.3 million as of March 31, 2022 and December 31, 2021, respectively. Cash, cash equivalents and restricted cash held within the U.S. are held at FDIC insured depository institutions. Cash, cash equivalents and restricted cash held outside the U.S. totaled $32.0 million and $31.3 million as of March 31, 2022 and December 31, 2021, respectively. Restricted cash consisted primarily of cash collateral for performance bonds and warranty bonds. Long-term restricted cash was $0.2 million as of March 31, 2022 and December 31, 2021 and is included in other assets on the unaudited condensed consolidated balance sheets.
(5) Balance Sheet Details
Balance sheet detail as of March 31, 2022 and December 31, 2021 is as follows (in thousands):
Inventories
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
Raw materials |
| $ | 45,527 |
|
| $ | 34,512 |
|
Work in process |
|
| 1,216 |
|
|
| 1,427 |
|
Finished goods |
|
| 19,716 |
|
|
| 20,954 |
|
Total inventories |
| $ | 66,459 |
|
| $ | 56,893 |
|
September 30, 2017 | December 31, 2016 | ||||||
Raw materials | $ | 12,812 | $ | 13,547 | |||
Work in process | 3,004 | 3,705 | |||||
Finished goods | 16,150 | 13,780 | |||||
Total inventories | $ | 31,966 | $ | 31,032 |
Inventories provided as collateral for borrowings from Export-Import Bankare stated at the lower of Korea amounted to $18.9 million and $14.4 million as of September 30, 2017 and December 31, 2016, respectively.
Property, plant and equipment as of
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
Property, plant and equipment, net: |
|
|
|
|
|
| ||
Machinery and equipment |
| $ | 17,090 |
|
| $ | 14,278 |
|
Leasehold improvements |
|
| 5,251 |
|
|
| 5,219 |
|
Computers and software |
|
| 3,278 |
|
|
| 3,217 |
|
Furniture and fixtures |
|
| 1,726 |
|
|
| 1,771 |
|
Construction in progress and other |
|
| 1,052 |
|
|
| 2,937 |
|
|
|
| 28,397 |
|
|
| 27,422 |
|
Less: accumulated depreciation and amortization |
|
| (17,971 | ) |
|
| (17,394 | ) |
Less: government grants |
|
| (149 | ) |
|
| (186 | ) |
Total property, plant and equipment, net |
| $ | 10,277 |
|
| $ | 9,842 |
|
September 30, 2017 | December 31, 2016 | ||||||
Furniture and fixtures | $ | 21,251 | $ | 20,040 | |||
Machinery and equipment | 4,945 | 4,530 | |||||
Leasehold improvements | 3,386 | 3,573 | |||||
Computers and software | 567 | 411 | |||||
Other | 983 | 922 | |||||
31,132 | 29,476 | ||||||
Less accumulated depreciation and amortization | (25,109 | ) | (22,922 | ) | |||
Less government grants | (211 | ) | (266 | ) | |||
Total property and equipment, net | $ | 5,812 | $ | 6,288 |
Depreciation and amortization expense associated with property, plant and equipment was $0.8 million and $0.9 million for the three and nine months ended September 30, 2017 was $0.5 millionMarch 31, 2022 and $1.4 million,2021, respectively. Depreciation and amortization expense associated with property and equipment for the three and nine months ended September 30, 2016 was $0.4 million and $0.9 million, respectively.
The Company receives grants from thecertain foreign government entities mainly to support capital expenditures.expenditures in the region. Such grants are deferred and are generally refundable to the extent the Company does not utilize the funds for qualifying expenditures. Once earned, the Company records the grants as a contra amount to the assets and amortizes such amount over the useful lives of the related assets as a reduction to depreciation expense.
Warranties
The Company accrues warranty costs based on historical trends for the expected material and labor costs to provide warranty services. The Company's standard warranty period is one year from the date of shipment with the ability for customers to purchase an extended warranty of up to five years from the date of shipment. The following table summarizes the activity related to the product warranty liability:
|
| Three Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Balance at beginning of period |
| $ | 1,981 |
|
| $ | 1,522 |
|
Charged to cost of revenue |
|
| 121 |
|
|
| 269 |
|
Claims and settlements |
|
| (149 | ) |
|
| (267 | ) |
Foreign exchange impact |
|
| (17 | ) |
|
| 56 |
|
Balance at end of period |
| $ | 1,936 |
|
| $ | 1,580 |
|
11
Contract Balances
The Company records contract assets when it has a right to consideration and records accounts receivable when it has an unconditional right to consideration. Contract liabilities consist of cash payments received (or unconditional rights to receive cash) in advance of fulfilling performance obligations. The majority of the Company's performance obligations in its contracts with customers relate to contracts with duration of less than one year.
The opening and closing balances of current and long-term contract assets and contract liabilities related to contracts with customers are as follows:
|
| Contract |
|
| Contract |
| ||
December 31, 2021 |
| $ | 2,184 |
|
| $ | 9,135 |
|
March 31, 2022 |
|
| 902 |
|
|
| 9,984 |
|
Increase (decrease) |
| $ | (1,282 | ) |
| $ | 849 |
|
The decrease in contract assets during the three months ended March 31, 2022 was primarily due to invoicing that occurred in 2022 from unbilled balances reflected as contract assets as of September 30, 2017December 31, 2021.
The increase in contract liabilities during the three months ended March 31, 2022 was primarily due to amounts being invoiced for certain customers that have not yet met the revenue recognition criteria. The amount of revenue recognized in the three months ended March 31, 2022 that was included in the prior period contract liability balance was $2.4 million. This revenue consists of services provided to customers who had been invoiced prior to the current year. We expect to recognize approximately 71% of outstanding contract liabilities as revenue over the next 12 months and the remainder thereafter.
The balance of contract cost deferred as of March 31, 2022 and December 31, 20162021 was $0.6 million and $0.8 million, respectively. During the three months ended March 31, 2022, the Company recorded $0.2 million in amortization related to contract cost deferred as followsof December 31, 2021.
(6) Goodwill and Intangible Assets
The following table summarizes the activity related to goodwill (in thousands):
|
| March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Balance at beginning of period, gross |
| $ | 7,148 |
|
| $ | 4,980 |
|
Accumulated impairment at beginning of period |
|
| (1,003 | ) |
|
| (1,003 | ) |
Goodwill from acquisitions |
|
| — |
|
|
| 1,698 |
|
Balance at end of period |
| $ | 6,145 |
|
| $ | 5,675 |
|
September 30, 2017 | December 31, 2016 | ||||||
Beginning balance | $ | 3,977 | $ | 693 | |||
Addition from Merger | — | 3,284 | |||||
Less: accumulated impairment | — | — | |||||
Ending balance | $ | 3,977 | $ | 3,977 |
Intangible assets asconsisted of September 30, 2017 and December 31, 2016 were as followsthe following (in thousands):
|
| March 31, 2022 |
| |||||||||
|
| Gross Carrying |
|
| Accumulated |
|
| Net |
| |||
Developed technology |
| $ | 5,007 |
|
| $ | (3,559 | ) |
| $ | 1,448 |
|
Customer relationships |
|
| 5,730 |
|
|
| (3,041 | ) |
|
| 2,689 |
|
In-process research and development |
|
| 890 |
|
|
| (207 | ) |
|
| 683 |
|
Total intangible assets, net |
| $ | 11,627 |
|
| $ | (6,807 | ) |
| $ | 4,820 |
|
|
| December 31, 2021 |
| |||||||||
|
| Gross Carrying |
|
| Accumulated |
|
| Net |
| |||
Developed technology |
| $ | 5,007 |
|
| $ | (3,464 | ) |
| $ | 1,543 |
|
Customer relationships |
|
| 5,730 |
|
|
| (2,886 | ) |
|
| 2,844 |
|
In-process research and development |
|
| 890 |
|
|
| (162 | ) |
|
| 728 |
|
Total intangible assets, net |
| $ | 11,627 |
|
| $ | (6,512 | ) |
| $ | 5,115 |
|
12
September 30, 2017 | December 31, 2016 | ||||||
Developed technology | $ | 3,060 | $ | 3,060 | |||
Customer relationships | 5,240 | 5,240 | |||||
Backlog | 2,179 | 2,179 | |||||
Other | 194 | 105 | |||||
Less accumulated amortization | (3,499 | ) | (1,817 | ) | |||
Intangible assets, net | $ | 7,174 | $ | 8,767 |
Amortization expense associated with intangible assets for the three and nine months ended September 30, 2017March 31, 2022 and 2021 was $0.3$0.3 million and $1.7$0.4 million, respectively. Amortization
The following table presents the future amortization expense associated withof the Company’s intangible assets for eachas of the three and nine months ended September 30, 2016 was $0.3 million.March 31, 2022 (in thousands):
Remainder of 2022 |
| $ | 883 |
|
2023 |
|
| 1,177 |
|
2024 |
|
| 1,177 |
|
2025 |
|
| 1,177 |
|
2026 |
|
| 406 |
|
Total |
| $ | 4,820 |
|
(7) Debt
The Company had $6.7 million of borrowing availability under the WFB Facility0 debt obligations as of September 30, 2017. The amounts borrowed under the WFB Facility bear interest, payable monthly, at a floating rate equal to the three-month LIBOR plus a margin based on the Company's average excess availability (as calculated under the WFB Facility). The interest rate on the WFB Facility was 3.8% at September 30, 2017. The maturity date under the WFB Facility is March 31, 2019.
Bank and Trade Facilities - Foreign Operations
During prior periods, certain of the Company's foreign subsidiaries have entered into various financing arrangements with foreign banks and other lending institutions consisting primarily of revolving lines of credit, trade facilities, term loans and export development loans. These facilities are renewed on an annual basis and are generally secured by a security interest in certain assets of the applicable foreign subsidiaries. Payments under such facilities are made in accordance with the given lender’s amortization schedules.
As of September 30, 2017 | ||||||||
Interest rate (%) | Amount | |||||||
Industrial Bank of Korea | Credit facility | 2.8 - 3.0 | $ | 3,235 | ||||
Industrial Bank of Korea | Trade finance | 3.9-5.4 | 2,287 | |||||
Shinhan Bank | General loan | 5.89 | 2,791 | |||||
Shinhan Bank | Trade finance | 3.70 | 1,950 | |||||
NongHyup Bank | Credit facility | 1.7 - 3.0 | 1,841 | |||||
The Export-Import Bank of Korea | Export development loan | 3.1 | 6,278 | |||||
$ | 18,382 |
As of December 31, 2016 | ||||||||
Interest rate (%) | Amount | |||||||
Industrial Bank of Korea | Credit facility | 2.16 - 2.76 | $ | 1,106 | ||||
Shinhan Bank | General loan | 4.08 | 3,310 | |||||
Shinhan Bank | Trade finance | 3.28 - 3.44 | 1,752 | |||||
NongHyup Bank | Credit facility | 1.92 - 2.66 | 482 | |||||
KEB Hana Bank | Comprehensive credit loan | 2.79 | 3,501 | |||||
The Export-Import Bank of Korea | Export development loan | 3.10 | 7,448 | |||||
$ | 17,599 |
Related Party Debt
During prior periods, certain of September 30, 2017, the Company had $5.0 million in outstanding borrowings and $6.0 million committed as security for letters of credit under the Company's $12.0 million credit facilitysubsidiaries entered into term loan arrangements with certain foreign banks.
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Beginning non-controlling interests | $ | 416 | $ | 138 | ||||
Acquisition of additional interest in a subsidiary | — | 277 | ||||||
Net income (loss) attributable to non-controlling interests | 172 | (17 | ) | |||||
Foreign currency translation adjustments (OCI) | 19 | 66 | ||||||
Ending non-controlling interests | $ | 607 | $ | 464 |
JPMorgan Credit Facility
On February 9, 2016,2022, the Company entered into a loan agreementCredit Agreement with DNI for a $5.0 million unsecured subordinated term loan facility. Under the loan agreement, the Company, was permitted to request drawdownsas borrower, certain subsidiaries of one or more termthe Company, as guarantors, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent. The Credit Agreement provides for revolving loans in an aggregate principal amount notof up to exceed $5.0$30 million, up to $15 million of which is available for letters of credit. The Credit Agreement matures on February 9, 2024. The maximum amount that the Company can borrow under the Credit Agreement is subject to a borrowing base, which is based on a percentage of eligible accounts receivable and eligible inventory, subject to reserves and other adjustments, plus $10 million.
Loans under the Credit Agreement bear interest at the Company’s option at (i) the prime rate plus 2.00%, (ii) the adjusted term SOFR rate plus 2.90% or (iii) the adjusted daily simple SOFR rate plus 2.90%. The Company pays a per annum fee of 2.90% on all letters of credit issued under the Credit Agreement, and a commitment fee of 0.25% per annum on the unused revolving credit availability under the Credit Agreement.
As of September 30, 2017, $5.0 million in term loansMarch 31, 2022, there was0 amount outstanding under the revolving credit facility. Such term loans matureThe Company was in September 2021 and are pre-payable at any timecompliance with all debt covenants as of March 31, 2022.
(8) Employee Benefit Plans
Defined Contribution Plans
The Company maintains a 401(k) plan for its employees in the US whereby eligible employees may contribute up to a specified percentage of their earnings, on a pretax basis, subject to the maximum amount permitted by the Internal Revenue Code. Under the 401(k) plan, the Company without premium or penalty. made discretionary contributions to the plan in 2021. For the three months ended March 31, 2022 and 2021, the Company recorded an expense of $0.2 million and $0.1 million, respectively.
The interest rateCompany maintains a defined contribution plan for its employees in Korea. Under the defined contribution plan, the Company contributes the equivalent of 8.3% of an employee's gross salary into the plan. For the three months ended March 31, 2022 and 2021, the Company recorded an expense of $0.3 million.
13
Defined Benefit Plans
The Company sponsors defined benefit plans for its employees in Germany and Japan. Defined benefit plans provide pension benefits based on compensation and years of service. The Germany plans were frozen as of September 30, 2017 under this facility2003 and have not been offered to new employees after that date. The Company has recorded the underfunded status as of March 31, 2022 and December 31, 2021 as a long-term liability on the unaudited condensed consolidated balance sheets. The accumulated benefit obligation for the plans in Germany and Japan was 4.6% per annum.
The Company holds life insurance contracts, with the Company borrowed $1.8as beneficiary, in the amount of $2.8 million from DNI for capital investment in February 2016, which amount was outstanding as of September 30, 2017. This loan matured in March 2017 with an option31, 2022 and $2.9 million as of renewal by mutual agreement, and bore interestDecember 31, 2021, respectively, related to individuals under the pension plans. The Company records these insurance contracts based on their cash surrender value at a rate of 6.9% per annum, payable annually. Effective February 27, 2017,the balance sheet dates. These insurance contracts are classified as other assets on the Company’s unaudited condensed consolidated balance sheet. The Company intends to use any proceeds from these policies to fund the pension plans. However, since the Company amendedis the termsbeneficiary on these policies, these assets have not been designated pension plan assets.
(9) Restructuring and Other Charges
In 2021, the Company made the strategic decision to relocate manufacturing functions of this loanDZS GmbH and Optelian to extend the repayment date from March 2017 to March 2018,Seminole, Florida and to reducetransition the interest rate from 6.9%above subsidiaries to 4.6% per annum.
(10) Related Party Transactions
Related Party Debt and Guarantees
The following table sets forth payment guarantees of the Company's obligations as of March 31, 2022 that have been provided by DNI. AsDNI owns approximately 36.6% of September 30, 2017, the aggregate outstanding balance under this loan agreement was $1.7 million. This loan matures in November 2017 and bears interest at a rateshares of 4.6% per annum, payable monthly.the Company's common stock. The amount guaranteed exceeds the principal amounts of outstanding obligations due to collateral requirements by the banks.
Guarantor |
| Amount Guaranteed |
|
| Description of Obligations Guaranteed | |
Dasan Networks, Inc. |
| $ | 4,375 |
|
| Payment guarantee to Industrial Bank of Korea |
Dasan Networks, Inc. |
|
| 1,486 |
|
| Payment guarantee to Shinhan Bank |
|
| $ | 5,861 |
|
|
|
Other Related-PartyRelated Party Transactions
Sales, and purchases, cost of revenue, research and product development, selling, marketing, general and administrative, interest expense and other expenses to and from related parties for the three and nine months ended September 30, 2017 and 2016 were as follows (in thousands): for the three months ended March 31, 2022 and 2021:
|
| Three Months Ended March 31, 2022 |
| |||||||||||||||||||||
Counterparty |
| Sales |
|
| Cost of |
|
| Research |
|
| Selling, |
|
| Interest |
|
| Other |
| ||||||
Dasan Networks, Inc. |
| $ | 198 |
|
| $ | 177 |
|
| $ | 90 |
|
| $ | 317 |
|
|
|
|
| $ | 17 |
| |
DS Commerce, Inc. |
|
| — |
|
|
| 11 |
|
|
| 1 |
|
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| $ | 198 |
|
| $ | 188 |
|
| $ | 91 |
|
| $ | 328 |
|
| $ | — |
|
| $ | 17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Three Months Ended March 31, 2021 |
| |||||||||||||||||||||
Counterparty |
| Sales |
|
| Cost of |
|
| Research |
|
| Selling, |
|
| Interest |
|
| Other |
| ||||||
Dasan Networks, Inc. |
| $ | 1,770 |
|
| $ | 1,655 |
|
| $ | 261 |
|
| $ | 402 |
|
| $ | 132 |
|
| $ | 85 |
|
Dasan Invest Co., Ltd. |
|
| — |
|
|
| 10 |
|
|
| 46 |
|
|
| 18 |
|
|
| — |
|
|
| — |
|
|
| $ | 1,770 |
|
| $ | 1,665 |
|
| $ | 307 |
|
| $ | 420 |
|
| $ | 132 |
|
| $ | 85 |
|
14
Three Months Ended September 30, 2017 | ||||||||||||||||||||||||||
Counterparty | DNI Ownership Interest | Sales | Cost of revenue | Manufacturing (Cost of revenue) | Research and product development | Selling, marketing, general and administrative | Other Expenses | |||||||||||||||||||
DNI (Parent Company) | N/A | $ | 3,976 | $ | 3,604 | $ | — | $ | — | $ | 1,291 | $ | 51 | |||||||||||||
CHASAN Networks Co., Ltd. | 100% | — | — | 257 | 20 | — | — | |||||||||||||||||||
DASAN FRANCE | 100% | 662 | 576 | — | — | 83 | — | |||||||||||||||||||
DASAN INDIA Private Limited | 100% | — | — | — | — | 30 | — | |||||||||||||||||||
D-Mobile | 100% | 1,233 | 1,077 | — | — | 122 | — | |||||||||||||||||||
HANDYSOFT, Inc. | 17.64% | 54 | 12 | — | — | 6 | 4 | |||||||||||||||||||
Tomato Soft Ltd. | 100% | — | — | 43 | 108 | — | — | |||||||||||||||||||
Tomato Soft (Xi'an) Ltd. | 100% | — | — | — | 144 | — | — | |||||||||||||||||||
$ | 5,925 | $ | 5,269 | $ | 300 | $ | 272 | $ | 1,532 | $ | 55 |
Three Months Ended September 30, 2016 (As Revised) | ||||||||||||||||||||||||||
Counterparty | DNI Ownership Interest | Sales | Cost of revenue | Manufacturing (Cost of revenue) | Research and product development | Selling, marketing, general and administrative | Other Expenses | |||||||||||||||||||
DNI (Parent Company) | N/A | $ | 5,112 | $ | 4,390 | $ | — | $ | — | $ | 946 | $ | 89 | |||||||||||||
CHASAN Networks Co., Ltd. | 100% | — | — | 130 | 38 | — | — | |||||||||||||||||||
DASAN FRANCE | 100% | 3 | 3 | — | — | — | — | |||||||||||||||||||
D-Mobile | 100% | 1,267 | 789 | — | — | 125 | — | |||||||||||||||||||
HANDYSOFT, Inc. | 17.64% | 68 | 58 | — | — | — | — | |||||||||||||||||||
J-Mobile Corporation | 90.47% | 18 | — | — | — | — | — | |||||||||||||||||||
Tomato Soft Ltd. | 100% | — | — | 36 | — | — | — | |||||||||||||||||||
Tomato Soft (Xi'an) Ltd. | 100% | — | — | — | 181 | — | — | |||||||||||||||||||
$ | 6,468 | $ | 5,240 | $ | 166 | $ | 219 | $ | 1,071 | $ | 89 |
Nine Months Ended September 30, 2017 | ||||||||||||||||||||||||||
Counterparty | DNI Ownership Interest | Sales | Cost of revenue | Manufacturing (Cost of revenue) | Research and product development | Selling, marketing, general and administrative | Other Expenses | |||||||||||||||||||
DNI (Parent Company) | N/A | $ | 16,608 | $ | 14,020 | $ | — | $ | — | $ | 3,491 | $ | 171 | |||||||||||||
CHASAN Networks Co., Ltd. | 100% | — | — | 578 | 79 | — | — | |||||||||||||||||||
DASAN FRANCE | 100% | 1,612 | 1,512 | — | — | 383 | — | |||||||||||||||||||
DASAN INDIA Private Limited | 100% | 6,287 | 4,783 | — | — | 30 | — | |||||||||||||||||||
D-Mobile | 100% | 3,054 | 1,831 | — | — | 318 | — | |||||||||||||||||||
Fine Solution | 100% | — | — | — | — | 4 | — | |||||||||||||||||||
HANDYSOFT, Inc. | 17.64% | 88 | 23 | — | — | 6 | 4 | |||||||||||||||||||
J-Mobile Corporation | 90.47% | 8 | — | — | — | 132 | — | |||||||||||||||||||
Tomato Soft Ltd. | 100% | — | — | 104 | 108 | — | — | |||||||||||||||||||
Tomato Soft (Xi'an) Ltd. | 100% | — | — | — | 448 | 37 | — | |||||||||||||||||||
Solueta | 27.21% | — | — | — | — | — | 3 | |||||||||||||||||||
$ | 27,657 | $ | 22,169 | $ | 682 | $ | 635 | $ | 4,401 | $ | 178 |
Nine Months Ended September 30, 2016 (As Revised) | ||||||||||||||||||||||||||
Counterparty | DNI Ownership Interest | Sales | Cost of revenue | Manufacturing (Cost of revenue) | Research and product development | Selling, marketing, general and administrative | Other Expenses | |||||||||||||||||||
DNI (Parent Company) | N/A | $ | 19,080 | $ | 16,219 | $ | — | $ | — | $ | 4,255 | $ | 309 | |||||||||||||
CHASAN Networks Co., Ltd. | 100% | — | — | 436 | 106 | — | — | |||||||||||||||||||
DASAN FRANCE | 100% | 3 | 3 | — | — | — | — | |||||||||||||||||||
DASAN INDIA Private Limited | 100% | — | — | — | — | — | — | |||||||||||||||||||
D-Mobile | 100% | 3,135 | 2,231 | — | — | 318 | — | |||||||||||||||||||
DMC, Inc. | 27.21% | 1 | 1 | — | — | — | — | |||||||||||||||||||
HANDYSOFT, Inc. | 17.64% | 150 | 130 | — | — | — | — | |||||||||||||||||||
J-Mobile Corporation | 90.47% | 39 | — | — | — | 634 | — | |||||||||||||||||||
PANDA Media, Inc. | 100% | — | — | — | — | 2 | — | |||||||||||||||||||
Tomato Soft Ltd. | 100% | — | — | 98 | — | — | — | |||||||||||||||||||
Tomato Soft (Xi'an) Ltd. | 100% | — | — | — | 560 | — | — | |||||||||||||||||||
$ | 22,408 | $ | 18,584 | $ | 534 | $ | 666 | $ | 5,209 | $ | 309 |
The Company has entered into certain sales agreements with DNI andto sell certain of its subsidiaries. Salesservices and cost of revenue to DNI, DASAN France, DASAN INDIA Private Limited, and D-Mobile represent finished goods produced by the Company that are sold to these related parties who sell the Company's products in Korea, France, India and Taiwan, respectively.
DNS Korea had two separate lease agreements with DNI related to the lease of office space and warehouse facilities. In the first quarter of 2022, DNI sold the above facilities to the unrelated third party, and the respective leases were reassigned to the new landlord. Operating lease cost related to the DNI leases totaled $0.2 million and $0.5 million for three months ended March 31, 2022 and 2021, respectively. Operating lease expense is allocated between cost of revenue, research and product development, and selling, marketing, general and administrative expenses on the unaudited condensed consolidated statement of comprehensive income (loss). Deposits for the DNI leases were included in other assets on the consolidated balance sheets as of December 31, 2021.
DNS Korea had an agreement with Dasan Invest Co., Ltd. to provide IT services for the Company. The agreement was terminated in the fourth quarter of 2021 and the new agreement was signed with DS Commerce, Inc. Both entities have an affiliation with DZS board members. The expense related to DNI includes a feethe above IT services is allocated between cost of 3%revenue, research and product development, and selling, marketing, general and administrative expenses on the unaudited condensed consolidated statement of total salescomprehensive income (loss).
Interest expense represents interest paid to DNI for salesthe related party debt. Refer to these customers.
Other expenses to related parties represent expenses tocharges from DNI for its payment guarantees relating to the Company's borrowings. The Company pays DNI a guarantee fee which is calculated as 0.9%0.9% of the guaranteed amount.
Balances of Receivables and Payables with Related Parties
Balances of receivables and payables arising from sales and purchases of goods and services with related parties as of September 30, 2017March 31, 2022 and December 31, 20162021 were included in the following balance sheet captions on the unaudited condensed consolidated balance sheets, as follows (in thousands):
|
| As of March 31, 2022 |
| |||||||||||||
Counterparty |
| Account |
|
| Other |
|
| Other assets |
|
| Accounts |
| ||||
Dasan Networks, Inc. |
| $ | 207 |
|
| $ | 368 |
|
| $ | — |
|
| $ | 202 |
|
DS Commerce, Inc. |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 25 |
|
|
| $ | 207 |
|
| $ | 368 |
|
| $ | — |
|
| $ | 227 |
|
|
| As of December 31, 2021 |
| |||||||||||||
Counterparty |
| Account |
|
| Other |
|
| Other assets |
|
| Accounts |
| ||||
Dasan Networks, Inc. |
| $ | 181 |
|
| $ | 215 |
|
| $ | 691 |
|
| $ | 785 |
|
DS Commerce, Inc. |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 46 |
|
|
| $ | 181 |
|
| $ | 215 |
|
| $ | 691 |
|
| $ | 831 |
|
As of September 30, 2017 | ||||||||||||||||||||||||||
Counterparty | DNI Ownership Interest | Account receivables | Other receivables | Deposits for lease* | Accounts payable | Other payables | Loans | |||||||||||||||||||
DNI (Parent Company) | N/A | $ | 9,196 | $ | — | $ | 727 | $ | — | $ | 125 | $ | 6,800 | |||||||||||||
ABLE | 61.99% | 56 | — | — | — | — | — | |||||||||||||||||||
CHASAN Networks Co., Ltd. | 100% | — | — | — | 100 | — | — | |||||||||||||||||||
DASAN France | 100% | 662 | 4 | — | — | — | — | |||||||||||||||||||
D-Mobile | 100% | 3,001 | 16 | — | — | — | — | |||||||||||||||||||
HANDYSOFT, Inc. | 17.64% | 26 | — | — | 6 | 1 | — | |||||||||||||||||||
Solueta | 27.21% | — | 2 | — | — | 2 | 1,744 | |||||||||||||||||||
Tomato Soft Ltd. | 100% | — | — | — | — | 25 | — | |||||||||||||||||||
Tomato Soft (Xi'an) Ltd. | 100% | — | — | — | — | 57 | — | |||||||||||||||||||
$ | 12,941 | $ | 22 | $ | 727 | $ | 106 | $ | 210 | $ | 8,544 |
As of December 31, 2016 | ||||||||||||||||||||||||||
Counterparty | DNI Ownership Interest | Account receivables | Other receivables | Deposits for lease* | Accounts payable | Other payables | Loans | |||||||||||||||||||
DNI (Parent Company) | N/A | $ | 6,679 | $ | 171 | $ | 690 | $ | 360 | $ | 6,861 | $ | 6,800 | |||||||||||||
ABLE | 61.99% | 53 | — | 9 | — | — | — | |||||||||||||||||||
CHASAN Networks Co., Ltd. | 100% | — | — | — | 70 | — | — | |||||||||||||||||||
DASAN France | 100% | 23 | — | — | — | — | — | |||||||||||||||||||
DASAN INDIA Private Limited | 100% | 2,606 | — | — | — | — | — | |||||||||||||||||||
D-Mobile | 100% | 3,943 | — | — | — | — | — | |||||||||||||||||||
HANDYSOFT, Inc. | 17.64% | 2 | — | — | — | — | — | |||||||||||||||||||
J-Mobile Corporation | 68.56% | 5 | — | — | — | — | — | |||||||||||||||||||
Tomato Soft Ltd. | 100% | — | — | — | — | 16 | — | |||||||||||||||||||
Tomato Soft (Xi'an) Ltd. | 100% | — | — | — | — | 63 | — | |||||||||||||||||||
$ | 13,311 | $ | 171 | $ | 699 | $ | 430 | $ | 6,940 | $ | 6,800 |
(11) Net Income (Loss) Per Share
Basic net income (loss) per share attributable to DASAN Zhone Solutions, Inc. is computed by dividing the net income (loss) attributable to DASAN Zhone Solutions, Inc. for the period by the weighted average number of shares of common
15
The following table is a reconciliation of the numerator and denominator in the basic and diluted net income (loss) per share calculation (in thousands, except per share data): for the three months ended March 31, 2022 and 2021:
|
| Three months ended March 31 |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Net income (loss) |
| $ | (3,048 | ) |
| $ | (23,225 | ) |
Weighted average number of shares outstanding: |
|
|
|
|
|
| ||
Basic |
|
| 27,530 |
|
|
| 25,252 |
|
Effect of dilutive securities: |
|
|
|
|
|
| ||
Stock options, restricted stock units and share awards |
|
| — |
|
|
| — |
|
Diluted |
| $ | 27,530 |
|
| $ | 25,252 |
|
Net income (loss) per share: |
|
|
|
|
|
| ||
Basic |
| $ | (0.11 | ) |
| $ | (0.92 | ) |
Diluted |
| $ | (0.11 | ) |
| $ | (0.92 | ) |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(As Revised) | (As Revised) | |||||||||||||||
Net income (loss) attributable to DASAN Zhone Solutions, Inc. | $ | 1,399 | $ | (4,733 | ) | $ | (3,157 | ) | $ | (9,066 | ) | |||||
Weighted average number of shares outstanding: | ||||||||||||||||
Basic | 16,382 | 11,139 | 16,380 | 10,046 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Stock options, restricted stock units and share awards | — | — | — | — | ||||||||||||
Diluted | 16,382 | 11,139 | 16,380 | 10,046 | ||||||||||||
Net income (loss) per share attributable to DASAN Zhone Solutions, Inc.: | ||||||||||||||||
Basic | $ | 0.09 | $ | (0.42 | ) | $ | (0.19 | ) | $ | (0.90 | ) | |||||
Diluted | $ | 0.09 | $ | (0.42 | ) | $ | (0.19 | ) | $ | (0.90 | ) |
The outstandingfollowing table sets forth potential common equivalent shares excluded from the computation ofstock that is not included in the diluted net income (loss) per share attributable to DASAN Zhone Solutions, Inc.calculation above because their effect would be anti-dilutive for the periods presented because including them would have been antidilutive are as followsindicated (in thousands):
|
| Three months ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Outstanding stock options |
|
| 939 |
|
|
| 628 |
|
Unvested restricted stock units |
|
| 278 |
|
|
| 197 |
|
Three and Nine Months Ended September 30, | ||||||
2017 | 2016 | |||||
(As Revised) | ||||||
Stock options | 915 | 795 | ||||
Restricted stock units | 2 | 9 | ||||
917 | 804 |
(12) Leases
The Company has entered intoleases certain properties and buildings (including manufacturing facilities, warehouses, and office spaces) and equipment under various arrangements which provide the right to use the underlying asset and require lease payments for the lease term. The Company’s lease portfolio consists of operating leases for certain office spacewhich expire at various dates through 2028.
Assets and equipment, some of which contain renewal options and escalation clauses. Estimated future lease payments under all non-cancellableliabilities related to operating leases with termsare included in excess of one year, including taxesthe consolidated balance sheets as right-of-use assets from operating leases, operating lease liabilities - current and service fees, are as follows (in thousands):
Operating Leases | |||
Year ending December 31: | |||
2017 (remainder of the year) | $ | 967 | |
2018 | 3,359 | ||
2019 | 2,496 | ||
2020 | 2,358 | ||
2021 | 2,264 | ||
Thereafter | 8,722 | ||
Total minimum lease payments | $ | 20,166 |
The following table reconciles changes inpresents the maturity of the Company’s accrued warranties and related costs for the nine months ended September 30, 2017 and 2016operating lease liabilities as of March 31, 2022 (in thousands):
Remainder of 2022 |
| $ | 3,572 |
|
2023 |
|
| 4,380 |
|
2024 |
|
| 3,825 |
|
2025 |
|
| 2,550 |
|
2026 |
|
| 1,666 |
|
Thereafter |
|
| 830 |
|
Total operating lease payments |
|
| 16,823 |
|
Less: imputed interest |
|
| (1,867 | ) |
Total operating lease liabilities |
| $ | 14,956 |
|
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Beginning balance | $ | 878 | $ | 441 | |||
Charged to cost of revenue | 126 | 227 | |||||
Claims and settlements | (195 | ) | (389 | ) | |||
Foreign exchange impact | 14 | 78 | |||||
Ending balance | $ | 823 | $ | 357 |
(13) Commitments and Contingencies
Performance Bonds
In the normal course of operations, from time to time, the Company arranges for the issuance of various types of suretyperformance bonds, such as performance, warranty, and bid and performance bonds, whichin the form of bank guarantees or surety bonds. These instruments are agreementsarrangements under which the financial institution or surety company guaranteesprovides a financial guarantee that the Company will perform in accordance with contractual or legal obligations. As of September 30, 2017,March 31, 2022, the Company had $1.0$8.0 million of performance bonds and $0.4 millionin the form of warrantybank guarantees or surety bonds guaranteed by third parties.
Trade Compliance Matter
During the first quarter of 2022, the Company has entered intoreceived a sales agreement with DNI, that distributes Company's products to a certain customer in Vietnam. Undernotice letter from the agreement withOffice of the customer, DNI is required to provides various typesCommissioner of surety bonds which are guaranteed byCustoms of the bank. AsIndia Department of September 30, 2017,Revenue (the “Notice”) claiming the Company had restricted cash of $1.2 million, $2.1 millionmis-declared and $2.0 million as a collateral for the advance payment bonds, performance bonds and warranty bonds, respectively, issued by DNI.
16
imported to India by the Company at the time of order.clearance of customs. The Notice claims that due to such mis-declaration and wrong classification of the imported products, the Company and its contract manufacturer in India underpaid duties approximating $3.9 million related to such products. The Company intends to vigorously defend itself in this matter. As we have not yet received the full contents of the Notice, we are unable to estimate a potential loss related to this matter, if any, which could range up to the full amount of non-cancellable purchase commitments outstanding, net of reserve, was $3.0 million as of
Guarantor | Amount Guaranteed | Description of Obligations Guaranteed | ||||
DNI (Parent Company) | $ | 3,349 | Borrowings from Shinhan Bank | |||
DNI (Parent Company) | 1,884 | Purchasing card from Shinhan Bank | ||||
DNI (Parent Company) | 10,493 | Credit facility & purchasing card from Industrial Bank of Korea | ||||
DNI (Parent Company) | 6,000 | Credit facility from NongHyup Bank | ||||
DNI (Parent Company) | 523 | Purchasing card from NongHyup Bank | ||||
Industrial Bank of Korea | 6,512 | Credit facility | ||||
Industrial Bank of Korea | 864 | Performance bonds | ||||
NongHyup Bank | 4,567 | Credit facility | ||||
Shinhan Bank | 191 | Purchasing card | ||||
KEB Hana Bank | 33 | Performance bonds | ||||
State Bank of India | 38 | Performance bonds | ||||
Seoul Guarantee Insurance Co. | 54 | Performance bonds | ||||
Seoul Guarantee Insurance Co. | 373 | Warranty bonds | ||||
$ | 34,881 |
In addition to the shipment and licensing of certain products. Royalty expense is generally based on a dollar amount per unit shipped or a percentage ofNotice discussed above, from time to time, the underlying revenue and is recorded in cost of revenue.
(14) Income Taxes
Income tax benefit for the three months ended March 31, 2022 was approximately $1.3 million on pre-tax loss of $4.4 million. Income tax expense for the three months ended March 31, 2021 was approximately $0.9 million on pre-tax loss of $22.3 million.
As of March 31, 2022, the income tax rate varied from the United States statutory income tax rate primarily due to valuation allowances in North America, EMEA and Asia, as well as foreign and state income tax rate differentials.
The total amount of unrecognized tax benefits, including interest and penalties, as of March 31, 2022 was $4.2 million. There were 0 significant changes to unrecognized tax benefits during the three months ended March 31, 2022. The Company does not anticipate any significant changes with respect to unrecognized tax benefits within the next twelve months.
(15) Enterprise-Wide Information
The Company is a global provider of ultra-broadband network access solutions and communications equipment forplatforms deployed by advanced Tier 1, national and regional service providerproviders and enterprise networks.customers. There are no segment managers who are held accountable for operations, operating results and plans for levels or components below the Company unit level. Accordingly, the Company is considered to be in a single reporting segment and operating unit structure.segment. The Company’s chief operating decision makers aremaker is the Company’s Co-ChiefChief Executive Officers,Officer, who reviewreviews financial information presented on a consolidated basis accompanied bywith disaggregated information about revenues by geographic region for purposes of making operating decisions and assessing financial performance.
The Company attributes revenue from customers to individual countries based on location shipped. The following summarizesRefer to Note 1(e) Disaggregation of Revenue for the required disclosures about geographicon geographical concentrations and revenuerevenues by products and services (in thousands):
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(As Revised) | (As Revised) | ||||||||||||||
Revenue by geography: | |||||||||||||||
United States | $ | 13,068 | $ | 3,408 | $ | 37,176 | $ | 7,432 | |||||||
Canada | 1,498 | 254 | 4,112 | 254 | |||||||||||
Total North America | 14,566 | 3,662 | 41,288 | 7,686 | |||||||||||
Latin America | 7,480 | 1,877 | 19,425 | 2,912 | |||||||||||
Europe, Middle East, Africa | 7,378 | 2,232 | 19,134 | 5,209 | |||||||||||
Korea | 20,520 | 18,372 | 69,032 | 60,144 | |||||||||||
Other Asia Pacific | 16,494 | 5,097 | 29,612 | 14,881 | |||||||||||
Total International | 51,872 | 27,578 | 137,203 | 83,146 | |||||||||||
Total | $ | 66,438 | $ | 31,240 | $ | 178,491 | $ | 90,832 |
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(As Revised) | (As Revised) | ||||||||||||||
Revenue by products and services: | |||||||||||||||
Products | $ | 63,257 | $ | 28,891 | $ | 169,831 | $ | 84,666 | |||||||
Services | 3,181 | 2,349 | 8,660 | 6,166 | |||||||||||
Total | $ | 66,438 | $ | 31,240 | $ | 178,491 | $ | 90,832 |
The Company's property, plant and equipment, net of accumulated depreciation, were located in the following geographical areas (in thousands) as of September 30, 2017March 31, 2022 and December 31, 2016 (in thousands):
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
United States |
| $ | 6,826 |
|
| $ | 6,105 |
|
Korea |
|
| 2,169 |
|
|
| 2,367 |
|
Japan |
|
| 736 |
|
|
| 799 |
|
Canada |
|
| 270 |
|
|
| 280 |
|
Germany |
|
| 185 |
|
|
| 210 |
|
Other |
|
| 91 |
|
|
| 81 |
|
|
| $ | 10,277 |
|
| $ | 9,842 |
|
September 30, 2017 | December 31, 2016 | ||||||
United States | $ | 3,611 | $ | 4,094 | |||
Korea | 1,449 | 1,455 | |||||
Japan and Vietnam | 752 | 739 | |||||
$ | 5,812 | $ | 6,288 |
(16) Subsequent Events
On April 29, 2022, the Company recognized income tax benefitentered an Asset Purchase Agreement to acquire certain assets and liabilities of $0.6 millionAdaptive Spectrum and $1.0 million, respectively, on pre-tax losses of $5.4 millionSignal Alignment, Incorporated (“ASSIA”) a software quality-of-experience innovator. These assets include the CloudCheck® Wi-Fi experience management and $10.1 million, respectively. As of September 30, 2017,Expresse® access network optimization software platforms and the income tax rate varied from the United States statutory income tax rate primarily dueacquisition will expand DZS’ footprint into approximately 50 service providers including many Tier I marquee operators in North America, Europe and Asia. The transaction is expected to valuation allowancesclose in the United States and taxable income generated by the Company’s wholly-owned foreign subsidiaries.
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
As used in this report,Quarterly Report on Form 10-Q, unless the context suggests otherwise, the terms "we", "us", or "our"“DZS,” the “Company” “we,” “our” and “us” refer to (i) Dasan Network Solutions, Inc. (DNS) and its consolidated subsidiaries for periods through September 8, 2016 and (ii) DASAN Zhone Solutions,DZS Inc. and its consolidated subsidiaries (collectively, DZS) for periodssubsidiaries.
Forward-Looking Statements
This Quarterly Report on or after September 9, 2016, the effective date of the Merger (as defined below). In connection with the Merger, Zhone Technologies, Inc. changed its name to DASAN Zhone Solutions, Inc. For periods through September 8, 2016, Zhone Technologies, Inc. is referred to as "Legacy Zhone."
We use 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 to identify forward-looking statements. In addition, statements that refer to projections of earnings, revenue, costs or other financial items;items in future periods; anticipated
Factors which could have a material adverse effect on our operations and are subjectfuture prospects or which could cause actual results to risks, uncertainties and assumptions that are difficult to predict, including those identified under the headingdiffer materially from our expectations include factors discussed in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K, as well as factors described from time to time in Part II, Item 1A, elsewhere in this report and our other filingsfuture reports filed with the U.S. Securities and Exchange Commission (the SEC)“SEC”). Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause such a difference include, but are not limited to, our ability to realize the anticipated cost savings, synergies and other benefits of the Merger and any integration risks relating to the Merger, the ability to generate sufficient revenue to achieve or sustain profitability, the ability to raise additional capital to fund existing and future operations or to refinance or repay our existing indebtedness, defects or other performance problems in our products, any economic slowdown in the telecommunications industry that restricts the ability of our customers to purchase our products, commercial acceptance of our products, intense competition in the communications equipment market from large equipment companies as well as private companies with products that address the same networks needs as our products, higher than anticipated expenses that we may incur, any failure to comply with the periodic filing and other requirements of The Nasdaq Stock Market for continued listing, material weaknesses or other deficiencies in our internal control over financial reporting, the initiation of any civil litigation, regulatory proceedings, government enforcement actions or other adverse effects relating to the Audit Committee investigation or errors in the consolidated financial statements of Legacy Zhone and other factors identified elsewhere in this report and in our most recent reports on Forms 10-K, 10-Q and 8-K. We undertake no obligation to revise or update any forward-looking statements for any reason.
OVERVIEW
We are a global provider of networkleading-edge access, solutions and communications equipment for service provider5G transport, and enterprise networks. communications platforms that enable the emerging hyper-connected, hyper-broadband world. We provide a wide array of reliable, cost-effective networking technologies, including broadband access, Ethernet switching, mobile backhaul, Passive Optical LAN and software-defined networks, to a diverse customer base.
We research, develop, test, sell, manufacture and support communications equipmentplatforms in five major areas:the areas of mobile transport and fixed broadband access, as discussed below. We have extensive regional development and support centers around the world to support our customer needs.
Our solutions and platforms portfolio include products in Broadband Connectivity, Connected Home & Business, Mobile & Optical Edge, and Cloud Software.
18
Our ability to continue as a “going concern” is dependent on many factors, including, among other things, our ability to comply with the covenants in our existing debt agreements, our ability to cure any defaults that occur under our debt agreements or to obtain waivers or forbearances with respect to any such defaults, and our ability to pay, retire, amend, replace or refinance our indebtedness as defaults occur or as interest and principal payments come due.
RESULTS OF OPERATIONS
The table below presents the unaudited condensed consolidated financial statements set forth in Part I, Item 1statement of this report for additional information regarding the Merger.
|
| Three months ended March 31, |
|
|
|
| ||||||
|
| 2022 |
|
| 2021 |
|
| % change |
| |||
|
|
|
|
|
|
|
|
|
| |||
Net revenue |
| $ | 77,040 |
|
| $ | 81,031 |
|
|
| -4.9 | % |
Cost of revenue |
|
| 50,215 |
|
|
| 52,936 |
|
|
| -5.1 | % |
Gross profit |
|
| 26,825 |
|
|
| 28,095 |
|
|
| -4.5 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
| |||
Research and product development |
|
| 11,844 |
|
|
| 11,119 |
|
|
| 6.5 | % |
Selling, marketing, general and administrative |
|
| 17,742 |
|
|
| 31,824 |
|
|
| -44.2 | % |
Restructuring and other charges |
|
| 436 |
|
|
| 6,252 |
|
|
| -93.0 | % |
Impairment of long-lived assets |
|
| — |
|
|
| 1,735 |
|
|
| -100.0 | % |
Amortization of intangible assets |
|
| 294 |
|
|
| 262 |
|
|
| 12.2 | % |
Total operating expenses |
|
| 30,316 |
|
|
| 51,192 |
|
|
| -40.8 | % |
Operating loss |
|
| (3,491 | ) |
|
| (23,097 | ) |
|
| -84.9 | % |
Interest income |
|
| 37 |
|
|
| 42 |
|
|
| -11.9 | % |
Interest expense |
|
| (127 | ) |
|
| (249 | ) |
|
| -49.0 | % |
Other income (expense), net |
|
| (800 | ) |
|
| 972 |
|
|
| -182.3 | % |
Loss before income taxes |
|
| (4,381 | ) |
|
| (22,332 | ) |
|
| -80.4 | % |
Income tax provision (benefit) |
|
| (1,333 | ) |
|
| 893 |
|
|
| -249.3 | % |
Net loss |
| $ | (3,048 | ) |
| $ | (23,225 | ) |
|
| -86.9 | % |
19
The table below presents the unaudited condensed consolidated financial statements set forth in Part I, Item 1 of this report, the Merger has been accounted for as a reverse acquisition under which DNS was considered the accounting acquirer of Legacy Zhone. As such, our financial results for the three and nine months ended September 30, 2017 presented in this report are compared to the financial results of DNS and its consolidated subsidiaries for the prior year period through September 8, 2016 and the financial results of DZS and its consolidated subsidiaries for the period from September 9, 2016 through September 30, 2016. Our balance sheet includes the fair value of the assets and liabilities of Legacy Zhone as of the effective date of the Merger. Those assets include the fair value of acquired intangible assets and goodwill. Due to the foregoing, our financial results for the three and nine months ended September 30, 2017 are not comparable to our financial results for the three and nine months ended September 30, 2016.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
(As Revised) | (As Revised) | ||||||||||
Net revenue: | |||||||||||
Net revenue | 91 | % | 79 | % | 85 | % | 75 | % | |||
Net revenue - related parties | 9 | % | 21 | % | 15 | % | 25 | % | |||
Total net revenue | 100 | % | 100 | % | 100 | % | 100 | % | |||
Cost of revenue: | |||||||||||
Products and services | 58 | % | 53 | % | 54 | % | 54 | % | |||
Products and services - related parties | 8 | % | 17 | % | 13 | % | 21 | % | |||
Amortization of intangible assets | 0 | % | 0 | % | 0 | % | 0 | % | |||
Total cost of revenue | 67 | % | 70 | % | 67 | % | 75 | % | |||
Gross profit | 33 | % | 30 | % | 33 | % | 25 | % | |||
Operating expenses: | |||||||||||
Research and product development | 14 | % | 19 | % | 15 | % | 17 | % | |||
Selling, marketing, general and administrative | 17 | % | 26 | % | 18 | % | 18 | % | |||
Amortization of intangible assets | 0 | % | 1 | % | 1 | % | 0 | % | |||
Total operating expenses | 31 | % | 46 | % | 34 | % | 35 | % | |||
Operating income (loss) | 2 | % | (16 | )% | (1 | )% | (10 | )% | |||
Interest income | 0 | % | 0 | % | 0 | % | 0 | % | |||
Interest expense | 0 | % | (1 | )% | 0 | % | (1 | )% | |||
Other income, net | 0 | % | 0 | % | 0 | % | 0 | % | |||
Income (loss) before income taxes | 2 | % | (17 | )% | (1 | )% | (11 | )% | |||
Income tax provision (benefit) | 0 | % | (2 | )% | 1 | % | (1 | )% | |||
Net income (loss) | 2 | % | (15 | )% | (2 | )% | (10 | )% | |||
Net loss attributable to non-controlling interest | 0 | % | 0 | % | 0 | % | 0 | % | |||
Net income (loss) attributable to DASAN Zhone Solutions, Inc. | 2 | % | (15 | )% | (2 | )% | (10 | )% | |||
Foreign currency translation adjustments | 0 | % | 7 | % | 1 | % | 3 | % | |||
Comprehensive income (loss) | 2 | % | (8 | )% | (1 | )% | (7 | )% | |||
Comprehensive income attributable to non-controlling interest | 0 | % | 0 | % | 0 | % | 0 | % | |||
Comprehensive income (loss) attributable to DASAN Zhone Solutions, Inc. | 2 | % | (8 | )% | (1 | )% | (7 | )% |
|
| Three months ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Net revenue |
|
| 100 | % |
|
| 100 | % |
Cost of revenue |
|
| 65 | % |
|
| 65 | % |
Gross profit |
|
| 35 | % |
|
| 35 | % |
Operating expenses: |
|
|
|
|
|
| ||
Research and product development |
|
| 15 | % |
|
| 14 | % |
Selling, marketing, general and administrative |
|
| 23 | % |
|
| 39 | % |
Restructuring and other charges |
|
| 1 | % |
|
| 8 | % |
Impairment of long-lived assets |
|
| — |
|
|
| 2 | % |
Amortization of intangible assets |
|
| 1 | % |
|
| 1 | % |
Total operating expenses |
|
| 40 | % |
|
| 64 | % |
Operating income (loss) |
|
| (5 | )% |
|
| (29 | )% |
Interest income |
|
| — |
|
|
| — |
|
Interest expense |
|
| — |
|
|
| — |
|
Other income (expense), net |
|
| (1 | )% |
|
| 1 | % |
Income (loss) before income taxes |
|
| (6 | )% |
|
| (28 | )% |
Income tax provision (benefit) |
|
| (2 | )% |
|
| 1 | % |
Net income (loss) |
|
| (4 | )% |
|
| (29 | )% |
Net Revenue
The following table presents our net revenue for products and services for the three and
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
2017 | 2016 | Increase/(decrease) | % change | 2017 | 2016 | Increase/(decrease) | % change | ||||||||||||||||||||||
(As Revised) | (As Revised) | ||||||||||||||||||||||||||||
Products | $ | 63.2 | $ | 28.9 | $ | 34.3 | 119 | % | $ | 169.8 | $ | 84.6 | $ | 85.2 | 101 | % | |||||||||||||
Services | 3.2 | 2.3 | 0.9 | 39 | % | 8.7 | 6.2 | 2.5 | 40 | % | |||||||||||||||||||
Total | $ | 66.4 | $ | 31.2 | $ | 35.2 | 113 | % | $ | 178.5 | $ | 90.8 | $ | 87.7 | 97 | % |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
2017 | 2016 | Increase/(decrease) | % change | 2017 | 2016 | Increase/(decrease) | % change | ||||||||||||||||||||||
(As Revised) | (As Revised) | ||||||||||||||||||||||||||||
Revenue by geography: | |||||||||||||||||||||||||||||
United States | $ | 13.1 | $ | 3.4 | $ | 9.7 | 285 | % | $ | 37.2 | $ | 7.4 | $ | 29.8 | 403 | % | |||||||||||||
Canada | 1.5 | 0.3 | 1.2 | 100 | % | 4.1 | 0.3 | 3.8 | 100 | % | |||||||||||||||||||
Total North America | 14.6 | 3.7 | 10.9 | 295 | % | 41.3 | 7.7 | 33.6 | 436 | % | |||||||||||||||||||
Latin America | 7.5 | 1.9 | 5.6 | 295 | % | 19.4 | 2.9 | 16.5 | 569 | % | |||||||||||||||||||
Europe, Middle East, Africa | 7.4 | 2.2 | 5.2 | 236 | % | 19.1 | 5.2 | 13.9 | 267 | % | |||||||||||||||||||
Korea | 20.5 | 18.4 | 2.1 | 11 | % | 69.0 | 60.1 | 8.9 | 15 | % | |||||||||||||||||||
Asia Pacific | 16.4 | 5.0 | 11.4 | 228 | % | 29.7 | 14.9 | 14.8 | 99 | % | |||||||||||||||||||
Total International | 51.8 | 27.5 | 24.3 | 88 | % | 137.2 | 83.1 | 54.1 | 65 | % | |||||||||||||||||||
Total | $ | 66.4 | $ | 31.2 | $ | 35.2 | 113 | % | $ | 178.5 | $ | 90.8 | $ | 87.7 | 97 | % |
|
| Three months ended March 31, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| % change |
| |||
Products |
| $ | 72.4 |
|
| $ | 76.2 |
|
|
| (5.0 | )% |
Services and other |
|
| 4.6 |
|
|
| 4.8 |
|
|
| (4.2 | )% |
Total |
| $ | 77.0 |
|
| $ | 81.0 |
|
|
| (4.9 | )% |
For the three months ended September 30, 2017, netMarch 31, 2022, product revenue increased 113%decreased by 5.0% or $35.2$3.8 million to $66.4$72.4 million from $31.2$76.2 million for the same period last year. For the nine months ended September 30, 2017, net revenue increased 97% or $87.7 million to $178.5 million from $90.8 million for the same period last year. For the three months ended September 30, 2017, product revenue increased 119% or $34.3 million to $63.2 million compared to the same period last year. For the nine months ended September 30, 2017, product revenue increased 101% or $85.2 million to $169.8 million compared toin the same period last year. The increasedecrease in netproduct revenue forduring the three and nine months ended September 30, 2017period was primarily relatedattributable to the consummation ofsupply chain disruptions aggravated by the MergerCovid-19 Omicron variant surge and lower spending levels from our major customers in September 2016 (which resulted in the inclusion of net revenue related to the Legacy Zhone business for the entire current year periods, compared to only 22 days in the prior year periods).
The following table presents our revenues by geographical concentration (in millions):
|
| Three months ended March 31, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| % change |
| |||
Americas |
| $ | 23.1 |
|
| $ | 20.2 |
|
|
| 14.4 | % |
Europe, Middle East, Africa |
|
| 18.6 |
|
|
| 17.9 |
|
|
| 3.9 | % |
Asia |
|
| 35.3 |
|
|
| 42.9 |
|
|
| (17.7 | )% |
Total |
| $ | 77.0 |
|
| $ | 81.0 |
|
|
| (4.9 | )% |
Our geographic diversification reflects the combination of market demand, a strategic focus on capturing market share through new customer wins and new product introductions.
From a geographical perspective, the decrease in net revenue for the three months ended March 31, 2022 was attributable to decreased revenue in Asia primarily attributable to the supply chain disruptions and lower spending levels from our major customers in Asia. Revenue in Americas and EMEA increased primarily due to the market share gains and new customers.
For the three months ended September 30, 2017, service revenue increased 39% or $0.9 million to $3.2 million compared to the same period last year. For the nine months ended September 30, 2017, service revenue increased 40% or $2.5 million to $8.7 million compared to the same period last year. The increases in service revenue were primarily related to the consummation of the Merger in September 2016 (which resulted in the inclusion of service revenue related to the Legacy Zhone business for the entire current year periods, compared to only 22 days in the prior year periods), as well as an increase in sales of maintenance services.
We anticipate that our results of operations in any given period may depend to a large extent on sales to a small number of large accounts.customers. As a result, our revenue for any quarter may be subject to significant volatility based upon changes in orders from one or a small number of key customers.
20
Cost of Revenue and Gross Margin
Total cost of revenue increased 102% or $22.4 milliondecreased 5.1% to $44.4$50.2 million for the three months ended September 30, 2017,March 31, 2022, compared to $21.9$52.9 million for the three months ended September 30, 2016.March 31, 2021. Total cost of revenue increased 76% or $51.5 million to $119.4 millionwas 65.2% of net revenue for the ninethree months ended September 30, 2017,March 31, 2022, compared to $67.9 million65.3% of net revenue for the ninethree months ended September 30, 2016.March 31, 2021, which resulted in an increase in gross profit percentage to 34.8% for the three months ended March 31, 2022 from 34.7% for the three months ended March 31, 2021. The increasesdecrease in total cost of revenue werewas primarily due to the consummation of the Mergerchange in September 2016 (which resulted in the inclusion of cost of revenue related to the Legacy Zhone business for the entire current year periods, compared to only 22 days in the prior year periods) as well as increased sales. Gross margin increased slightly in both the threenumber and nine months ended September 30, 2017 compared to the prior year periods due to improved manufacturing efficiencies and product mix.
Operating Expenses
Research and Product Development Expenses
Research and product development expenses increased 50% or $2.9 millionby 6.5% to $8.8$11.8 million for the three months ended September 30, 2017March 31, 2022 compared to $5.9$11.2 million for the three months ended September 30, 2016. Research and product development expenses increased 73% or $11.4 million to $27.0 million for the nine months ended September 30, 2017 compared to $15.6 million for the nine months ended September 30, 2016.March 31, 2021. The increase in research and product development expenses was primarily due to the consummation of the Mergerstrategic hiring decisions in September 2016 (which resulted in the inclusion of research, development, and product development expenses relatedline management with the intent to the Legacy Zhone business for the entire current year periods, compared to only 22 days in the prior year periods). accelerate growth and capture market share.
We intend to continue to invest in research and product development to attain our strategic product development objectives, while seeking to manage the associated costs through expense controls.
Selling, Marketing, General and Administrative Expenses
Selling, marketing, general and administrative expenses decreased by 44.2% to $11.5$17.7 million for the three months ended September 30, 2017March 31, 2022 compared to $8.3$31.8 million for the three months ended September 30, 2016. Selling, marketing, generalMarch 31, 2021. The decrease was primarily due to $14.2 million of bad debt expense recorded in the first quarter of 2021 for one customer in India. Refer to Note 1, in the Notes to Unaudited Condensed Consolidated Financial Statements, for further information on the bad debt expense. The above impact was partially offset by strategic hiring decisions across sales and administrative expenses increased 95% or $15.8administration with the intent to accelerate growth and capture market share.
Restructuring and Other Charges:Restructuring and other charges for the three months ended March 31, 2022 and 2021 relate primarily to the strategic decision to transition DZS GmbH and Optelian to sales and research and development centers. For the three months ended March 31, 2022, the Company incurred restructuring and other charges of approximately $0.4 million, consisting primarily of logistics costs and professional services related to $32.5legal and accounting support. For the three months ended March 31, 2021, the Company incurred restructuring and other charges of approximately $6.3 million, consisting primarily of severance and other termination related benefits of $3.5 million, an impairment of long-lived assets charge of $2.7 million primarily related to right-of-use assets from operating leases, and $0.1 million of other charges. See Note 9 Restructuring and Other Charges of the Notes to Unaudited Condensed Consolidated Financial Statements, for further information.
Impairment of Long-lived Assets:Impairment of long-lived assets for the three months ended March 31, 2021 was $1.7 million for the right-of use assets from operating leases related to completion of the headquarters relocation to Plano, Texas. No impairment was recorded during the three months ended March 31, 2022.
Other Income (Expense), net: Other income (expense) relates mainly to realized and unrealized foreign exchange gains and losses. Other expense, net was $0.8 million for the ninethree months ended September 30, 2017March 31, 2022 compared to $16.7other income, net of $1.0 million for the ninethree months ended September 30, 2016.March 31, 2021. The increasesincrease in selling, marketing, general and administrative expenses wereother expense, net was due to foreign currency exchange losses recorded during the first quarter of 2022.
Income Tax Provision:Income tax benefit for the three months ended March 31, 2022 was $1.3 million on a pre-tax loss of $4.4 million. Income tax expense for the three months ended March 31, 2021 was approximately $0.9 million on pre-tax loss of $22.3 million. As of March 31, 2022, the income tax rate varied from the United States statutory income tax rate primarily due to the consummation of the Mergervaluation allowances in September 2016 (which resulted in the inclusion of selling, marketing, generalNorth America, EMEA and administrative expenses related to Legacy Zhone business for the entire current year periods, compared to only 22 days in the prior year periods), offset by higher commission expenses during the threeAsia, as well as foreign and nine months ended September 30, 2016.
NON-GAAP FINANCIAL MEASURES
In managing our business and assessing our financial performance, we supplement the information provided by our U.S. GAAP results with adjusted earnings before stock-based compensation, interest, taxes, and depreciation, or Adjusted EBITDA, a non-GAAPnon-U.S. GAAP financial measure. We define Adjusted EBITDA as net income (loss) plus (i) interest expense, net, (ii) provision (benefit) for taxes, (iii) depreciation and amortization, (iv) stock-based compensation, and (v) the impact of material non-recurring transactions or events that we believe are not indicative of our core operating performance, such as Merger transactionacquisition costs, or a gain (loss) on sale of assets or impairment of fixed assets.goodwill, intangibles or long-lived assets, loss on debt extinguishment, restructuring and other charges,
21
including termination related benefits, headquarters and facilities relocation, executive transition, and bad debt expense primarily related to a large customer in India, any of which may or may not be recurring in nature. We believe that the presentation of Adjusted EBITDA enhances the usefulness of our financial information by presenting a measure that management uses internally to monitor and evaluate our operating performance and to evaluate the effectiveness of our business strategies. We believe Adjusted EBITDA also assists investors and analysts in comparing our performance across reporting periods on a consistent basis because it excludes the impact of items that we do not believe reflect our core operating performance.
Adjusted EBITDA has limitations as an analytical tool. Some of these limitations are:
Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for net income (loss) or any other performance measures calculated in accordance with U.S. GAAP or as a measure of liquidity. Management understands these limitations and compensates for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA only supplementally.
Set forth below is a reconciliation of net lossincome (loss) to Adjusted EBITDA, which we consider to be the most directly comparable U.S. GAAP financial measure to Adjusted EBITDA (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(As Revised) | (As Revised) | ||||||||||||||
Net income (loss) | $ | 1,387 | $ | (4,789 | ) | $ | (2,985 | ) | $ | (9,083 | ) | ||||
Add: | |||||||||||||||
Interest expense, net | 227 | 173 | 711 | 463 | |||||||||||
Income tax provision (benefit) | 107 | (610 | ) | 646 | (1,041 | ) | |||||||||
Depreciation and amortization | 752 | 628 | 3,105 | 1,165 | |||||||||||
Stock-based compensation | 195 | 128 | 670 | 128 | |||||||||||
Merger-related costs | — | 3,536 | — | 3,536 | |||||||||||
Adjusted EBITDA | $ | 2,668 | $ | (934 | ) | $ | 2,147 | $ | (4,832 | ) |
|
| Three months ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Net income (loss) |
| $ | (3,048 | ) |
| $ | (23,225 | ) |
Add (deduct): |
|
|
|
|
|
| ||
Interest expense, net |
|
| 90 |
|
|
| 207 |
|
Income tax provision (benefit) |
|
| (1,333 | ) |
|
| 893 |
|
Depreciation and amortization |
|
| 1,081 |
|
|
| 1,265 |
|
Stock-based compensation |
|
| 2,671 |
|
|
| 1,352 |
|
Headquarters and facilities relocation |
|
| — |
|
|
| 1,920 |
|
Restructuring and other charges |
|
| 436 |
|
|
| 6,252 |
|
Acquisition costs |
|
| 51 |
|
|
| 643 |
|
Executive transition |
|
| 247 |
|
|
| 71 |
|
Bad debt expense, net of recoveries* |
|
| (1,227 | ) |
|
| 14,206 |
|
Adjusted EBITDA |
| $ | (1,032 | ) |
| $ | 3,584 |
|
* See Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
For a complete description of what we believe to be the critical accounting policies and estimates used in the preparation of our unaudited condensed consolidated financial statements, refer to Note 1 Organization and Summary of Significant Accounting Policies in the Notes to our Audited Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2021, as supplemented by Note 1 Organization and Summary of Significant Accounting Policies of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
LIQUIDITY AND CAPITAL RESOURCES
Our operations are financed through a combination of our existing cash, cash equivalents, available credit facilities, and sales of equity and debt instruments, based on our operating requirements and market conditions.
22
The following table summarizes the information regarding our cash and cash equivalents were
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
Cash and cash equivalents |
| $ | 34,160 |
|
| $ | 46,666 |
|
Working capital |
|
| 121,772 |
|
|
| 124,498 |
|
The Company had a net loss of $3.0 million
As of March 31, 2022, we had working capital of $121.8 million. As of March 31, 2022, we had $34.2 million in unrestricted cash and cash equivalents, as of September 30, 2017which included $3.4$31.0 million in cash balances held by our Korean subsidiary. The $7.7 million decrease in cash and cash equivalents was attributableinternational subsidiaries.
We continue to net cash used in operating, investing and financing activities of $0.6 million, $5.9 million and $1.8 million, respectively, partially offset by the effect of exchange rate changes on cash of $0.6 million.
The following table presents a summary of our ability to continue as a going concern.
|
| Three months ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Consolidated Statements of Cash Flows Data |
|
|
|
|
|
| ||
Net cash used in operating activities |
| $ | (10,732 | ) |
| $ | (6,936 | ) |
Net cash used in investing activities |
|
| (1,317 | ) |
|
| (5,524 | ) |
Net cash provided by (used in) financing activities |
|
| (22 | ) |
|
| 21,302 |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| (903 | ) |
|
| 404 |
|
Net increase in cash, cash equivalents and restricted cash |
|
| (12,974 | ) |
|
| 9,246 |
|
Cash, cash equivalents and restricted cash at beginning of period |
|
| 53,639 |
|
|
| 54,587 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | 40,665 |
|
| $ | 63,833 |
|
Operating Activities
Net cash used in operating activities increased by $3.8 million to $10.7 million for the three months ended March 31, 2022 from net cash used in operating activities of $6.9 million for the ninethree months ended September 30, 2017 consisted of a net loss of $3.0 million, adjusted for non-cash charges totaling $3.6 million and a decrease in net operating assets totaling $1.2 million.March 31, 2021. The most significant components of the changes in net operating assets were an increase in accounts receivable of $2.9 million,cash used in operating activities was primarily due to an increase in inventory purchases in anticipation of $0.6 million and a decrease in accrued expenses of $4.3 million offset by an increase in accounts payable of $6.7 million. The increase in accounts receivable was primarily the result of the timing of receivables collections during the current year period. The increase in inventory was due to slower utilization of inventoryincreased shipments later in the current year period. The decrease in accounts payable was mainly due to reclassification of certain balances to short-term debt.
Investing Activities
Net cash used in investing activities decreased by $4.2 million to $1.3 million for the
Financing Activities
Net cash used in financing activities totaled $0.1 million for the
Cash Management
Our primary source of liquidity comes from our cash, and cash equivalents and restricted cash, which totaled
Debt Facilities
On February 9, 2022, the WFB Facility, we have the option of borrowing funds at agreed upon interest rates. The amount that we are able to borrow under the WFB Facility varies based on eligible accounts receivable and inventory, as defined in the WFB Facility, as long as the aggregate amount outstanding does not exceed $25.0 million less the amount committed as security for letters of credit. To maintain availability of funds under the WFB Facility, we pay a commitment fee on the unused portion. The commitment fee is 0.25% per annum and is recorded as interest expense.
23
As of September 30, 2017, $5.0 million in term loansMarch 31, 2022, there was no amount outstanding under the revolving credit facility. Such term loans matureThe Company was in September 2021 and are pre-payable at any time by us without premium or penalty. The interest ratecompliance with all debt covenants as of September 30, 2017 under this facility was 4.6% per annum.
Future Cash Requirements and Funding Sources
Our fixed commitments for cash expenditures consist primarily of payments under operating leases, and inventory purchase commitments, and payments of principal and interest for debt obligations.
From time to time, we may provide or commit to extend credit or credit support to our customers. This financing may include extending the terms for product payments to customers. Any extension of financing to our customers will limit the capital that we have available for other uses.
Our accounts receivable, while not considered a primary source of liquidity, represent a concentration of credit risk because a significant portion of the accounts receivable balance at any point in time typically consists of a relatively small number of customer account balances. As of September 30, 2017, threeMarch 31, 2022 no customers accounted for 16% (a related-party), 11% andrepresented more than 10% of net accounts receivables, respectively, andreceivable. Net receivables from customers in countries other than the United States represented 84% of net accounts receivable.77%. We do not currently have any material commitments for capital expenditures, or any other material commitments aside from operating leases for our facilities, and inventory purchase commitmentscommitments.
U.S. Income Tax Changes
Effective January 1, 2022, the Tax Cuts and debt.
Payments due by period | |||||||||||||||||||||||||||
Total | 2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | |||||||||||||||||||||
Operating leases | $ | 20,166 | $ | 967 | $ | 3,359 | $ | 2,496 | $ | 2,358 | $ | 2,264 | $ | 8,722 | |||||||||||||
Purchase commitments | 2,966 | 2,966 | — | — | — | — | — | ||||||||||||||||||||
Short-term debt | 18,382 | 18,382 | — | — | — | — | — | ||||||||||||||||||||
Related-party debt | 8,544 | 1,744 | 1,800 | — | — | 5,000 | — | ||||||||||||||||||||
Total future contractual commitments | $ | 50,058 | $ | 24,059 | $ | 5,159 | $ | 2,496 | $ | 2,358 | $ | 7,264 | $ | 8,722 |
Operating Leases
Future minimum operating lease amounts shown above representobligations include primarily off-balance sheet arrangements. For operating lease commitments, a liability is generally not recorded onpayments for our balance sheet unless the facility represents an excess facility foroffice locations and manufacturing, research and development locations, which an estimateexpire at various dates through 2028. See Note 12 Leases of the facility exit costs has been recorded on our balance sheet, net of estimated sublease income. For operating leases that include contractual commitments for operating expenses and maintenance, estimates of such amounts are included based on current rates. Payments made under operating leases will be treated as rent expense for the facilities currently being utilized.
Purchase Commitments
We may have short term purchase commitments related to the purchase orders for products and services, within the normal course of business. These arrangements typically have cancellation provisions that allow us to cancel with little to no penalty.
24
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of Creditloss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates and foreign currency exchange risks. We do not hold or issue financial instruments for trading purposes.
Interest Rate Risk
We had unrestricted cash and cash equivalents of $34.2 million and accounts receivable. Cash$46.7 million at March 31, 2022 and cash equivalentsDecember 31, 2021, respectively. We do not have material exposure to market risk with respect to investments, as our investments consist principallyprimarily of demand deposit and money market accounts. Cash and cash equivalents are principally heldhighly liquid investments purchased with various domestic financial institutions with highoriginal maturities of three months or less.
Our exposure to interest rate risk also includes the amount of interest we must pay on our borrowings under our Revolving Credit Agreement. The Loan under the Credit Agreement bears interest at the Company’s option at (i) the prime rate plus 2.00%, (ii) the adjusted term SOFR rate plus 2.90% or (iii) the adjusted daily simple SOFR rate plus 2.90%. As of March 31, 2022, there was no amount outstanding under the revolving credit standing. facility.
Foreign Currency Exchange Risk
We perform ongoing credit evaluationshave foreign currency risks related to certain of our customersforeign subsidiaries, primarily in Korea, Japan, and generally do not require collateral. AllowancesGermany. International net revenues and operating expense are maintained for potential doubtful accounts.
Foreign exchange rate fluctuations may also adversely impact our financial position as the assets and liabilities of our foreign operations are translated into USD in any given period may depend to a large extentpreparing our unaudited condensed consolidated balance sheets. The effect of foreign exchange rate fluctuations on sales to a small number of large accounts. As a result, our revenueconsolidated financial position for any quarter may be subject to significant volatility based upon changes in orders from one or a small number of key customers.
We have certain assets and 12% of net revenue, respectively.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We are required to maintain disclosure controls and procedures designed to provide reasonable assurance of achieving the objective that information required to be disclosed in our reports filed or submitted pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Co-Chief Executive Officersprincipal executive officer and Chief Financial Officer,principal financial officer, as appropriate to allow for timely decisions regarding required disclosures. Our disclosure controls and procedures include those components of our internal control over financial reporting intended to provide reasonable assurance that transactions are recorded as necessary to permit preparation of financials in accordance with U.S. GAAP. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), under the Exchange Act, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2017,March 31, 2022, the end of the period covered by this report.Quarterly Report on Form 10-Q. The evaluation was done under the supervision and with the participation of management, including our Co-Chief Executive Officersprincipal executive officer and our Chief Financial Officer. Based upon this evaluation, our Co-Chief Executive Officers and Chief Financial Officer concluded that, becauseprincipal financial officer. In the course of the material weaknesses inevaluation of our internal control overdisclosure controls and procedures, our principal executive officer and principal financial reporting that existed as of December 31, 2016 and that have not yet been remediated, as described below,officer concluded our disclosure controls and procedures were not effective as of September 30, 2017.
25
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Merger-related integration activities may lead us to modify certain internal controls in future periods.
26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In addition to the Notice discussed in Note 13of the Notes to Unaudited Condensed Consolidated Financial Statements, from time to time, the Company is subject to various legal proceedings, claims and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable, we dothe Company does not expect that the ultimate costs to resolve these matters will have a material adverse effect on ourthe unaudited condensed consolidated financial position or results of operations. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the financial position, results of operations and cash flows of the period in which the ruling occurs, or future periods.
Item 1A. Risk Factors
A list of factors discussed in Part I, "Item 1A, Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, whichthat could materially affect our business, financial condition or future results.operating results is described in Part I, Item 1A, “Risk Factors” in the 2021 Form 10-K. There have been no material changes to theour risk factors describedfrom those disclosed in Part I, Item 1A, “Risk Factors” in the "Risk Factors" section in our Annual Report on2021 Form 10-K for the year ended December 31, 2016. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 5. Other Information
None.
Item 2.6. Exhibits
The exhibits required to be filed with this quarterly report on Form 10-Q are listed in the Exhibit Index attached hereto and are incorporated herein by reference.
27
EXHIBIT INDEX
Exhibit Number | Description | |
3.1 | ||
3.2 | ||
3.3 | ||
10.23 | ||
31.1* | ||
31.2* | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) | |
32.1* | Section 1350 Certification of Chief Executive Officer and | |
101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document | |
101.SCH | Inline XBRL Taxonomy Extension Schema | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | |
101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101) | |
* | Filed herewith. | |
+ | Indicates management contract or compensatory plan, contract or arrangement. |
28
SIGNATURES
Pursuant to the retirementsrequirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DZS INC. | |||
Date: | |||
By: | /s/ Charles Daniel Vogt | ||
Name: | Charles Daniel Vogt | ||
Title: | President and Chief Executive Officer | ||
By: | /s/ Misty Kawecki | ||
Name: | Misty Kawecki | ||
Title: | Chief Financial Officer | ||
(Principal Financial and | |||
Accounting Officer) | |||
29