Good day, and thank you for standing by. Welcome to the DZS Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one 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 Moreau, Vice President of Investor Relations. Please go ahead. Thank you, Shannon. Good morning, and welcome to the DZS Second Quarter 2022 Earnings Conference Call. Joining us today are DZS President and CEO, Charlie Vogt, and CFO, Misty Kawecki. Yesterday, after market close, we published to the investor relations section of the DZS 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 10-Q and 10-K reports in the forward looking statements 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. 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 Jefferies. Charlie will also be participating in a panel session at a Cowen 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 the 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 access edge solutions enable service providers to deliver hyper fast, multi-gigabit broadband services. Our subscriber edge 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 DZS 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. 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 in 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 1-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 ASSIA's service assurance and Wi-Fi management software portfolio. The transaction, which included ASSIA's award-winning Expresse 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 1x 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 fronthaul 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 Gb coherent optical aggregation router platform, Saber. Saber redefines the Optical Edge category, significantly improving deployment flexibility, application optionality, and the economics of Middle Mile transport. We demonstrated Saber at the Fiber Connect 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 Saber- 4400 delivers multi-terabit bandwidth in a compact modular platform spanning distances of up to 100 km. 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. Saber 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, DZS delivered $123 million in new orders and added 38 new customers, including our newly acquired ASSIA 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 remain 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 to walk through our Q2 financial highlights and our Q3 and 2022 outlook. Misty? Thank you, Charlie, and good morning, everyone. I'd like to start by discussing our foreign currency exposure in order to help you better understand the impacts on our business in the second quarter. Many foreign currencies, particularly the Korean won, Japanese yen, and euro, weakened against the U.S. dollar throughout the quarter, creating unexpected headwinds to our Q2 results. The foreign currency impact is greater on our revenue and gross margin than it is on our operating income, as we are partially naturally hedged in our foreign jurisdictions. During Q2, we generated 28% of our total revenue from Korea, 11% of our total revenue from Japan, and 9% from Europe. As the U.S. dollar strengthened throughout Q2, these revenues converted to fewer dollars. I will provide additional detail as I walk through our financial results. As Charlie indicated, underlying demand remains strong with total orders for Q2 of $123 million, our sixth consecutive quarter with orders exceeding $100 million. As a result, we have set a new quarterly record for backlog at $293 million, up 83% year-over-year. When combined with $28 million in deferred software and services revenue, our combined backlog plus deferred revenue equaled $321 million. Backlog is continuously revalued to reflect current foreign currency exchange rates. Because of the strengthened U.S. dollar during Q2, our backlog was unfavorably impacted by $5 million and would have otherwise ended the quarter at $298 million or $326 million when combined with deferred revenue. Our conversion of backlog to revenue remains challenged due to the ongoing sub-component availability. Despite this constraint and $5 million of foreign currency impact, we still increased revenue 10% year-over-year to $91 million. During the second quarter, sub-component availability skewed towards our customers in Asia, where revenue increased 26% year-over-year to $50 million. Within Asia, we have diversified our business beyond our stronghold across Korea and Japan and into the Pan- Asia region. Of our overall $5 million of total foreign exchange revenue impact, approximately 90% of the impact occurred in converting revenue from Asia. Revenue from the Americas region increased 7% year-over-year to $28 million, reflecting our emphasis on expanding the DZS footprint in this strategic region. Revenue from EMEA declined 22% year-over-year to $13 million, reflecting the timing of shipments and foreign exchange. Our Q2 adjusted gross margin of 28% was impacted by unforeseen foreign currency changes. About half of our cost of goods sold for our overall Asia business is based in Korean won, allowing for a partial natural hedge. However, the remainder of our cost of goods sold are based in U.S. dollars. In addition to FX, we incurred elevated cost of goods, increased expedite fees, and shipping and logistics costs as we prioritize delivering products to our customers as timely as possible. The final factor weighing on our gross margins was that our revenue mix was weighted towards Asia due to sub-component availability. Without the foreign currency and supply chain headwinds, we estimate our gross margin performance would have been approximately 750 basis points higher. In the second quarter, adjusted operating expenses were $29 million, compared with $28 million in Q2 of 2021. The year-over-year increase reflects investments in our business, including the acquisition of ASSIA assets. The foreign exchange impact decreased operating expenses by $800,000 during Q2 as we have a partial natural foreign currency hedge with approximately 25% of our operating expenses denominated in Korean won. Our adjusted EBITDA was a loss of $3 million during Q2 of 2022 compared to a slight EBITDA loss in Q2 2021, and our non-GAAP EPS was a loss of $0.02 compared to a loss of $0.03 in Q2 2021. The primary factors influencing our Q2 profitability metrics were the unforeseen foreign currency changes and supply chain headwinds. We ended the quarter with $23 million in cash, and we have availability on our $30 million revolving credit facility. As a reminder, to pay for the ASSIA acquisition, we entered into a five-year $25 million term loan. Continued limited component availability has necessitated the increase in raw material inventory levels to align with our strong backlog and customer forecasts. We prioritize delivering products to our customers as timely as possible, which has resulted in a buildup of inventory over the past several quarters and has impacted our working capital. Inventory increased $19 million year- over- year, or 37%. Annualized inventory turns were 3.8 times during the second quarter, compared with 4.7 times a year ago. Days sales outstanding were 105 days in Q2 compared with 94 days in the year ago period as our Q2 2022 shipments were back and loaded due to China ports reopening in May. As a result, we experienced a $22 million sequential increase in accounts receivable to $105 million. Turning to our guidance, our updated 2022 guidance now includes seven months of financial contribution from the ASSIA asset acquisition. Additionally, we expect the U.S. dollar to remain strong relative to the euro, won, and yen in the second half of 2022. As a result, our full year revenue guidance reflects our anticipated FX impacts and our updated expectation for continued supply chain headwinds as we prioritize delivery to our customers. Our updated 2022 guidance is as follows. Revenue of $380 million-$410 million. Gross margin in a range from 32.5%-34.5%. Operating expenses in a range from $118 million-$122 million. Our full year EBITDA guidance is between $7 million and $17 million. Looking to our third quarter, we are guiding revenue to a range of $100 million-$110 million, gross margins of 33%-35%, and operating expenses of $31 million-$34 million. As a result, we expect EBITDA between $2 million and $7 million. We anticipate our cash balance to be relatively flat sequentially at the end of the third quarter and look to improve our cash balance by Q1 of 2023 as we convert working capital to cash. In order to provide greater transparency into the evolution of our business, we intend to break revenue out by two new product technology categories when we report Q3 results in approximately 90 days. The first new category will be software and services, which will be an ever-increasing portion of our revenue mix as software grows in importance to our business. In the second quarter of 2022, this category represented approximately 9% of total revenue. The second category will be the access networking, which will consist of our historic broadband connectivity and mobile transport product areas. We feel this breakout will provide a more useful reflection of our business and directional strategy going forward. That completes our prepared remarks. I'd now like to hand the call over to the operator to facilitate the Q&A session. Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from Paul Essi with William K. Woodruff. Your line is now open. Thank you for taking my call. It looks like you guys hit your numbers if you exclude, you know, China, the expediting charges and the currency. Can you maybe, Charlie, talk a little bit about how this is gonna affect, you know, the third and fourth quarters and also maybe your assessment, you know, overall in the supply chain, you know, going forward? Then I have another question. Yeah, I mean, it's hard for us to be disappointed when the team, you know, certainly executed to the top end of the revenue guidance that we provided. As you pointed out, you know, $96 million would've been our second-best revenue quarter, ever. So it's frustrating with the foreign exchange that hit us. I mean, if you look at, you know, just what happened within Q2, the yen was up 12%, the yuan was up 6%, the euro was up 6%. You know, with as much exposure that we have to Asia and Europe, we certainly, you know, we're dealing with some things that obviously, you know, as we were going into Q2, didn't see and certainly didn't see. You know, as it relates to the second half of the year, you know, we've been working very closely with our global banking partner, JP Morgan, and looking at what the anticipated foreign exchange fluctuations are likely to be in the second half. You know, the outlook that Misty had provided, and she can comment on it, incorporates what, you know, JP Morgan and other key banking partners have provided us with. You know, the outlook that we have assumes that foreign exchange doesn't change much in the second half of the year. What we are hearing from our banking partners is as we exit this year and enter 2023, that we believe that foreign exchange will return to normal levels, which will certainly be beneficial for the company. Misty, I don't know if you wanna comment on any of that. Yeah, as it relates to foreign currency, we certainly had to project a bit of what we expect given some of the significant variances that occurred in the second quarter of 2022. We took some of those forecast views and incorporated that into the second half to have a better view of how we will perform in the second half. I think the other thing that's important to appreciate from a margin perspective is, you know, if you look at the, you know, $321 million of total backlog and deferred, more than 50% of that is North America and Europe. You know, as we unlock more and more of our backlog into, you know, North America and Europe, you know, the margin profiles, we expect to be much better. Okay. Thank you. My second question may be a little bit shifting gears. I noticed that you have contract liabilities now on your balance sheet, and about three-quarters of them are current. I assume these are from the ASSIA acquisition. This would imply that, you know, a good portion, maybe three-quarters a year contracts are gonna be renewed each year, which, you know, provides a nice opportunity to increase revenues. Two questions. First, can you give us a little color on maybe what your game plan is the next 12 months or so? Secondly, how long do you expect it to take to fully integrate this, the ASSIA into your cloud offering, and then where you have a, you know, a truly good value where you can get a little bit more aggressive on the pricing? Will this be done in phases or all at once? Yeah, I mean, you know, the Expresse and CloudCheck software portfolios are already fully integrated into DZS Cloud. There's really no gap in the integration 'cause it really filled a void. If you think about where we were prior to the ASSIA transaction, you know, RIFT was really all about network orchestration for mobile, which over the last year, you know, we've tilted that to be able to provide a fixed access orchestration, which we think is a game-changing software platform, somewhat something that nobody is doing in the space. What ASSIA gave us was really, you know, the service assurance and network-aware software attributes from the OLT to the ONT to where fiber or DSL is terminated at the house. The Wi-Fi experience management software is really all about software management inside the home in the Wi-Fi part of the network. All of that is net new, and that's all been fully integrated. The employees have been fully integrated, even the systems have been fully integrated into the way DZS is managing that business. You said something that's pretty important, and it was obviously something that was really important to us as we were assessing the transaction through due diligence, is just the timing of when some of these contracts renew. We certainly have an opportunity as some of these contracts renew in 2023 to provide more value, which we expect that will translate into an overall better ARPU for customers and better margin and revenue profile for us. Well, thank you. I'll pass it on. Thank you. Our next question comes from Dave Kang with B. Riley. Your line is now open. Good morning. Just wondering, how big is India right now, and how big can it get next year? I'm hearing, some major upgrades, coming over the next couple of years. Well, as I think, you know, you all are aware, we did announce, I think two quarters ago that we were awarded at least phase one of a pretty significant Tier 1 in India. You know, we see that opportunity expanding for us. You know, there's obviously different parts of the network, you know, that we participate in, you know, from, you know, the optical transport side to the OLT, to the ONT, to the in-home Wi-Fi. Phase one of that was with the ONTs. The second phase of that is OLTs, which comes with a much higher profile and margin profile. We certainly are being really thoughtful about, you know, the opportunity in India. I mean, it clearly is a country that has opened up for companies like DZS to be able to participate in their aggressive CapEx replacement of the China, the former China vendors in that particular region. I think it's important also for investors and shareholders to appreciate we are being thoughtful about it. We're not rushing into India to go chase low margin deals. You know, there are different bookends that come with different margin profiles. Obviously, the ONTs are much lower margin profile. To be able to complement that with the OLTs and the software attributed to the OLTs is what you know is in phase two. Phase one for us was the ONTs, phase two is the OLTs and Middle Mile transport, and that's something that we expect that we will book in the second half of this year and begin shipping in early 2023. Got it. My next question is, your APAC was fairly strong, but your mobile transport continues to be weak. I thought a significant portion of that was mobile. Can you kind of go over that? What will get the mobile transport going in second half and beyond? Well, in my comments, I did share with you that we did win a large mobile operator in Europe in Q2. We will begin shipping on that project, which is a high margin project in Q3 and Q4. We did see you know, SoftBank drove a lot of our revenue over the last, let's call it five, six, seven years. In the first half of this year, they're going through a reevaluation of their next generation PON-based mobile transport platform that we're working on with them. The pause that I think you're seeing in some of the mobile transport revenue has to do with where SoftBank is in sort of their phase four of their 5G mobile transport architecture with DZS. Something that we anticipate we will contract on in the second half of this year and begin to ship the next phase of that, which is a multiyear phase starting in 2023. Got it. My last question is regarding U.S. various government funds such as RDOF. Have they been released yet? Yes, sure. I mean, we've got a lot of customers that are participating. You know, I mean, I think what we've been articulating, and I think it's fair to assess, you know, with our three peers in North America, I think for the most part, outside of what we would refer to as sort of new entrants into the traditional regional ILEC, you know, most of those funds are flowing, you know, to service providers and through to the equipment supplier partners that they have historically been using. Where we've been seeing a lot of excitement, frankly, is a lot of the new fiber overbuilders and some of the utility co-ops who are entering into the market. It gives DZS, frankly, an opportunity to participate where we weren't historically an incumbent. Got it. Actually, one more question, because I get this question a lot, is that how solid is your backlog? Maybe can you go over like your contract policies, how much can be cancelable after so many months? Well, ironically, we were just talking about this before the call, and I think it speaks volumes about, you know, the technology and the relationship and the dependency on our technology. I mean, in the two years I've been here, we haven't had a de-book. You know, when we look at, you know, the historical backlog over the last two years and including the $293 million which would have been $298 million, if not for some of the foreign exchange impacts. You know, we haven't seen any debooks. You know, look, I mean, you know, customers can do whatever they want, I mean, independent of contracts. I mean, you know, I don't know, in 30 years I've been here, Dave, that, you know, I've ever pulled out a contract and fought with a customer on it. I mean, we're trying to do the right thing for customers. I think customers have been very supportive, and they've been very patient, you know, with the extended and elongated lead times. We've been very fortunate, that we've not seen any customers derail from the committed orders that they have. I think to add to that, Dave, I think Paul mentioned it earlier, but on the contract liabilities, which we have, most commonly referred to as deferred revenue, those are projects that we've billed, but we haven't recognized the revenue. For example, a maintenance contract, right? That can vary in terms from one month to three years. Deferred revenues are already billed and solid backlog, if you will. Thank you. Thank you. Our next question comes from Tore Svanberg with Stifel. Your line is open. Yes, thank you, and congratulations on the continuous transformation here and certainly the record backlog. It sounds like you have a handle on the Forex now. I was just wondering on the backlog conversion, Charlie, you know, how is that trending, especially in light of the, you know, component shortages and things like that? Is that really starting to ease and you're starting to see that backlog conversion now moving in the right direction? I mean, one of the things. I mean, we certainly are trying to align with this sort of first in, first out, you know, mindset. I mean, we are trying to do everything we possibly can to, you know, meet customer deployment schedules. You know, we're trying to adhere to the best we can to this sort of first in, first out from a backlog perspective. You know, we're in August of 2022, and sometimes we forget that, you know, there were significant price increases that all of the equipment suppliers in this industry incurred starting in the second half of last year. You know, we're trying to aggressively flush out a lot of the backlog that was impacted by the price increases, but not yet, you know, favorably impacted by price increases that we pass along to customers. Some of that you're seeing in what we delivered in Q2. I think you'll see some of it in Q3. As we've been sort of articulating this whole year, we had sort of expected that by the end of Q3, most all of the backlog that was attributed to the higher price and not attributed to price increases passed along to our customers will have flushed out. You know, we look at some low margin projects that we have on the books that'll flush out, you know, in Q3, and a little bit left in Q4. Then most everything is frankly, you know, based on new pricing and the current cost structure that we have. I mean, with the only real variable being, you know, the foreign exchange fluctuations, which let's hope that stabilizes. You know, we're seeing less and less. I mean, the other thing that's important to appreciate is, you know, the way expedite fees work, I mean, at least with DZS, and I speak to a lot of my peers. You know, the way the expedite charges were implemented is if you agreed to an expedite, you know, six months ago for something that you were pulling in to this quarter, you were paying for it, and it was on the books six months ago as a reserve. You were paying for it six months ago. It wasn't like, you know, you get an expedite, you agree to an expedite today, it's gonna ship in six months, and that cash and that expense follows it. You're paying for it now, and the impact from a margin perspective happens when it ships. There's some of that that's lingering, you know. We saw some of it in Q1, we saw some of it in Q2, we'll see some of it in Q3. I will tell you that we are seeing a much more cooperative ecosystem of subcomponent and semiconductors, and you're covering that space, so you know it probably better than anyone on the call, that we are seeing a bit of a shift, as consumers and a lot of consumer electronics technologies sort of pumps the brakes and a lot of the, those wafers and chips are finding their way to ease into our space. I'm hoping, you know, that the second half of this year we're seeing a lot less need for expedite fees. Also remember, we've got an aggressive plan, you know, to exit China. We're still incurring some tariffs, you know, with some of the existing backlog into the U.S., which we expect a lot of that will go away in 2023 just based on some of the consolidation decisions that we're making on the CM side. There is a lot of multifaceted margin enhancement elements that will attribute to a much different business profile in 2023 as we flush out some of the old backlog, as we move out of China and not incur some of the tariffs. We certainly, hopefully are seeing a more stabilized FX and less expedite charges that we're incurring in 2022. That's great perspective. Thank you. My next question is, by the way, I really appreciate you're gonna start sort of reporting revenues by software versus product. You know, related to that, you know, I assume that the sort of mix trajectory of software and the move towards 40% gross margin, that all of that is still on track, is just basically just being delayed by a couple of quarters because of the forex issues. That's exactly right. Tore, when you look at our normalized, right, if you added back the 750 basis points, right? You get to this quarter around 35%. On a year-to-date basis, we're around 36%. If you, again, add, you know, our ASSIA contribution to that of 250 basis points-350 basis points, you're getting really close to the 40%. Very good. Just one last question on inventory. Should we assume that the inventory will be back to sort of the normalized range by Q1 of 2023? Is that the target? Well, as we define a new normal and we're growing our business, we will get back to normalized ranges for a stronger, bigger company. Okay, perfect. Great answer. Thank you. Thank you. Our next question comes from Christian Schwab with Craig-Hallum. Your line is now open. Hey, guys. Just, you know, unfortunately, just unprecedented currency swings on such a short time frame that everyone's facing. Charlie, your aggregate top line growth rate, you know, for the company, you know, on a go-forward basis, you know, it, that hasn't changed, has it? It hasn't. In fact, you know, the guidance that we provided for the year really was just haircut by the foreign exchange impacts that we anticipate, you know, for taking into consideration Q2 and the rest of the year. You know, if you back out the foreign exchange fluctuations, you know, we didn't change our guidance for the year. All we did was incorporate what we believe to be the impacts of foreign exchange in the second half. Obviously, if that changes and it becomes favorable, then, you know, then our ability to deliver on the higher end of the range is still there. I mean, you know, we, you know, we've got a range of $110 million in Q3. You know, we continue to struggle because the majority of our backlog is still with customer request ship dates of as soon as possible. I think if we can continue to unlock, you know, some of the backlog and access to subcomponents, you know, we certainly have an opportunity to exceed that. We need to do that first and foremost to just satisfy customer requirements and customer deployment schedules. That's been our number one priority, and I hope you guys appreciate that, you know, where we're being thoughtful and spending money and expedites, which is a frustrating, you know, situation for all of us, we're doing because we wanna make sure that we're doing everything we can to keep customers happy. Great. Just on the commentary on inventory and increased raw materials and working capital, can you tell us why you would be putting on raw materials on your own balance sheet instead of your contract manufacturing partners securing that for you? One of the things that is, you know, nobody's asked me this question quite the way you did. I'm glad you asked it. You know, remember that when I got here two years ago, we didn't have one, but we had two manufacturing facilities. We had one in Hanover, Germany, and we still have one in Tampa, Florida. You know, we're building. You know, today, we're vertically integrated with a portion of our business, you know, where we're manufacturing in Tampa. In Korea, we still buy and manage a lot of the semiconductors. You know, philosophy that the company had before I got here was to do everything we could to manage the cost and manage the accessibility of those chips, and then provide those chips to the downstream, you know, CMs to build the product. Now, I will tell you that we have a very aggressive plan as we exit this year and into 2023 to consolidate our CMs, one, to be more meaningful with them, obviously to lower our cost and to free up a ton of cash. You know, there's a great opportunity and significant upside for us, we believe in 2023 as we execute our CM consolidation strategy, that I'm not prepared to give you the details on today for obvious reasons. I will share more details as we get closer to our final execution on that, which we believe has upside that's not baked into, you know, the outlook that we're providing today. Yeah. I would think that would be, you know, very wise. You know, leading contract manufacturers have hundreds, if not thousands of people, working on supply chain. We're not a manufacturing company. We're a technology company. As we shift more and more of our emphasis towards software, obviously software needs to reside on infrastructure, and so we're gonna be in the access infrastructure business, you know, for a very long time. As we're able to participate more in the intelligent side of the way these networks are being built, managed, and orchestrated, you know, there's a great opportunity there. We don't wanna be in the manufacturing business long term. To your point, you know, there's large multi-billion dollar companies that should be doing that, and that means that they'll be buying, inventorying, and managing, you know, the cash differently. That, to me, frees up a lot of working capital for us in 2023, and it certainly, we believe, will help our margins as well. Perfect. Then just one quick follow-up question on supply chain and expedited fees. The majority of all the networking chip companies have sent letters out. I don't know if you've received one, you know, talking about price increases that are gonna begin to happen this fall and will certainly start on January 1st. You know, is that it kind of incorporated, I assume into your outlook, and do you believe there'll be an opportunity to pass those costs on again with price increases at some point to take effect in 2023? Yeah. The answer is we, like everyone else, have been, you know, sort of communicated that there is an anticipated, you know, price increase coming. I would tell you we haven't accepted that. We certainly are in dialogue, you know, with the key, you know, downstream semiconductor companies who are speaking to those price increases. Yes, I mean, we have baked in, you know, our margin profile for the second half. There's nothing that has taken a hold in the second half. Right now, they're communicating, they're telegraphing that the prices would be effective January 1, assuming that, you know, they take hold. The answer is yes. I mean, we're certainly taking, you know, the price increases under consideration. You know, I think we've done a really good job of partnering with our end user customers on the necessary price increases. It becomes a very delicate process and, you know, it's something that, you know, I'm not prepared to talk about in granular detail, but I will acknowledge that we did receive communication that there's potential price increases that are at least desired to be increased in January of 2023. Great. Thanks guys. No other questions. Thank you. Our next question comes from Tim Savageaux with Northland Capital Markets. Your line is now open. Hi. Good morning. Couple questions on the demand side. While you're, you know, seeing these FX headwinds even in an on an organic basis, looks like you're looking for a pretty good ramp in the second half, from a revenue standpoint. I wonder if you could, and I think you mentioned the backlog, you know, being significantly or at least reasonably biased towards Europe and North America. As you look at that ramp in the second half, are there any kind of particular drivers that stand out, I assume you have good visibility based on backlog, either in North America or Europe? You know, as you contemplate that, I guess, you know, there's been a lot going on with one of your Tier 2 customers, Consolidated Communications. Looks like they're being pretty aggressive in terms of fiber and are gonna get more so. Can something like that move the needle for you guys as you think about your business in North America? Yeah. We don't talk about it enough, but your points are very fair, Tim. You know, 75% of our business is with 20 of the top 30 telecommunications service providers around the world. You know, we continue to drive a lot of new business and certainly much of our backlog is tied to, you know, a lot of large, you know, what we would refer to as Tier 1 and Tier 2s. You know, Consolidated, at 2 million subscribers, excuse me, is sort of teetering on that, you know, Tier 3, Tier 2, but they're meaningful. I mean, they're a very significant customer for us. I think they're one of the best customers that we have just from a technology partnership perspective. They've been very loyal to our entire portfolio and, you know, they also represent today a significant amount of our backlog that we intend to unlock in the second half of the year. I think your comments are spot on. Okay. Maybe shifting back to that, Tier 1 area of focus. I think you mentioned a win with a large European mobile operator, but I wonder if you could step back and review, and I think you made reference to this in your letter, the pipeline of opportunities that you're seeing develop, whether they're fixed or mobile, Huawei replacement and, you know, whether we can, you know, count that win that you mentioned as one of those and what the go-forward pipeline looks like, for you guys. Yeah. I would say that, I mean, we've got a very strong, loyal run rate business in Korea and Japan. Pan- Asia, which, you know, has been, you know, a very exciting new market for us, we've been investing in that particular region. It's a region that I think you know, Dave mentioned India, but, you know, if you think about even Vietnam and Taiwan and Singapore and Australia, you know, there's a lot of countries there that are aggressively capping and moving away from some of the Chinese suppliers and, you know, we've got a large base there. We've got, you know, close to 100 engineers in Vietnam and Hanoi. It's certainly giving us an opportunity to participate in expanding our sort of two pillars in Korea and Japan in that Pan-Asia market. Where I would tell you the most exciting future opportunity for us is the pipeline that we have in North America and Europe. It's by far the most trial activity. I mean, we've moved from, you know, sort of that proposal phase to, you know, the proof of value to physical trials. As we close out on the feature gaps and in closing out on those trials, you know, you're moving into that contract and then order and eventually deployment phase. I'm cautiously optimistic that, you know, some of that activity will close in the second half of this year and convert into revenue opportunity for us in 2023. It certainly has been a lot of our focus. You know, if you look at the ASSIA customers, they're all Tier 1s that came over. I mean, virtually all of the 30, you know, marquee operators that we talk about for the most part are Tier 1 operators, and they've given us a great opportunity to really involve a cross-sell opportunity. I mean, if you think about the Expresse product that sits between the OLT and the ONT and the CloudCheck that sits inside the home, I mean, it's very complementary to our OLTs, to our ONTs, and our Wi-Fi products. We're in deep discussions already with a lot of those customers as to how we might be able to help them better manage their network and be able to participate in some of those broadband network projects that maybe historically we hadn't been involved in. Great. Last question for me, going back to the kind of fixed versus mobile broadband, and I certainly understand the drivers for the pause on the mobile side. What I wanted more color on was, you know, obviously you're strong in Asia, so what's kind of filling the gap there? I'm guessing that might be more, you know, fixed fiber to the home business in Korea and elsewhere, but any more color on that would be appreciated. Thanks. Yeah, it's all fixed broadband that's filling the gap right now. I mean, you know, obviously Japan and SoftBank has historically been a 10% customer. Rakuten Mobile, their core network in Japan has historically been a 10% customer. You know, with Rakuten Symphony, you know, being very successful out in the market, you know, deploying their IP and software into a lot of these, you know, third-party service provider networks. You know, we are today their exclusive fronthaul gateway reference platform. You know, as they have success, you know, we're seeing success. You know, one of the new mobile operators in Europe, which I had mentioned, which is pretty significant, will be utilizing our fronthaul gateway for their next generation 5G rollout with Rakuten Symphony software. We're seeing a pipeline mature there. We're excited about the evolution of the 5G and eventually 6G network with SoftBank, and I think we're in a very good position to participate in that as that rolls out in 2023. You know, with our new optical transport platform, Saber, that we rolled out, we think that's a huge opportunity for the company. We're filling a pretty huge void. You know, at the Investor Day, we sort of did a soft launch and shared some of the details. At the Nashville Fiber Connect Show, we actually demonstrated it. We had a lot of interest in that product. You know, with the Middle Mile optical transport funds that are now being deployed, you know, we see that as something that could provide some upside with decent margins into 2023 as well. You know, we're still very optimistic and are very aggressive on what we're doing on the mobile side. It's just for us, we need Open RAN to continue to take hold, and we are seeing Open RAN gain a lot of momentum around the world. It is new and for our analyst partners and for shareholders who are looking at DZS, I think everyone has to just appreciate the timeline around Open RAN. As that mobile network, you know, becomes much more open, it allows for us to participate differently than, you know, historically, where you've got closed, you know, mobile networks. But we are seeing a lot of activity. There's a lot of trials going on right now. It's just, you know, it's just gonna take some time, you know, to unlock a lot of that. Okay. Thanks very much. Thanks, Tim. Thank you. Our next question comes from Ryan Koontz with Needham & Company. Your line is open. Great. Thanks for the question. Most of mine have been answered, but I wanted to see if I could ask about the gross margin outlook and the supply chain impacts there in a different way. You know, what's changed in the last 60 days since you guided there? It sounds like several hundred basis points hit kind of for the rest of the year there. Is most of this freight that was already in inventory or is it, you know, new cost increases or maybe you're seeing more of a revenue mix shift toward APAC as you saw in the quarter? Thanks. Ryan, great question. On the supply chain side, we've certainly seen some of the new cost increases come through, right? As we've moved through the year, we're seeing new cost increases more recently. You got the FX piece that was. Right. The most significant piece, Ryan. I mean, you know, as I sort of was saying earlier, I mean, just in Q2 alone, you know, you had the yen, you know, it was. Weaken. It was weakened 12%. You had the yuan that was weakened 6%, the euro weakened. That was, you know, more than 50% of our revenue in Q2. So the regional mix associated with those currencies was a surprise. Obviously, we didn't see that, you know, coming into Q2. Okay. Right. The strength in APAC, on fixed in APAC that we saw in 2Q, that you don't expect that to necessarily continue into the second half and be much of a headwind to margins? Well, we factored in what we have been educated by JP Morgan and other banks based on what they anticipate the foreign currency to fluctuate within, you know, Q3 and Q4. We've done the best we can to hedge and to incorporate, you know, their outlook for what we have in backlog and what we expect, you know, to ship in Q3 and Q4 to the best that we can. Okay. Thanks, Charlie. Thanks, Misty. Thanks, Ryan. Thank you. I'm currently showing no further questions at this time. This does conclude our conference call. Thank you for participating. You may now disconnect.