DZS Inc.

Good day, and thank you for standing by. Welcome to the DCS Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ted Morrow, Vice President of Industrial Relations. Please go ahead.

Thank you, Catherine, and welcome to the DZS Second Quarter 2021 Earnings Conference Call. Joining us today are DZS President and CEO, Charlie Vogt, and we are excited to introduce to you our new CFO, Misty Kowecki. Yesterday, after market closed, we published to the Investor Relations section of the DZS website our shareholder report for the second quarter of 2021 to provide shareholders, prospective shareholders, and analysts with market insights, products, business, and financial updates, as well as forward-looking information. On 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 revert to the two documents that the company files with the SEC, including its most recent 10-Q and 10-K reports in the forward-looking statement section of the shareholder report that was filed on a Form 8-K. as well as being available on the 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 reconciliation to GAAP, are contained in the shareholder report referenced earlier. I'd also like to remind you that we will plan to participate in the B. Reilly Jefferies, and Wolf Research investor conferences during the third quarter. I will now turn the call over to Charlie.

Thank you, Ted. Welcome, investors, analysts, and guests. As Ted shared, yesterday after the market closed, we posted our quarterly shareholder report to provide a comprehensive update on our business, including current market trends and dynamics, as well as announcing the appointment of Misty Kwecki as our new chief financial officer. As highlighted in the news release, Misty and I have worked together for the past seven years, during my tenure as CEO of GenVan, today branded as Ribbon Communications and Imagine Communications. Together, we have acquired and integrated seven companies, including GenVan's acquisition of Nortel's Wish Over IP business unit in 2010. Misty is a rare talent in the field of finance, and DZS is fortunate to have her part of our team. Misty, welcome to DZS. Following our opening remarks, I will turn the call over to Misty, who will cover our Q2 financial results as well as provide our outlook and guidance for the remainder of 2021. As I speak to you today, I am celebrating my one-year anniversary with DZS, and what a year it's been. We have strengthened the executive leadership team with experienced industry luminaries. We upgraded our global sales organization. We secured 61 new customers. We more than doubled our sales pipelines. We acquired two technology companies, which are accelerating our innovation in areas of mobile edge transport and software-defined networking, and we expanded our R&D initiatives, driving multiple new product introductions, and we strengthened our balance sheet and are now debt-free. Demand for broadband connectivity, 5G mobile, and software-defined networking solutions continue to flourish as our industry undergoes the significant upgrade cycle, which has been fueled by the pandemic, geopolitical dynamics, numerous government stimulus funding programs, and a technology movement towards open standards. The pandemic has exposed a bandwidth-limited mobile and fixed wireline network due to the increase of employees working from home, large-scale applications such as interactive video conferencing, e-sports, remote education, and remote health care. In addition, the China-specific security threats have opened up numerous 5G and fiber-to-the-premises opportunities with Tier 1 service providers. As I shared previously, we are in the early innings of a long-term investment cycle. Sitting at the convergence of fixed and wireless networks with our mobile edge transport, broadband connectivity, and software-defined networking solutions, we are more aligned with our customers, ecosystem partners, and strategic technology partners such as Broadcom and Jabil than ever before. In fact, Yesterday, DCS and Broadcom publicly announced our intentions to further advance our strategic technology partnership in the areas of broadband connectivity and mobile edge solutions. Our focus on North America, Europe, the Middle East, Korea, and Japan, combined with strong Tier 1 alignment, delivered our second consecutive quarter of record orders, increasing 9% sequentially and 65% year-over-year. Mobile and broadband connectivity demand and exceptional execution has led to record first half orders of $245 million and a record backlog of 160 million as of June 30th, 2021. Our record first half results demonstrates the positive progress the team has made over the past 12 months, aligned with our vision, strategy, and four growth initiatives, which are, one, our North American EMIAS Take Share Playbook, two, Our next generation mobile transport portfolio, which is being fueled by 5G and Open RAN. Three, the numerous Huawei and ZTE replacement opportunities. And four, the substantial upgrade cycle that is underway around the world with fiber-based deployments. During Q2, the current supply chain environment impacted our adjusted gross margins due to longer than normal lead times, elevated semiconductor costs, increased semiconductor, sorry, increased secondary market costs, expedite charges, and high freight and logistics costs. With that said, we believe the current supply chain environment represents near-term headwinds and are not indicative of our long-term operating model and margin targets. Over the past six months, we have initiated a number of go-to-market product and operational work streams that we anticipate will increase our gross margins to 40% within calendar year 2023. These margin expansion initiatives are detailed in our shareholder report. I would also like to highlight that during the second quarter, we reached a favorable agreement with the German Works Council that aligns with our plans to consolidate our German and Florida manufacturing facilities, giving us one of the largest access networking manufacturing facilities in the United States. The consolidation is expected to deliver annual cost savings of approximately $7 million. I want to briefly touch on our innovation and product design initiatives, which are the growth engines of our business. Over the past nine months, we have initiated numerous technology work streams that are yielding differentiated mobile and broadband connectivity solutions that will be orchestrated and automated by DCS Cloud. Two weeks ago, we announced Accelerate, our next-generation 10-gig XGS PON portfolio, and our expanded Helix edge access portfolio. Our Accelerate portfolio includes the first of our ultra-high-performance any-service, any-port line cards with a high-density 100-gig interfaces. In addition, we announced that Consolidated Communications, one of the top 10 service providers in the United States, will deploy Accelerate and Helix as part of their initiatives to offer multi-gigabit services to 1.6 million households. We believe this is the largest announced 10-gig XGS PON deployment in North America. Accelerate can be deployed in a traditional edge office design or as a fully distributed software-defined networking architecture. Our Helix and DZS Cloud solutions together will provide differentiated access orchestration, intelligent service management, service assurance, and data analytics capabilities. Accelerate Helix and DZS Cloud combined with Velocity, our core optical line termination portfolio, and Kronos, our mobile edge transport portfolio, will serve as the foundation for revenue growth and margin expansion. With that as a business update, I'll now turn the call over to Misty for our financial highlights.