DZS Inc.

Good day, and welcome to DVS First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Todd Morrow, Head of Investor Relations at DZS. Sir, the floor is yours.

Thank you, Lara, and welcome to the DZS First Quarter 2021 Earnings Conference Call. Joining us today are DZS President and CEO Charlie Vogt and CFO Tom Cancro. We are pleased to discuss our first quarter financial results as well as insights and performance spanning our global business, trends driving our market, transformative initiatives, and our outlook for the remainder of 2021. As we've done for the past three quarters, this morning DZSI published our shareholder report for the first quarter of 2021 on the investor relations section of our website at DZSI.com. I'd also like to remind you that we will host our Virtual Horizons 21 Investor and Analyst Day on Thursday, May 13th, And we plan to participate in the Needham, Craig Hallam, and Stiefel investor conferences during Q2. During this call, we will provide projections and other forward-looking statements regarding future events or the future financial performance of the company. The company cautions you that such statements are only current expectations and actual events or results may differ materially. Please refer to documents that the company files with the SEC, including its most recent 10Q and 10K reports, in the forward-looking statement section of the shareholder report that was filed on a Form 8K, as well as being available on our investor relations section of our website. These documents identify important risk factors that could cause actual results to differ materially from those contained in the company's projections or forward-looking statements. Please note that unless otherwise indicated, The financial metrics being provided to you on this call are determined on a non-GAAP basis. These items, together with corresponding GAAP numbers and the reconciliations of GAAP, are contained in the letter to stockholders. I will now turn the call over to Charlie.

Thank you, Ted, and welcome investors, analysts, and guests. As Ted mentioned, prior to the open, DZS released our quarterly shareholder report providing a market, business, and financial update for the first quarter of 2021. Our report is designed to provide shareholders, prospective shareholders, and analysts with market insights, product and business updates, and our financial performance. The management changes and transformational enhancements executed during the second half of 2020 are delivering encouraging results, and have become the foundation to delivering long-term sustainable shareholder value. With that as a backdrop, the first quarter of 2021 was a strong start to the year with record orders, record backlog, better than expected revenue and gross margin, and positive adjusted EBITDA. Orders increased 163% year over year, yielding $106 million of backlog, our highest ever, and a sequential increase of 49%. Growth in our mobile revenue was exponentially strong, increasing 635%. During the quarter, we added 24 new customers, with North America and EMEA experiencing the strongest customer growth. Revenue of $81 million exceeded guidance for the third consecutive quarter, compared with our $70 to $75 million guidance, representing a 71% year-over-year increase. Better-than-expected revenue, favorable geographic mix, and strong operational execution enable us to deliver favorable gross margins of 35%. resulting in a positive adjusted EBITDA of 3.6 million, which was also above guidance. These results follow a strong second half of 2020 and support an optimistic view of the remainder of 2021 and into 2022. The unexpected global health pandemic, coupled with a surge in demand for networking and communication services, has challenged the global supply chain. To date, our forecasting process, customer relationships, and our robust supply chain ecosystem have limited our exposure to price increases, component availability, as well as manufacturing logistics and delivery delays. With that said, we are not ruling out deviations to the previous statement as the current environment is fluid. Offsetting the supply chain challenges, the pandemic has forever transformed how people rely on high-speed wireless and wireline connectivity for business, education, healthcare, esports, and entertainment. Aligned with these technology requirements and the emerging lifestyle and workplace trends, DCS is well positioned with its innovative lineup of mobile edge transport, broadband connectivity, and now software-defined networking solutions. In February, we acquired Optillion, and in March, we acquired Rift. These two acquisitions have strategically enhanced our mobile edge and broadband connectivity portfolios. Optillion provides our customers with a temperature-hardened, high-capacity, long-reach Rotem transport portfolio that complements our fast-growing mobile edge transport solutions. And our Rift acquisition accelerates and enhances our software portfolio for mobile and broadband connectivity networks. Following our Rift acquisition, we announced TELUS, one of Canada's premier communication service providers, as a new DZS Cloud customer. TELUS will be deploying DZS Cloud for network orchestration, application management, and software automation. As of this earnings call, the integration of both Optillion and Rift are nearly complete. In addition to TELUS, these two new acquisitions add AT&T and Lumen to our lineup of marquee customers. Also in the quarter, we executed a 64 million gross proceeds follow-on equity offering, eliminating debt and strengthening our balance sheet. During the quarter, we began the consolidation of our high-cost manufacturing facility in Germany, which we anticipate will deliver favorable margins and earnings in 2022 and beyond. As Ted stated, on April the 8th, we announced our inaugural Horizons Investor and Analyst Day, which is scheduled for Thursday, May the 13th. I, along with Andrew Bender, our chief technology officer, Miguel Alonso, our product line manager, Tom Cancro, our chief financial officer, and several marquee customers will be presenting as part of this virtual event. To learn more and to register, please visit our investor relations page. Thank you for joining the call. And with that, I'll now turn the call back over to the moderator to facilitate any questions you may have.