DZS Inc.

Good day, and thank you for standing by. Welcome to the DCDS second quarter 2022 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 will need to press star 1-1 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 Investor Relations. Please go ahead.

Thank you, Shannon. Good morning and welcome to the DCS Second Quarter 2022 Earnings Conference Call. Joining us today are DCS President and CEO Charlie Vogt and CFO Misty Kawecki. Yesterday after market close, we published to the investor relations section of the DCS website our shareholder report for the second 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. 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. During the third quarter, we will be participating in investor conferences hosted by three-part advisors Rosenblatt, and Jeffries. And Charlie will also be participating in a panel session at a conference next week. 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 second quarter shareholder report, which provides an update on our business financial results, market trends, and 2022 outlook. We are encouraged that the demand environment has remained robust and resilient in the face of increasing economic uncertainty. Service providers are laser-focused on modernizing and upgrading their fixed and mobile networks to effectively compete, lower operating costs, reduce customer churn, and increase revenue. With a new hybrid work-from-home environment in place, service providers understand that to compete and win in their respective markets, they must deliver smarter, faster, and more cost-effective broadband Internet services. They are increasingly leaning into the home as consumers design and build smart homes and intelligent Wi-Fi networks. As such, service providers are offering more advanced technologies and intelligent software solutions than ever before. Our AccessEdge solutions enable service providers to deliver hyper-fast multi-gigabit broadband services. Our SubscriberEdge solutions extends the multi-gigabit broadband connectivity throughout the home and office, and to the specific devices connected to the Wi-Fi network. Our optical edge solutions enable service providers to cost-effectively aggregate and transport last mile and mobile traffic. DZS's new cloud software solutions empower service providers to automate, orchestrate, and optimize their network performance and leverage advanced data analytics to improve customer satisfaction increase revenue, and build customer loyalty. With over $120 billion of global government broadband infrastructure initiatives, the numerous Chinese vendor replacement opportunities spanning the United States, Canada, Europe, and Pan-Asia, we remain confident that the investment cycle for our cloud solutions as well as our access subscriber and optical edge solutions will remain strong and provide DCS with revenue and margin expansion growth prospects for the foreseeable future. The second quarter represented our sixth consecutive quarter with orders in excess of $100 million. Q2 bookings of $123 million increased our total backlog to $293 million, an increase of 83% year-over-year. Combined with $28 million of deferred software and service revenue, our total backlog in deferred revenue is now $321 million. Our first half bookings performance of $224 million inclusive of 54 new and acquired customers and numerous new project wins highlights strong demand and momentum for our cloud software and our access subscriber and optical edge infrastructure solutions. The second quarter of 2022 reflected continued supply chain challenges for semiconductors and subcomponents as manufacturing and shipping port closures in China that began in March extended well into May. Second quarter revenue of $91 million represented an increase of 18% sequentially and 10% year-over-year and was unfavorably impacted by approximately $5 million due to unforeseen foreign exchange rate fluctuations during the quarter, spanning the euro, Korean won, and Japanese yen. Without these foreign exchange fluctuations, revenue for the quarter would have been $96 million, which would have been closer to the top end of our Q2 guidance range. Likewise, gross margin and earnings were also unfavorably impacted by foreign exchange fluctuations, as well as the incremental expedite and air freight logistics costs to satisfy customer deployment schedules. As I reflect on the past eight quarters since I joined DZS, we are pleased with the results we have delivered. 187 new customers, $903 million of new orders, numerous next generation product innovations, and two cloud software acquisitions. In addition, we have completed our people, product, and brand transformation initiatives. The only outstanding infrastructure initiative that is still ongoing is our one DZS ERP systems project, which we expect to be completed in Q1 of 2023. In just two short years, DZS has built an enviable cloud software portfolio that complements our access subscriber and optical edge infrastructure solutions. During this time, We have been strategically focused on alignment with our marquee customers around the world and transforming our portfolio with differentiated high margin software subscription solutions. In Q1 of 2021, we acquired Rift, a disruptive cloud software innovator that developed a vendor neutral, tier one focused orchestration and software automation platform, which formed the foundation of DZS Cloud. During the second quarter of 2022, we accelerated our vision for DZS Cloud with the acquisition of ASIA's Service Assurance and Wi-Fi Management Software portfolio. The transaction, which included ASIA's award-winning Express Service Assurance and CloudCheck Wi-Fi Experience Management software solutions, provided DZS with valuable intellectual property, 31 marquee service provider customers, and an elite team of cloud and artificial intelligence software engineers. We expect pro forma annualized revenue to be approximately $25 million and gross margins to be approximately 80%. The all-cash purchase was equivalent to one times revenue. Our newly acquired marquee customers spanning primarily North America and EMEA represent a significant cross-selling and market expansion opportunity for our access, subscriber, and optical edge solutions. Shifting to our progress with Open RAN. During the second quarter, we began shipping our market-defining front-haul gateway platform to a new marquee mobile operator in Europe, aligned with Rakuten Symphony's Open RAN 5G reference architecture. Additionally, we unveiled our next-generation, environmentally-hardened 400-gigabit coherent optical aggregation router platform, SABR. SABR redefines the optical edge category, significantly improving deployment flexibility, application optionality, in the economics of middle-mile transport. We demonstrated SABR at the FiberConnect 2022 conference in Nashville in June to an audience of service providers poised to leverage the $1 billion middle-mile grant program and align with the $10 billion capital projects funds, as well as the $42 billion of broadband equity access and deployment program. The highly scalable SABR 4400 delivers multi-terabit bandwidth in a compact, modular platform spanning distances of up to 100 kilometers. The environmentally hardened platform is perfectly suited for bridging the digital divide, allowing deployments virtually anywhere in the network at a fraction of the cost of traditional solutions. SABR is ideally designed for mobile edge transport applications aligned with 5G cell sites for aggregating last mile fiber deployments within the broader $17 billion mobile and optical edge transport addressable market. Our innovation and culture set the tone at DZS. We are thrilled with the new talent that continues to join the company. As we look to the remainder of 2022 and into 2023, we plan to accelerate our go-to-market strategy and playbook designed to capture new customers and better position DZS with our existing customers. In closing, Despite supply chain headwinds and wide fluctuations with foreign exchange, during the second quarter, DCS delivered $123 million in new orders and added 38 new customers, including our newly acquired ASEA customers. Our $91 million in revenue was within our guidance range, though if not for the unforeseen foreign exchange fluctuations, revenue would have topped $96 million. We remained disciplined in our execution, and confident in our ability to gain market share in North America and Europe while delivering our margin expansion plans, especially as foreign exchange and today's supply chain dynamics stabilize in 2023. With that, I'd like to turn the call over to Misty, walk through our Q2 financial highlights and our Q3 and 2022 outlook. Misty?