DZS Inc.

Good morning and welcome to the DZS first quarter 2022 earnings conference call. All lines will be muted during the presentation portion of today's call with an opportunity for questions and answers at the end. If you'd like to ask a question on today's call, you can do so by pressing star 1 on your touchtone keypad. Again, to ask a question, you can press star 1. I'll now hand the call over to Ted Moreau with DZS. Thank you, Ted. You may proceed.

Thank you, Joel, and welcome to the DZS First Quarter 2022 Earnings Conference Call. Joining us today are DZS President and CEO, Charlie Vogt, and CFO, Misty Kowiecki. Yesterday, after market closed, we published to the Investor Relations section of the DZS website our shareholder report for the first quarter of 2022 to provide shareholders, prospective shareholders, and analysts with market insights, product, 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 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 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. Next week, we will host our Horizons 22 Investor Day at our headquarters in Dallas that will simultaneously be webcast. We look forward to your attendance. We will also be participating in the B. Reilly, Cowan, Craig Hallam, and Stiefel investor conferences during the second quarter. I now have the pleasure to turn the call over to Charlie.

Thank you, Ted, and welcome investors, analysts, and guests. As Ted shared yesterday after the market closed, we posted our quarterly shareholder reports which provides a comprehensive update on our business, financial results, market trends, and 2022 outlook. Before providing my comments relative to our first quarter's performance, as well as other business and industry dynamics, I'm excited to share real-time news that DZS has signed a definitive agreement to acquire the award-winning consumer experience and service assurance software solutions from ASEA. Over the past nearly two years, DZS's vision, our go-to-market, and strategic playbook have been designed to capitalize on a once-in-a-generation broadband access and consumer experience super cycle. From high-speed fiber to the home to 5G Open RAN, our industry, which is being fueled by more than $100 billion of global broadband government stimulus, is in the fast lane, and the consumer experience is front and center. The specific assets being acquired in an all-cash transaction includes ASIA's CloudCheck Wi-Fi performance management, and express network optimization software solutions, which are deployed by marquee operators around the world with more than 125 million homes connected. The transaction also adds an elite team of highly skilled cloud and artificial intelligence software engineers, architects, and business leaders. In 2021, we acquired Rift, a cloud native software technology innovator which accelerated our software-defined network orchestration, application slicing, and automation solutions, which are now part of our DZS Extreme software portfolio. CloudCheck and Express will be integrated into the DZS Experience software suite within the broader DZS Cloud platform. These two valuable software solutions significantly enhance DZS Cloud to include service provider and consumer-managed Wi-Fi network intelligence automation, optimization, and service assurance. The acquisition of Express and CloudCheck combined with DZS Extreme creates a distinguished and differentiated end-to-end access networking and cloud-native service assurance in consumer experience management portfolio. During the due diligence, I was able to speak to many Tier 1 customers around the world who enthusiastically support DZS and the addition of Express and CloudCheck to the DGS cloud platform. A sample of a few Express and CloudCheck customers include Bui Telecom, Deutsche Telekom, Liberty Latin America, Lumen, PLDT, TalkTalk, Telefonica, Telus. The complete list of customers includes approximately 60 Tier 1 and Tier 2 service providers around the world. Upon closing, we will add Express and CloudCheck software extensions to our installed base of home and business-connected gateways, representing more than 20 million connected homes around the world. Today, Express and CloudCheck support more than 150 unique consumer Wi-Fi devices, which will significantly expand our reach to Tier 1 service providers, driving new sales synergies and enabling DZS to uniquely offer service providers a comprehensive and differentiated end-to-end broadband experience. We expect the transaction to close as early as two weeks, though no later than the end of Q2. The acquired assets will contribute reoccurring software as a service revenue that will be accretive to gross margin, EBITDA, and earnings per share in 2022. In fact, we expect the transaction to pull forward our 40% target gross margin model by as much as 12 months. During our upcoming horizons 22 investor day we will be presenting live and in person from Dallas from our Dallas headquarters. And will provide more insights, including demonstrations of our broadband connectivity mobile and optical edge and new service assurance and consumer experience management software portfolio. Q1 continue to validate that we are in the early stages of a decade long dual investment super cycle to include multi gigabit broadband and consumer experience services. Broadband connectivity, both wireline and wireless, is becoming an essential service for consumers and businesses around the world. As Misty will highlight in her financial commentary, Q1 represented our fifth consecutive $100 million plus orders quarter, increasing our backlog to $243 million, yielding year-over-year backlog growth of 129%. During the quarter, we also added 16 new customers. During the first quarter, our industry continued to be challenged with supply chain disruptions, especially related to the manufacturing and shipping port shutdowns throughout China, which interrupted development, manufacturing, and transportation logistics. These factors limited our ability to ship complete systems, resulting in first quarter revenue of $77 million within guidance, though at the low end of our $75 to $90 million range. Keep in mind, that a single semiconductor chip or subsystem component shortage can hold up an entire shipment of a deployable system. I'll also appreciate that based on customer request ship dates and the elimination of supply chain constraints, DCS would have shipped more than half of our existing backlog well above our $90 million top end guidance. Despite the first quarter's revenue conversion circumstances, we remain bullish and confident in our full year outlook. Just as fiber-of-the-home and in-home connected experience solutions remain a growth driver for DCS, Open RAN is gaining momentum around the world. During the second half of 2021 and into 2022, many of the world's premier mobile service providers, market-leading technology suppliers, and government entities have been profiling and referencing 5G Open RAN as the preferred architecture of the future. With our early involvement with Open RAN and a strategic technology partner to Rocketown Mobile, We expect the numerous RFP and mobile transport trials to convert to incremental growth opportunities for DZS during the second half of 2022 and into 2023. As we enable the deployment of hyper-fast broadband connectivity across our expanding customer base, we are creating new opportunities in the communities our customers reach and enhancing the value-added solutions in the homes and businesses they serve. With that, I'd now like to turn the call over to Misty to walk through our Q1 financial highlights in our Q2 and 2022 outlook.