DZSI - DZS stock plunges 23% as supply chain FX headwinds hurt Q2 results

DZS ( NASDAQ: DZSI ) shares plunged 23% after the company reported weaker-than-expected results for second quarter and revised full year guidance.

Late Monday, the telecoms equipment firm reported adj. EPS of -$0.02 (vs. -$0.03 in prior-year quarter) on revenue of $91M (+10.0% Y/Y). The top-line result was negatively impacted by supply chain challenges and weakening foreign currencies.

"We continued to experience supply chain headwinds with Asia port closure extended into May and prolonged component shortages challenging backlog to revenue conversion," said CEO Charlie Vogt.

DZS ( DZSI ) ended the quarter with record backlog of $293M, up 21% sequentially and 83% Y/Y. However, the company anticipates a pause in backlog growth or a possible temporary decline in backlog going forward.

Adjusted gross margin came in below expectations at 27.9% compared with 33.1% in the second quarterof 2021. Margins was impacted by $3M in unforeseen weakening of foreign currencies in addition to $3M of higher than expected sub-component costs, logistics and expedite fees.

Adjusted EBITDA was a loss of $3M compared with a slight loss in the second quarter of 2021. Both foreign exchange and supply chain conditions hurt the bottom line.

Looking ahead, the company revised 2022 guidance to include the full year contribution of the ASSIA acquisition while taking into consideration the unforeseen impact of foreign currency exchange rates, higher than expected supply chain costs, and geographic mix changes.

DZS ( DZSI ) expects Q3 revenue between $100M and $110M vs. $113.06M consensus, adj. gross margin between 33%-35% and adj. EBITDA between $2M-$7M. For full year 2022, revenue is expected to be between $380M and $410M vs. $412.38M consensus , adj. gross margin between 32.5% – 34.5% (34% – 36% previously) and adj. EBITDA between $7M– $17M ($17M – $31M previously).

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