DZS Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the DZS fourth 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 this session, you will need to press star 1 1 on your telephone keypad. At this time, I would like to turn the conference over to Mr. Ted Barreau, Vice President of Investor Relations. Sir, please begin.

Thank you, Howard. and welcome to the DZS fourth quarter 2022 earnings conference call. Joining me today to discuss our results are DZS President and CEO Charlie Vogt and CFO Mishti Kaweki. Chief Product Officer Miguel Alonso is also on the call to participate in the Q&A session. After market closed today, we published fourth quarter and full year 2022 earnings, along with a new investor presentation to provide shareholders prospective shareholders, and analysts with market insights, product, business, and financial updates, as well as forward-looking information. Our fourth quarter investor presentation will be referenced throughout today's earnings call, which you can follow along with Charlie 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, 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 today's earnings press release. We will be attending the OFC Trade Show in San Diego in March and look forward to meeting with investors at that event. Additionally, please save Wednesday, May 10th, on your calendar for our 2023 Investor Day at our headquarters in Dallas. I now have the pleasure to turn the call over to Charlie.

Thank you, Ted, and good afternoon, everyone. As an inspiring start to 2023, DZS recently hosted our inaugural Horizons Innovation and Technology Summit. A subset of Horizons guests and speakers included Luminary leaders from Broadcom, Deutsche Telekom, TELUS, Lumen, Windstream, Liberty, i3 Broadband, ERBI, NCTC, Dell, Mavenir, and Fabrinet. Horizons reflected strong validation of our vision, go-to-market strategy, and technology roadmap, aligned with our market-defining access, optical, and cloud-controlled software solutions. Also attending our Horizon Summit were financial analysts from Stiefel, Cowen, Needham, Northland, and Woodruff. Horizons enabled several key customers and partners to share their vision, insights, and alignment with DCS, During Horizons, we unveiled several new technology milestones and product launches, including two new software platforms, Extreme Access and Experience Cloud. Extreme Access is a multi-vendor orchestration software platform designed to automate network functions and accelerate the onboarding of new network elements and new services. Experience Cloud delivers end-to-end network and subscriber visibility and analytics, including actionable insights from subscriber and network data through our service assurance and Wi-Fi management software solutions. DGS has taken a platform approach to designing our next generation Access Edge OLTs, whereby service providers can uniquely design, deploy, and support GPON, XGS PON, 25 and 50 gig PON from the same universal system. Our Velocity OLT portfolio, including our new Velocity V6, is gaining momentum with many Tier 1 and Tier 2 service providers around the world. Our next generation Velocity V6 is a future-proof OLT system featuring a non-blocking architecture, 800 gigabits per second of capacity per slot, and support of 50 and eventually 100 gigabit PON for last mile fiber of the home access networks. Market research firms estimate that fiber-based PON for the telecom segment alone will reach $12 billion, not including China, of annual capex spend by 2027. Horizons also highlighted the enhancements of our optical edge and mobile transport portfolio. We recently announced the availability of our Sabre 4400, which delivers up to 400 gigabits per second per wavelength over extended distances of up to 100 kilometers without amplification in an environmentally hardened modular compact form factor that can also support Rotem capabilities. We also announced enhancements to our C1216 and M4000 mobile transport, as well as our in-building PoE plus Ethernet switches. While we have secured many new customers over the past two years, most of which are emerging fiber over builders, utility cooperatives, and municipalities, we remain committed and focused on securing large-scale, multinational service providers. We are making good progress with many service providers around the world and especially in North America and Western Europe, reminding investors that service providers, especially those of scale and complexity, have a rigorous engagement process that could take 12 to 18 months before full-scale deployment. We remain committed to this journey because of the long-term value and return on investment potential in the form of recurring and reoccurring revenue and profitability. I am pleased to share that DZS has been awarded two new marquee service provider design wins, validating the innovative investments we have made across our Access Edge, specifically our Velocity OLT portfolio. Europe's largest service provider recently selected DZS's Velocity V6 to be part of their large-scale multi-year Fiber the Home project, which will also be including the replacement of their existing Huawei OLTs. This is an important milestone for DZS as this multinational service provider will be leveraging our end-to-end access edge and our cloud-controlled service assurance and in-home Wi-Fi software management. In addition, Korea Telecom, a long-time valued partner of DZS and South Korea's largest fixed wireline network operator, also selected our Velocity OLT portfolio for their next phase pond rollout. We are equally encouraged with the momentum and progress we are making with our next generation Optical Edge Sabre 4400, which has received numerous technology accolades and has been validated by recent design wins. While we're optimistic about our 2023 sales prospects and financial outlook, our Q4 and full year 2022 financial results were not indicative of the innovation, customer alignment, design wins, nor the company's overall execution and operational progress. As such, our 2022 financial performance was limited in our ability to maximize revenue conversion. Q4 revenue of $100 million would have been $7 million higher or 10% growth year over year on a constant currency basis. And full year 2022 revenue of $376 million would have been $31 million higher or 16% growth year over year on a constant currency basis. Additionally, COVID lockdown spanning some of our manufacturing partners and the transition from our Seminole, Florida facility to FabriNet as well as revenue acceptance timing represented the revenue and gross margins shortfall compared to fourth quarter guidance. I'm pleased to report that during the fourth quarter, we did successfully complete the transfer of our Seminole, Florida facility to FabriNet. This partnership is expected to reduce cost and improve our global reach scalability, and product margins. Our investments in people, product, and systems over the past two and a half years has enabled us to build a sustainable foundation for future revenue growth and profitability. Since Q3 2020, we have booked orders exceeding $1 billion, recorded revenue of $909 million, increased our remaining performance obligations, including backlog and deferred revenue, by over three times to $321 million. We are confident that the technology sales and marketing investments made in 2022 will result in new access, optical and cloud software project wins in 2023, appreciating that we exited 2022 with the most active POC and trial environment since I joined the company in mid-2020. 2022 also represented the most stable employee retention rate since I joined DZS, validated that we have locked in the team aligned with our vision, strategy, and culture, giving us the best opportunity to secure strategic projects with more key customers and to elevate our growth and profitability. As service providers continue to upgrade their legacy DSL and sub-one gigabit broadband networks, many operators are being architecturally thoughtful with their network design, ensuring that the technology investments they are making today will allow them to future-proof their network for tomorrow, enabling them to compete with a lower total cost of ownership and with a network that is automated and software-defined. GZS is among a small number of companies with the access optical and cloud software technology, customer footprint, and the resources required to grow and take share in the current fiber-based pond investment cycle. With an install base of approximately 60,000 OLT systems, 20 million subscriber devices, 35,000 mobile and optical transport platforms, and 70 million cloud software subscribers spanning more than 400 active customers, we enter 2023 better positioned than ever before. Over the next five years, our access and subscriber edge install base will continue to undergo an upgrade cycle from DSL and GPON to XGS PON. As part of our technology investment thesis, we expect that by 2025, large and medium-sized service providers will begin upgrading their XGS PON network to 50 gigabit PON. Our next generation Velocity OLT portfolio is uniquely designed to support 50 and up to 100 gigabit PON, enabling service providers to upgrade from XGS PON to 50 gigabit PON without an OLT systems replacement, seamlessly upgrading just the PON modules. We also expect that our DSL Express software customers will continue to upgrade to PON Express as their subscribers migrate from DSL to fiber. In addition, our in-home Wi-Fi management software platform, CloudCheck, will add layers of new functionality in 2023, including cybersecurity protection and with expanding support for Wi-Fi and IoT devices. Our sales pipeline for our cloud software portfolio continues to expand, and we believe our collective software platforms will deliver incremental and favorable results during the second half of 2023 and into 2024. Despite the macroeconomic recessionary fears, broadband has become a utility-like service that we believe requires service providers with scale and the financial resiliency to continue to invest in their fixed and mobile networks over the next decade, ensuring they remain competitively positioned to pursue the lucrative in-home and on-the-go broadband market. We continue to systematically balance quarterly performance with the operational and financial requirements designed to deliver top-line revenue growth margin expansion, and net operating income aligned with the service providers that have the scale and the financial means to deliver reoccurring and reoccurring sustainability for DGS. In closing, we remain focused on our five growth pillars. First, the 10 gigabit XGS pond and 5G upgrade cycle. Second, market share capture in North America and Western Europe. Third, the pursuit of numerous Chinese cap and replacement opportunities, appreciating that approximately 50% of the access networking install base and associated subscriber devices outside of China have been historically controlled by Huawei and other China-based vendors. Fourth, our cloud software expansion opportunity with our existing and prospective customers. And finally, the emergence of ORAN, which continues to gain acceptance and momentum around the world. With that, I'll turn the call over to you, Misty.