DZS Inc.

Good day, and thank you for standing by. Welcome to the DZS Third 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 11 on your telephone. You will then hear a message that your hand is raised. 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, Head of Investor Relations. Please go ahead.

Thank you, Carmen, and welcome to the DZS Third Quarter 2022 Earnings Conference Call. Joining us today are DZS President and CEO Charlie Vogt, CFO Misty Kweki, and Chief Product Officer Miguel Alonso. After market closed today, we published to the investor relations section of the DZS website our shareholder report and a new investor presentation for the third quarter of 2022 to provide shareholders, prospective shareholders, and analysts with market insights, product, business, and financial updates, as well as forward-looking information. Our third quarter investor presentation will be referenced throughout today's earnings call. Thus, we recommend you download it to follow along with Charlie, Miguel, and Misty's commentary. 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. During the fourth quarter, we will be participating in investor conferences hosted by Stiefel, Needham, and Craig Hallam. I now have the pleasure to turn the call over to Charlie.

Thank you, Ted, and welcome investors, analysts, and guests. As Ted shared, today after the market closed, we posted our third quarter shareholder report and an updated investor presentation, which provides an update on our business, financial results, market trends, and 2022 outlook. We continue to make significant progress with our four stated growth pillars during the third quarter. For the first time in company history, we delivered revenue in excess of $100 million, reflecting market share momentum, robust software and service growth, and with our core customers who continue to accelerate their fiber and 5G deployments. $107 million of revenue during the quarter amplified our execution navigating a challenging supply chain environment and despite continued foreign currency volatility resulting from a strong U.S. dollar. $107 million of revenue represented an increase of 21% year-over-year and on a constant currency basis an increase of 35% year-over-year. We remain committed to capturing market share in North America, Europe, and the Middle East, with approximately 70% of third quarter orders aligned with these regions. And we now have surpassed $100 million in bookings for the seventh consecutive quarter. Our go-to-market strategy over the past two years has been laser focused on large and medium service providers, inclusive of emerging fiber overbuilders, utility cooperatives, and wireless internet service providers, noting that wireless internet service providers continue to augment their fixed wireless business with fiber-based services. Our strategic alignment with our customers and prospects have led to numerous product innovations, accretive acquisitions, and high-margin software solutions. Our fixed and mobile broadband portfolio offers service providers an open, standards-based, next-generation access, optical, subscriber, and cloud edge software and system solutions designed to disrupt the status quo and enable our service provider partners to differentiate in the markets they serve. During the quarter, DGS was awarded two cloud software wins, both with large-scale Tier 1 service providers. The first to profile was a marquee service provider in Western Europe, and the second with a large-scale national service provider in Asia. The two cloud software wins represent continued momentum and adoption with our DZS Cloud Platform. The Western European Award was for our DZS Extreme Orchestration and Automation software solution. The service provider will be leveraging our entire DZS Cloud Platform, enabling orchestration of revenue-generating applications, automation of services, network assurance, and in-home Wi-Fi experience management. This award represents the significant opportunity DZS has to bundle and cross-sell leveraging our differentiated access and optical infrastructure systems and our cloud software platforms, which has been designed for large-scale networks. The second cloud software win was with our CloudCheck in-home Wi-Fi management solution, which enables AI-driven network optimization, automation, real-time data analytics, and consumer experience management. Complementing the timing of these two software wins, last week, DZS received the 2022 Excellent Award from Cloud Computing Magazine. We remain optimistic that we can achieve our stated run rate goal of 40% adjusted gross margins as we exit 2023 and 45% adjusted gross margins by 2025. It's worth noting that on a normalized basis, accounting for foreign exchange and supply chain impacts, our adjusted gross margins during the third quarter would have been 40%. We continue to invest in advanced and highly differentiated access and optical edge solutions. During the quarter, we unveiled the DZS Velocity V6, the industry's most advanced next generation optical line termination system. The V6 uniquely positions DZS to capture new opportunities with service providers, including networks that are transitioning due to Chinese vendor security concerns. The V6 mirrors the form factor of Huawei's first generation 6RULT, though delivers an estimated 10X performance improvement featuring a non-blocking architecture with a market-leading 800 gigabits of capacity per slot. The V6 and the DZS lineup of next-generation OLTs offers service providers what we believe to be the only true seamless upgrade path to 50-gigabit access technology. The second innovative milestone introduced during the quarter was was the Sabre 4400, an environmentally hardened coherent optic Rotem transport platform designed to address last mile broadband access aggregation at the network edge. Sabre 4400 delivers significant deployment and operational cost savings as it eliminates the need for climate controlled environments. Additionally, during the quarter, we announced the newly established strategic partnership with Fabrinet, one of the world's leading contract manufacturers and a specialist in access and optical technologies. As we transition internal manufacturing to FabriNet, it will allow us to free up resources that have been dedicated to supply chain management and manufacturing, allowing us to shift our focus to more strategic growth initiatives. We expect this partnership and the shift to a contract manufacturing model to deliver enhanced margins in 2023, resulting from improved product and lower cost operating Following my opening remarks, Miguel Alonso, our Chief Product Officer, joins me as we review several product and growth themes from our investor presentation. For those of you who have downloaded the investor presentation, please turn to page eight. Aligned with DZS growth aspirations, slide eight highlights anticipated growth associated with the broadband upgrade super cycle currently underway. The chart represents a nearly 20% compounded annual growth rate aligned with our access and subscriber edge OLT and ONTs illustrated through 2027. The source of the data is Omnia, a highly regarded global market research firm. Turning to slide nine, you will see the current global government subsidies fueling the fiber and 5G broadband market, totaling more than $100 billion. The United States is leading the way with more than $70 billion. It's worth noting that award-winning service providers are likely to contribute 50% or more of the required capital investments. Slide 10 represents the emerging applications that will continue to drive hyper-fast, low-latency bandwidth requirements for home, office, and mobile devices. To amplify the expected decade-long investment cycle, we expect 50-gigabit last-mile access to shift from roadmap discussions to reality by 2024. Our lineup of OLTs ranging from our V1 to V16, which includes our V2, V14, and newly-launched V6, gives service providers favorable deployment flexibility and optionality and a seamless upgrade path to 50-gigabit PON to be on. Miguel will now speak to the next several slides, starting with slide 11. Miguel?