DASAN Zhone credited growth opportunities in multiple markets across a broad array of products and technologies for its strong performance in Q1 2019. This helped the vendor of ultra-broadband network access solutions and communications platforms generate revenue of $74.1 million in the period.
This was above the company's guidance of $70 million to $74 million, and was an increase of 24.5% over Q1 2018. This figure included Keymile revenue -- DASAN Zhone acquired Keymile in October 2018 (the deal closed in January 2019). The purchase gave DZS "tremendous scale in Europe," said CFO Michael Golomb, during an earnings call on Thursday (May 9). (See DASAN Zhone Solutions Reports Strong Q1 2019 Results.)
GAAP gross margin for the first quarter of 2019 was 33.6%, and reflected the immediate and accretive contribution of Keymile. GAAP net income for Q1 totaled a loss of $1.6 million, or $0.10 per diluted share. Non-GAAP net income added up to $0.8 million, or $0.05 per diluted share. Non-GAAP adjusted operating expenses for this period were $23.6 million. Non-GAAP adjusted EBITDA for the first quarter of 2019 totaled $1.8 million and non-GAAP adjusted EBITDA margin was 2.5%, an increase of 28.9% from $1.4 million compared with the same time in 2018, or 2.4%.
"Strong gross margins, which saw an accretive contribution from Keymile, as well as tight cost controls drove a significant outperformance in adjusted EBITDA," said Golomb. "In the quarter, we also made progress in addressing our capital structure by closing on a new long-term debt facility, with the proceeds used to strengthen our cash position to support continued growth in our business."
And there will be growth from multiple products and regions, Kim said.
"In Broadband Access, we are benefitting from emerging markets investing directly into fiber as well as the start of the next generation fiber-based upgrade cycle in fiber-rich countries," CEO Yung Kim said in a statement. "We are also strategically focused in other growth areas, including around 5G, where we have a robust product portfolio and the distinguished reputation of being one of the very first to market with a 5G mobile backhaul solution, as well as fiber in the enterprise, both of which represent significant growth opportunities for DZS to execute on going forward."
Fiber-rich regions like Asia, North America and parts of Europe are investing in XGS-PON and 10-gig EPON, he said on the call. The vendor also offers products for those operators using copper-based technologies such as VDSL and Gfast, Kim noted.
DZS is playing a large role in India, for example, he said. The country is heavily investing in broadband infrastructure and selected DZS in part due to its work with Korea Telecom's FTTH rollout, Kim said. Although that deployment has been waylaid by the nation's month-long election, it will soon become a priority again, he added.
"We helped to establish [South Korea] as one of the most connected in the world. We are working with Tier Ones in Japan and Korea on 5G fronthaul and backhaul. I expect those opportunities to transfer into money next year," said Kim. "We are now playing an instrumental role in rolling out broadband to India."
Kim also emphasized DZS's role in 5G, both with long-time customer Korea Telecom and nations promising 5G opportunity, such as India and Japan. Of course, 5G depends extensively on fiber and that will mean continued growing demand for fiber network products from vendors including DZS, he said.
Likewise, enterprise networks continue to grow more sophisticated, so network managers want plug-and-play solutions, dashboards and built-in analytics to remove some of the heavy lifting, said Kim. DZS has seen a strong start for FiberLAN distributed switches and port extenders with plug-and-play self-configuration for Passive Optical LAN (POL) solutions were designed for fiber networks, released in January, he said. One large French reseller already signed on, said Kim, and the company expects sales to be in the "higher tens of millions" of dollars once distribution is fully worked out.
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