Enhanced Investments - Financial Portal

Published: 2024-08-20 08:19:57 ET

EX-99.2 3 exhibit992-20222023consoli.htm EX-99.2 Document

Exhibit 99.2

DZS INC. AND SUBSIDIARIES

Unaudited Reconciliation of GAAP to Non-GAAP results (2022-2023)

($ in thousands, except per share data)

Set forth below are reconciliations of Non-GAAP Cost of Revenue, Non-GAAP Gross Profit, Non-GAAP Operating Expenses, Non-GAAP Operating Income (Loss) (also referred to as Adjusted EBITDA), Non-GAAP Net Income (Loss), and Non-GAAP Net Income (Loss) per Diluted Share to GAAP Cost of Revenue, Gross Profit, Operating Expenses, Operating Income (Loss), Net Income (Loss), and Net Income (Loss) per Diluted Share, respectively, which the Company considers to be the most directly comparable U.S. GAAP financial measures.


	Twelve Months Ended December 31, 2022
	Cost of Revenue		Gross Profit		Gross Margin Percentage		Operating Expenses		Operating Income (Loss)		Net Income (Loss)		Net Income (Loss) per Diluted Share
GAAP amount	$	244,046	$	113,482	31.7%		$	150,509	$	(37,027)	$	(41,270)	$	(1.47)
Adjustments to GAAP amounts:
Depreciation and amortization	(1,096)		1,096		0.3%		(6,029)		7,125		7,125		0.25
Stock-based compensation	(801)		801		0.2%		(15,001)		15,802		15,802		0.56
Headquarters and facilities relocation							(827)		827		827		0.03
Acquisition costs							(1,150)		1,150		1,150		0.04
Restructuring and other charges	—		—		0.0%		(4,617)		4,617		4,617		0.16
Executive transition							(927)		927		927		0.03
Litigation							(36)		36		36		—
Bad debt expense, net of recoveries							1,153		(1,153)		(1,153)		(0.04)
Unrealized foreign exchange (gains) losses											448		0.02
Non-GAAP adjustments to tax rate											9,328		0.33
Tax effect on Non-GAAP adjustments											(6,192)		(0.22)
Adjusted (Non-GAAP) amount	$	242,149	$	115,379	32.3	%	$	123,075	$	(7,696)	$	(8,355)	$	(0.30)


	Three Months Ended September 30, 2022
	Cost of Revenue		Gross Profit		Gross Margin Percentage		Operating Expenses		Operating Income (Loss)		Net Income (Loss)		Net Income (Loss) per Diluted Share
GAAP amount	$	66,860	$	32,030	32.4%		$	41,815	$	(9,785)	$	(10,954)	$	(0.39)
Adjustments to GAAP amounts:
Depreciation and amortization	(295)		295		0.3%		(1,814)		2,109		2,109		0.08
Stock-based compensation	(280)		280		0.3%		(4,743)		5,023		5,023		0.18
Headquarters and facilities relocation							(827)		827		827		0.03
Acquisition costs							(111)		111		111		—
Restructuring and other charges							(601)		601		601		0.02
Executive transition							(464)		464		464		0.02
Bad debt expense, net of recoveries							120		(120)		(120)		—
Unrealized foreign exchange (gains) losses											643		0.02
Non-GAAP adjustments to tax rate											1,311		0.05
Tax effect on Non-GAAP adjustments											(2,004)		(0.07)
Adjusted (Non-GAAP) amount	$	66,285	$	32,605	33.0	%	$	33,375	$	(770)	$	(1,989)	$	(0.07)


	Three Months Ended June 30, 2022
	Cost of Revenue		Gross Profit		Gross Margin Percentage		Operating Expenses		Operating Income (Loss)		Net Income (Loss)		Net Income (Loss) per Diluted Share
GAAP amount	$	59,663	$	23,285	28.1%		$	33,681	$	(10,396)	$	(12,564)	$	(0.45)
Adjustments to GAAP amounts:
Depreciation and amortization	(303)		303		0.4%		(1,061)		1,364		1,364		0.05
Stock-based compensation	(146)		146		0.2%		(2,723)		2,869		2,869		0.10
Acquisition costs							(571)		571		571		0.02
Restructuring and other charges							(356)		356		356		0.01
Executive transition							(91)		91		91		—
Bad debt expense, net of recoveries							(317)		317		317		0.02
Unrealized foreign exchange (gains) losses											(174)		(0.01)
Non-GAAP adjustments to tax rate											4,146		0.15
Tax effect on Non-GAAP adjustments											(864)		(0.03)
Adjusted (Non-GAAP) amount	$	59,214	$	23,734	28.6	%	$	28,562	$	(4,828)	$	(3,888)	$	(0.14)


	Three Months Ended March 31, 2022
	Cost of Revenue		Gross Profit		Gross Margin Percentage		Operating Expenses		Operating Income (Loss)		Net Income (Loss)		Net Income (Loss) per Diluted Share
GAAP amount	$	46,599	$	25,391	35.3%		$	30,316	$	(4,925)	$	(7,586)	$	(0.28)
Adjustments to GAAP amounts:
Depreciation and amortization	(146)		146		0.2%		(935)		1,081		1,081		0.04
Stock-based compensation	(130)		130		0.2%		(2,541)		2,671		2,671		0.10
Acquisition costs							(51)		51		51		—
Restructuring and other charges							(436)		436		436		0.02
Executive transition							(247)		247		247		0.01
Bad debt expense, net of recoveries							1,227		(1,227)		(1,227)		(0.04)
Unrealized foreign exchange (gains) losses											877		0.03
Non-GAAP adjustments to tax rate											2,977		0.11
Tax effect on Non-GAAP adjustments											(1,113)		(0.04)
Adjusted (Non-GAAP) amount	$	46,323	$	25,667	35.7	%	$	27,333	$	(1,666)	$	(1,586)	$	(0.05)


	Twelve Months Ended December 31, 2023
	Cost of Revenue		Gross Profit		Gross Margin Percentage		Operating Expenses		Operating Income (Loss)		Net Income (Loss)		Net Income (Loss) per Diluted Share
GAAP amount	$	204,102	$	40,439	16.5%		$	169,428	$	(128,989)	$	(135,218)	$	(4.29)
Adjustments to GAAP amounts:
Depreciation and amortization	(586)		586		0.2%		(7,593)		8,179		8,179		0.26
Stock-based compensation	(1,211)		1,211		0.5%		(14,632)		15,843		15,843		0.50
Acquisition costs							313		(313)		(313)		(0.01)
Restructuring and other charges	(6,731)		6,731		2.8%		(4,491)		11,222		11,222		0.36
Executive transition							2		(2)		(2)		—
Litigation and restatement							(6,257)		6,257		6,257		0.20
Bad debt expense, net of recoveries							998		(998)		(998)		(0.03)
Amortization of capitalized costs							(1,133)		1,133		1,133		0.04
Goodwill impairment							(12,594)		12,594		12,594		0.40
Long lived assets impairment							(3,073)		3,073		3,073		0.10
Loss on debt extinguishment											594		0.02
Unrealized foreign exchange (gains) losses											3,765		0.12
Non-GAAP adjustments to tax rate											25,125		0.80
Tax effect on Non-GAAP adjustments											(12,731)		(0.40)
Adjusted (Non-GAAP) amount	$	195,574	$	48,967	20.0	%	$	120,968	$	(72,001)	$	(61,477)	$	(1.93)


	Three Months Ended September 30, 2023
	Cost of Revenue		Gross Profit		Gross Margin Percentage		Operating Expenses		Operating Income (Loss)		Net Income (Loss)		Net Income (Loss) per Diluted Share
GAAP amount	$	47,517	$	1,931	3.9%		$	36,319	$	(34,388)	$	(34,013)	$	(1.07)
Adjustments to GAAP amounts:
Depreciation and amortization	(129)		129		0.3%		(1,909)		2,038		2,038		0.06
Stock-based compensation	(328)		328		0.7%		(3,370)		3,698		3,698		0.12
Acquisition costs							256		(256)		(256)		(0.01)
Restructuring and other charges	(4,673)		4,673		9.5%		(135)		4,808		4,808		0.15
Litigation and restatement							(3,641)		3,641		3,641		0.11
Bad debt expense, net of recoveries							473		(473)		(473)		(0.01)
Amortization of capitalized costs							(303)		303		303		0.01
Loss on debt extinguishment											375		0.01
Unrealized foreign exchange (gains) losses											(610)		(0.02)
Non-GAAP adjustments to tax rate											5,384		0.17
Tax effect on Non-GAAP adjustments											(2,807)		(0.09)
Adjusted (Non-GAAP) amount	$	42,387	$	7,061	14.3	%	$	27,690	$	(20,629)	$	(17,912)	$	(0.56)


	Three Months Ended June 30, 2023
	Cost of Revenue		Gross Profit		Gross Margin Percentage		Operating Expenses		Operating Income (Loss)		Net Income (Loss)		Net Income (Loss) per Diluted Share
GAAP amount	$	43,384	$	16,964	28.1%		$	40,525	$	(23,561)	$	(24,836)	$	(0.80)
Adjustments to GAAP amounts:
Depreciation and amortization	(148)		148		0.2%		(1,917)		2,065		2,065		0.07
Stock-based compensation	(499)		499		0.8%		(3,826)		4,325		4,325		0.14
Acquisition costs							228		(228)		(228)		(0.01)
Restructuring and other charges	(557)		557		0.9%		(594)		1,151		1,151		0.04
Litigation and restatement							(246)		246		246		0.01
Bad debt expense, net of recoveries							(260)		260		260		0.01
Amortization of capitalized costs							(306)		306		306		0.01
Long lived assets impairment							(499)		499		499		0.02
Unrealized foreign exchange (gains) losses											21		—
Non-GAAP adjustments to tax rate											4,780		0.15
Tax effect on Non-GAAP adjustments											(1,794)		(0.06)
Adjusted (Non-GAAP) amount	$	42,180	$	18,168	30.1	%	$	33,105	$	(14,937)	$	(13,205)	$	(0.42)


	Three Months Ended March 31, 2023
	Cost of Revenue		Gross Profit		Gross Margin Percentage		Operating Expenses		Operating Income (Loss)		Net Income (Loss)		Net Income (Loss) per Diluted Share
GAAP amount	$	47,318	$	22,494	32.2%		$	45,055	$	(22,561)	$	(23,817)	$	(0.77)
Adjustments to GAAP amounts:
Depreciation and amortization	(171)		171		0.2%		(1,905)		2,076		2,076		0.07
Stock-based compensation	(246)		246		0.4%		(4,240)		4,486		4,486		0.14
Acquisition costs							(107)		107		107		—
Restructuring and other charges							(4,152)		4,152		4,152		0.13
Executive transition							2		(2)		(2)		—
Bad debt expense, net of recoveries							23		(23)		(23)		—
Amortization of capitalized costs							(221)		221		221		0.01
Long lived assets impairment							(230)		230		230		0.01
Unrealized foreign exchange (gains) losses											1,397		0.05
Non-GAAP adjustments to tax rate											5,289		0.17
Tax effect on Non-GAAP adjustments											(2,624)		(0.08)
Adjusted (Non-GAAP) amount	$	46,901	$	22,911	32.8	%	$	34,225	$	(11,314)	$	(8,508)	$	(0.27)

Non-GAAP Measures

To supplement DZS’s consolidated financial statements presented in accordance with GAAP, DZS reports Adjusted Cost of Revenue, Adjusted Gross Margin, Adjusted Operating Expenses, Adjusted Operating Income (Loss), Adjusted Net Income (including on a per share basis), EBITDA, and Adjusted EBITDA, which are non-GAAP measures DZS believes are appropriate to provide meaningful comparison with, and to enhance an overall understanding of, DZS’s past financial performance and prospects for the future. DZS believes these non-GAAP financial measures provide useful information to both management and investors by excluding specific items that DZS believes are not indicative of core operating results. These items share one or more of the following characteristics: they are unusual and DZS does not expect them to recur in the ordinary course of its business;[1] they do not involve the expenditure of cash; they are unrelated to the ongoing operation of the business in the ordinary course; or their magnitude and timing is largely outside of the Company’s control. Further, each of these non-GAAP measures of operating performance are used by management, as well as industry analysts, to evaluate operations and operating performance and are widely used in the telecommunications and manufacturing industries. Other companies in the telecommunications and manufacturing industries may calculate these metrics differently than DZS does. The presentation of this additional information is not meant to be considered in isolation or as a substitute for measures of financial performance prepared in accordance with GAAP.

DZS defines Adjusted Cost of Revenue as GAAP Cost of Revenue less (i) depreciation and amortization, (ii) stock-based compensation, (iii) restructuring charges, including freight charges and other elevated inventory related costs directly related to the transition to a contract manufacturer, and (iv) the impact of material transactions or events that we believe are not indicative of our core product cost and are not expected to be recurring in nature. We believe Adjusted Cost of Revenue provides the investor more accurate information regarding the actual cost of our products and services, excluding the impact of costs of revenue that are not routine components of our core product cost, for better comparability of our costs of revenue between periods and to other companies.

DZS defines Adjusted Gross Margin as GAAP Gross Margin less (i) depreciation and amortization, (ii) stock-based compensation, (iii) restructuring charges, including freight charges and other elevated inventory related costs directly related to the transition to a contract manufacturer, and (iv) the impact of material transactions or events that we believe are not indicative of our core operating performance and are not expected to be recurring in nature. We believe Adjusted Gross Margin provides the investor more accurate information regarding our core profit margin on sales, excluding the impact of cost of revenue that are not routine components of our core product cost, for better comparability of gross margin between periods and to other companies.

DZS defines Adjusted Operating Expenses as GAAP operating expenses plus or minus (as applicable) (i) depreciation and amortization, (ii) stock-based compensation, and (iii) the impact of material transactions or events that we believe are not indicative of our core operating performance, such as acquisition costs, restructuring and other charges, including termination related benefits, headquarters and facilities relocation, executive transition, bad debt expense primarily related to a large customer in India, restatement related costs, and legal costs related to certain litigation, each of which is not expected to be recurring in nature. We believe Adjusted Operating Expenses provides the investor more accurate information regarding our core operating expenses, which include research and development costs, selling, general and administrative costs, and amortization of intangible assets, excluding the impact of charges that are not routine components of our core operating expenses, for better comparability between periods and to other companies.

DZS defines EBITDA as Net Income (Loss) plus or minus (as applicable) (i) interest expense, net, (ii) income tax provision (benefit), and (iii) depreciation and amortization expense.

DZS defines Adjusted Operating Income (Loss), or Adjusted EBITDA, as GAAP Operating Income (Loss) plus or minus (as applicable) (i) depreciation and amortization, (ii) stock-based compensation, and (iii) the impact of material transactions or events that we believe are not indicative of our core operating performance, such as acquisition costs, restructuring and other charges, including termination related benefits, headquarters and facilities relocation, executive transition, bad debt expense primarily related to a large customer in India, restatement related costs, and legal costs related to certain litigation, each of which is not expected to be recurring in nature. We believe Adjusted Operating Income (Loss) provides the investor more accurate information regarding our core operating Income (Loss), excluding the impact of charges that are not routine components of our core operating expenses, for better comparability between periods and to other companies. The DZS definition of Adjusted Operating Income (Loss) equates to the DZS definition of Adjusted EBITDA.

DZS defines Non-GAAP Net Income (Loss) as GAAP Net Income plus or minus (as applicable) (i) depreciation and amortization, (ii) stock-based compensation, (iii) the impact of material transactions or events that we believe are not indicative of our core operating performance, such as acquisition costs, restructuring and other charges, including termination related benefits and restructuring charges, including freight charges and other elevated inventory related costs directly related to the transition to a contract manufacturer, headquarters and facilities relocation, executive transition, bad debt expense primarily related to a large customer in India, restatement related costs, and legal costs related to certain litigation, each of which is not expected to be recurring in nature, (iv) unrealized foreign exchange gains and losses, (v) a non-GAAP income tax benefit (provision) based on an estimated tax rate applied against forecasted annual non-GAAP income and (vi) i the tax effect of non-GAAP adjustments to Adjusted Net Income and Adjusted EPS. DZS determines non-GAAP income taxes by computing an annual rate for the Company and applying that single rate (rather than multiple rates by jurisdiction) to its consolidated quarterly results. For 2023, the non-GAAP income tax rate was 18.1% and for 2022 the rate was 20.8%. DZS expects that this methodology will provide a consistent rate throughout the year and allow investors to better understand the impact of income taxes on its results. Due to the methodology applied to its estimated annual tax rate, the Company’s estimated tax rate on non-GAAP income will differ from its GAAP tax rate and from its actual tax liabilities. DZS believes Non-GAAP Net Income (Loss) provides the investor more accurate information regarding our core income, excluding the impact of charges that are not routine components of our core product cost or core operating expenses, for better comparability between periods and to other companies.

Enhanced Investments, Inc.
329 South Oyster Bay Road #2085
Plainview, NY 11803
team@eninvs.com

Important disclosures

Performance results were prepared by Enhanced Investments, and have not been compiled, reviewed or audited by an independent accountant. Performance estimates are subject to future adjustment and revision. Investors should be aware that a loss of investment is possible. Account holdings are for illustrative purposes only and are not investment recommendations. Additional information, including (i) the calculation methodology; and (ii) a list showing the contribution of each holding to the portfolio’s performance during the time period will be provided upon request.
All statements made via social media sites sponsored or maintained by Enhanced Investments and its affiliates are for informational purposes only and do not constitute a comprehensive description of Enhanced Investments' investment advisory services.
Certain investments are not suitable for all investors. Before investing, consider your investment objectives and applicable fees. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested. Information provided by Enhanced Investments is for informational and general educational purposes only and is not investment or financial advice.

Nothing on this website should be considered an offer, solicitation of an offer, or advice to buy or sell securities.
Past performance is no guarantee of future results. Any historical returns, expected returns [or probability projections] are hypothetical in nature and may not reflect actual future performance.
All the strategies assume investments in equity invstrumenta only and are more relevant for "agressive investment profile". Eastern European flagship strategy assumes using up to 20% leverage of total portfolio. GlobalCommodities and US Growth strategy currently assume no leverage.
Results for the Enhanced Investments strategies as compared to the performance of Illustrative Benchmarks is for informational purposes only. Our investment program does not mirror that of the Illustrative Benchmarks and the volatility may be materially different from the volatility of Illustrative Benchmarks. Reference or comparison to an Illustrative Benchmark does not imply that strategies of Enhanced Investments will be constructed in the same way as the Illustrative Benchmark or achieve returns, volatility, or other results similar to those of the Illustrative Benchmark. The S&P 500 is an unmanaged market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance.
Performance results were prepared by Enhanced Investments, and have not been compiled, reviewed or audited by an independent accountant. Performance estimates are subject to future adjustment and revision. Investors should be aware that a loss of investment is possible. Account holdings are for illustrative purposes only and are not investment recommendations. Additional information, including (i) the calculation methodology; and (ii) a list showing the contribution of each holding to the portfolio’s performance during the time period will be provided upon request.
All statements made via social media sites sponsored or maintained by Enhanced Investments and its affiliates are for informational purposes only and do not constitute a comprehensive description of Enhanced Investments' investment advisory services.
Certain investments are not suitable for all investors. Before investing, consider your investment objectives and applicable fees. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested. Information provided by Enhanced Investments is for informational and general educational purposes only and is not investment or financial advice.