Good day and thank you for standing by. Welcome to the DZS Fourth Quarter 2021 Earnings Conference Call. At this time all participants are in listen-only mode. After the speaker's presentation there'll be a question and answer session. [Operator Instructions]. 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, Head of Investor Relations. Please go ahead..

Thank you, Katherine, and welcome to the DZS fourth quarter 2021 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 fourth quarter of 2021 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 filed 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.

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, 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.

Within the fourth quarter shareholder report, we announced that our -- we announced that we will host our Horizons22 Investor and Analyst Day on May 12, at our headquarters in Plano, Texas and will simultaneously be webcast. And now I have the pleasure to turn the call over to Charlie..

Thank you Ted and welcome investors, analysts and guests. As Ted shared yesterday after market closed, we posted our quarterly shareholder report which provides a comprehensive update on our business, financial results, market trends and our 2022 outlook.

The communications industry is in the early phase of a dual infrastructure upgrade cycle, where legacy copper and sub gigabit class infrastructures for the connected home and business are being rapidly replaced by 10 gigabit technologies for symmetrical optical broadband services.

In addition, the proliferation of 5G networks is simultaneously creating demand for fiber connected densification and packet based networks. This reshaping of a global communications landscape is fueling a wave of experience driven innovation for high speed fixed and mobile broadband services for homes, buildings and cities.

DZS is becoming a key enabler of this transformation providing next generation broadband connectivity and cloud software platforms and power communication service providers to upgrade their infrastructure and launch new services.

Our customers range from the world's most sophisticated, advanced fiber and 5G service providers including 15 of the top 30 global telecom service providers to agile fiber over builders, internet utility and municipalities providers. 2021 was a transformational year for DZS, as we achieve record setting orders revenue and backlog.

We began 2021 with a bold vision, a new go-to market playbook and $71 million dollars in backlog. In January of 2021, we executed a $64 million follow-on equity raise strengthening our balance sheet and eliminating our debt.

Throughout 2021, we upgraded our leadership and sales team and accelerate innovation across our five centers of excellence aligned with our Broadband Connectivity, Connected Home and Business, Mobile and Optical Edge and Cloud Software Portfolio, which resulted in the introduction of 20 new -- 29 new products.

Strong global demand for fiber connectivity 5G and Optical Edge Solutions continued during the fourth quarter.

Despite continued supply chain freight and logistics constraints, our fourth quarter performance delivered record setting orders of $134 million an increase of 47% year-over-year, record revenue of $98 million, an increase of 11% year-over-year, a book-to-bill ratio of 1.4 and 47 new customers.

For full year 2021, we delivered $504 million in orders, representing a 62% year-over-year increase. Record revenue of $350 million, an increase of 16% year-over-year, and representing $279 million of new orders that were converted to revenue during the year.

We closed 2021 with record year-end backlog of $225 million at 217% increase year-over-year, and a record 105 new customers including 86 new customers spanning North America, Europe, Middle East and Africa.

As we enable deployment of hyper-fast broadband across an 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.

We continue to expand and differentiate our fixed and mobile broadband solutions with incremental investments with our cloud software portfolio, specifically, our network orchestration, automation, service assurance and consumer experience solutions.

In addition to our networking consumer software portfolio released in 2021, we will unveil sdNOS, our unified software defined network operating system in 2022.

Our converged edge and cloud software solutions are designed to improve long-term margins and increase our reoccurring revenue while differentiating our fixed and mobile access networking solutions. Shifting my opening remarks to people. I am pleased to announce the appointment of several industry leaders in new roles at DZS.

Each brings a deep history of experience in broadband mobile optics and cloud software. Jennifer Yohe joined DZS, as our Chief Operations Officer, leading supply chain manufacturing logistics and compliance. Jennifer brings three decades of industry experience from Ericsson, MediaKind, Comcast and Time Warner Cable.

Norm Foust joins DZS, as our Vice President of Strategic Operations. Adding to our talented operations team focused on continued improvement in sourcing, procurement and manufacturing.

Norm has been in the access networking industry his entire career having lead operations at AFC, Calix and Cyan, which is now part of Calix, sorry -- which is now part of Ciena.

Geoff Burke, who has served as our Chief Marketing Officer for the past two years, transitions to a newly created Chief Strategy Officer role, where he will be responsible for business development, our growing fixed and mobile partner ecosystem and mergers and acquisitions. Gunter Reiss has joined DZS as our Chief Marketing Officer.

Most recently Gunter led global marketing at A10 Networks. Prior to A10, Gunter spent two decades with Ericsson. Bringing into DZS experience in the areas of cloud software, artificial intelligence, cybersecurity and mobile networks. Finally, Bernd Hesse joins DZS as Vice President of Business Development.

Most recently Bernd was the Senior Director of standards marketing leadership at Calix, and is currently on the Board of Directors at Broadband Forum. We begin 2022 with a strong foundation resulting from the strategic investments in people product and systems.

While we anticipate sourcing supply chain and logistics challenges to persist throughout the year, we expect to deliver continued growth capitalizing on the innovation and customer momentum we created in 2021.

We are better prepared than ever to execute on our four growth pillars, specifically, the multi gigabit broadband upgrade cycle, which we expect to last seven to 10 years.

The evolution of 4G mobile to 5G and eventually 6G, a relentless expansion into North American Europe and the numerous Chinese vendor, cap and grow opportunities spanning North America, Europe, Middle East, Australia, India and the rest of Pan Asia.

In closing, our industry has never experienced such a simultaneous push from service providers and pull from consumers as we're experiencing today. Adding to the numerous business and technology drivers, broadband is becoming an essential service with an estimated $100 billion of government broadband stimulus.

With that, I'd now like to turn the call over to Misty to walk through our Q4 and full year 2021 financial highlights as well as our 2022 outlook.

Misty?.

Thank you, Charlie, and good morning, everyone. We delivered a very strong Q4 to wrap that the transformational 2021. Total orders for the fourth quarter reached a record $134 million and revenue in the fourth quarter reached a record of $98 million, an increase of 11% sequentially and year-over-year. Also at the high end of guidance.

In Q4 we have successfully capitalized on several of our growth pillars that Charlie mentioned. First, demonstrating our success in the multi gigabit broadband upgrade cycle. Broadband connectivity revenue increased 12% sequentially, 18% year-over-year to $72 million.

For the year broadband connectivity revenue increased 16% year-over-year to $258 million. Second, reflecting on 5G and Open RAN, our Mobile Transport revenue increased 9% sequentially to $26 million, as we've benefited from strong momentum by two marquee customers in Japan.

On a year-over-year basis, Mobile Transport revenue declined to 6%, after strong spending in 2020. We are optimistic about our future in 5G and Open RAN as a result of our collaboration with Rakuten’s Symphony and anticipate additional opportunities from this reference design later this year.

Lastly, our overall revenue growth has also reflected our success capturing share in North America, a higher margin region. In the fourth quarter revenue from the Americas, which is dominated by North America increased slightly sequentially to $28 million or 29% of total revenue.

Comparing year-over-year fourth quarter revenue from the Americas increased 52%, demonstrating we have been successfully diversifying our geographic mix throughout 2021. Rounding out our geographic mix, fourth quarter revenue from Asia increased 38% sequentially, and 4% year-over-year to $56 million.

Benefiting from both our broadband connectivity and Mobile Transport segment. Revenue from EMEA declined 29% sequentially and 13% year-over-year to $14 million due to the deployment timing of several large projects in the region.

Our Q4 adjusted gross margin of 33.6% was within our guidance range, and increased 52 basis points year-over-year primarily due to our strategic investments, and geographic diversification decisions directed towards the higher margins North America region.

Without the current supply chain challenges and foreign currency exchange during the fourth quarter, we estimate our normalized gross margin performance would have been approximately 39%.

In the fourth quarter adjusted operating expenses were $30 million, which included sales commissions associated with record orders and revenue and a $1 million one-time software license fee. We’ve reported and adjusted EBITDA of $2 million compared $0.4 million in Q4 2020 and our non-GAAP EPS of $0.05 compared to negative $0.06 in Q4 2020.

Regarding our performance for the full year 2021, we delivered a record revenue of $350 million which increased 16% year-over-year and exceeded our original 2021 guidance. Adjusted gross margin for the year improved by 175 basis points to 34.6%.

Despite increased supply chain freight and logistics costs, reflecting initial operational efficiency progress and favorable geographic mix. Adjusted EBITDA more than doubled to $11 million compared with $5 million in 2020. And our non-GAAP earnings per share was $0.27, compared to a loss of $0.01 in 2020.

We have a healthy balance sheet with $53 million in cash and no debt. We've improved our financial flexibility through a new strategic global banking relationship with JP Morgan, which includes a $30 million credit facility.

Additionally, our Board of Directors has approved a new S-3 registration statement to replace our existing shelf registration statement that expires in April. Limited component availability over the past several quarters has necessitated increased raw material inventory levels to align with our strong backlog and customer forecasts.

Our balance sheet has helped support these supply chain constraints. Annualized inventory turns were 4.5 times during the fourth quarter of 2021 compared with 5.6 times year ago. Days sales outstanding continued to improve to 81 days in Q4 2021 versus 105 days a year ago.

Looking ahead, we have strong visibility to -- of our opportunities including record backlog entering the year. We anticipate continued supply chain constraints to persist throughout 2022.

Combining typical industry seasonality for the first quarter with supply chain headwinds, we are guiding our first quarter revenue to $75 to $90 million We are guiding Q1 gross margins to 33% to 34% and expect the operating expenses to decline by $1 million to $2 million sequentially, to $28 million to $29 million.

As a result, we expect adjusted EBITDA between a loss of $4 million and positive $2 million. Elevated backlog and strong visibility into customer demand are fueling our 2022 revenue guidance of $380 million to $410 million. And we anticipate greater customer diversity compared with 2021. We are guiding full year gross margins to 34% to 36%.

Operating expenses are expected to be in a range from $112 million to $117 million, resulting in our full year adjusted EBITDA between $17 million and $31 million, as we benefit from strategic actions implemented over the past year. That completes our prepared remarks. I'd now like to hand the call over to the operator to facilitate the Q&A session..

[Operator Instructions] And our first question comes from Ryan Koontz, with Needham & Company. Your line is open..

Thanks for the question. Really nice growth in the Americas there, I assume that's dominantly U.S. can give us any color on kind of where that's coming from across the Tier 1, 2s and 3s or Huawei displacement opportunities. Appreciate that..

Thanks, Ryan. Yes, as Misty said, most of the growth that we saw in the Americas came specifically from North America. And today, most of our North America revenue is made up of Tier 2 and Tier 3s. It also and I think I tried to highlight it in my opening remarks.

I mean, there's a pretty significant emergence of what we see as the sort of next generation alternative providers in the category of utility municipalities, fiber over builders, the traditional wireless internet service providers are emerging into fiber, the home service providers, so we're seeing a great opportunity to participate in those non-traditional smaller ILEC service providers..

Right, I assume that it includes folks like the Electric Co Ops and power providers, guys like that?.

That's exactly right..

Great.

And then on the gross margins, can you quantify any impact there from supply chain, either logistics or expedite these those sorts of things?.

Yes, if you remember in Q3, we talked about the fact that if you eliminated the unforeseen expedite fees and freight and logistics and FX, specifically from Japan, our normalized gross margin in Q3 would have been 39%. And ironically, that same margin model would have existed in Q4 as well.

So if you take out the expedite fees, and the elevated freight logistics, and the FX specifically in Japan for the end, on a normalized basis, gross margin in Q4 would have been 39%..

Got it. Great, thanks for questions. .

Our next question comes from Christian Schwab with Craig Hallum, your line is open..

Great, thanks for taking my question. Is first top line growth at the midpoint of your guidance is up nicely above 10% given the backlog and the growth drivers that you highlight, not only in the letter, but quickly in the beginning of the phone call.

Did you think that we're maybe now in a position where I guess, thinking over the next few years, do we feel more comfortable with returning to a double digit top line growth?.

Well, I think if you look at our growth projections for 2022, correct me if I'm wrong, Misty. I think our range is somewhere between 8% and 16%. So we're certainly on the high end of our projections for the year well above 10%. And look, I mean, we close the year with $225 million a backlog.

I think the broader range than normal in Q4 as well as in Q1 has a lot to do with just getting comfortable that we can get as much of our backlog out the door. I mean today of the $225 million of backlog, we estimate that 75% to 80% of it, we can ship ASAP from a customer acceptance perspective.

So there's close to $165 million $170 million that we could ship. From a customer perspective today, if we had access to all the components that represent the solutions that we're selling..

When supply chain situation hopefully eases at some point, some people hoping maybe as soon as the second half of this year, when you're having discussions with your clients kind of given the recent shocks to the system.

And over the last few years, do you think that your business will be able to maintain, strong visibility in backlog? Or do you think that customers will quickly revert to previous buying patterns?.

Well, I don't think we're going to get back to eight to 12 lead times, anytime soon. In fact, we have been pretty cautionary about everyone's expectations with regards to supply chain, I mean I've got to give my team a lot of credit. I think we did a fantastic job navigating what I think was is almost as bad as it's going to get in 2021.

And the fact that, we continue to grow throughout the year with record orders and revenue, speaks volumes of what we're doing on the supply chain side. I think there's something that's very significantly different as we enter 2022.

And we entered 2021, and even mid-year 2021, and that is, the allocation of wafers to our semiconductor partners, is much more clear today.

And their alignment with their partners, is much clear and much more defined than it was in a pretty dynamic environment, when most of the manufacturing companies didn't know whether or not they were going to have employees in the factories, manufacturing things from one day to the next.

And I think with the vaccines that have now been implemented in virtually all of the countries that we’re building products. We've certainly seen a stabilization of the workforce and that certainly is giving us a lot more assurance that we'll see less disruptions an unexpected manufacturing throughput than what we saw, I think throughout 2021..

Great. Thank you for that. No other questions. Thank you. Great quarter..

Thank you. And our next question comes from Dave King with B. Riley. Your line is open..

Thank you. Good morning. My first question is regarding supply chain situation.

How much revenue was impacted?.

You're talking about in Q4?.

Yes, Q4..

Well, I think I was saying, what I was trying to articulate to Christians question, we had about 75% to 80% of the backlog and the order flow, pre Q4 and into Q4 that without the headwinds, I mean, we had an opportunity to ship 10s of millions of dollars more in Q4 than what we were able to ship..

Got it, and regarding your comments on gross margins. So it would have been 39% for both third and fourth quarter without supply chain costs.

And yet, you're saying you expect to exit 2023 at 40%? Aren't you being overly conservative I mean almost 40% already -- 40% occurs much earlier than fourth quarter next year?.

I mean, look, we spent a lot of time internally thinking through margins and the dynamics that have occurred over the last six months with an entire ecosystem of downstream component suppliers who have raised prices on our entire industry.

And as I think I've articulated over the last two quarters, we've taken the position to react and, and communicate effectively with our customers partner with our customers to find ways to find a middle ground and raise prices where it usually makes sense. And that began in middle of October.

We are still working through a lot of the price increases in this first quarter, especially with some of our large Tier 1 where we've got pretty comprehensive contracts that have to be essentially renegotiated.

So we expect that the majority of our top 25 customers that represent, let's call it 75% of our revenue to be completed by the end of this quarter. And so our factors in really thinking through our normalized long-term margins, for me is not having a blip of 40% margins one quarter and the next quarter 35%.

I think the projections that we gave, going back to our Q2 shareholder letter, was a target margin model that really represented what we felt at the time. And this was before price increases that we could get to a steady state, normalized 40% margin by the end of 2023. And we're still sticking by that.

Obviously, the 39% in Q3 and Q4, certainly gives us and demonstrates to us internally, that we might be able to get there sooner, but we're not prepared to articulate that externally until such time that we can replicate that on a sustainable basis. .

Got it.

And my last question is, regarding RDOF, regarding your stem '22 revenue of the -- how much of RDOF revenue is factored in? And how should we think about that going forward beyond this year?.

Yes, I mean if you look at, and I think I've tried to explain this, to try to level set, everyone that's following the industry, if you look at the RDOF funds, the $20 billion that's been allocated, it's a 10-year path, there's been about $2 billion of that 20, that's been released, so far, of the $2 billion figure somewhere between 8% and 10%, if allocated to Access.

So for us, I mean, yes, a lot of our customers have applied for and have been awarded RDOF funds, there's an aggressive path with a lot of our existing customers that are they're certainly pursuing the $42 billion bipartisan broadband bill, that there's a lot of movement there.

Remember, we also are participating heavily in UK and Germany, and there's $7 billion of government funding in the UK with the free freedom fiber program, there's $13 million, or $14 million in Germany, there's funds all over the world that we're working very closely with our customers.

And so while we don't make it our investment thesis and why we don't and why -- I personally don't amplify the RDOF fund so much. I think that the overall dynamics of what's going on in the industry right now, and the drivers in the industry go way beyond broadband stimulus.

I mean, that the demands that are being placed on service providers, and the opportunity that service providers have today, independent of any funding is significantly greater than it's been in the last decade.

So I think that it's in a good way, a perfect storm in the sense that there's financial funds that are supporting a lot of the technology and consumer driven demands. But if I look at the majority of our customers in the U.S., for example, they're all participating in one way or another, and in the funds that are available to them. .

Got it. Thank you..

Thank you. Our next question comes from Paul Essie [ph] with William K. Woodruff, your line is open..

Thanks for taking my question. This is a kind of a follow-up on Ryan's question, but maybe you can help us understand where all this business is coming from, because you guys are putting a lot of focus on North America and Europe. Yet, you've had pretty entrenched competitors there that have pretty formidable.

And the -- if you look around this, this space has got strong orders everywhere. So is there just maybe this is a big picture question.

Is there just so much business out there that it's overwhelming the space? And are we possibly in a land grab of sorts? And then also how much of this business I think you've may have answered part of my question earlier, is due to the stimulus that is taking place and when these funds actually begin to flow do you see another lag up in this demand? And then I got a quick follow-up..

Well, appreciate that we have about 750 active customers around the world. And I appreciate that in most networks, take aside the small 5,000-line service provider which we don't spend a whole lot of time in that particular market. Most of the service providers have at least two access networking providers that are participating in the network.

So, there is growth that multiple companies are having across similar landscapes. So, the growth that we're seeing across the entire globe, I mean you look at Korea where we do business with all three of the incumbent operators in Korea they're going through a massive upgrade cycle, from sub 1 gig to 10 gig.

We're seeing the same kind of growth projections across the Pan Asia region in Japan.

And we've been really fortunate to be on the leading edge with the upgrade cycle, from 4G to 5G and with Rakuten their proliferation into a new architecture on Open RAN, and now with Rakuten’s Symphony, having spun off into Rakuten’s team managing and running that company, they're in I think 15-16 trials were part of their reference design.

So, I think when you look at DZS, you have to look at us a little differently than maybe Dynatron and Calix [ph] and some of the others in the fact that we've got pretty distinct portfolios that are participating in the management of this new demand cycle, whether it's a wireless operator moving aggressively from 4G to 5G, whether it's a wireline operator that's carrying a lot of wireless spectrum, from a transport perspective, or it's an access service provider that's providing an upgrade path from sub 1 gig in Europe.

I mean you look at Europe, and we put it in the shareholder report to just try to help people appreciate. But most of the European company, European markets are sub 10% fiber.

So the growth opportunity in the investment cycle, that is underway across a lot of the European countries, is going to be pretty significant for a long time, just because of how far behind a lot of those countries are. And look, I mean, I would tell you that we're we wish that a lot of the Huawei replacement projects were moving faster.

But most of the Huawei replacement projects are all Tier 1 and Tier 2s and that whole process just takes time. I would say that we feel that we're involved in most everyone that is looking to cap and grow some of the Chinese suppliers.

So the opportunity, in my opinion goes way beyond the broadband stimulus funds, I think the demand is there and I think the demand is going to be there for a number of years, because it takes years to upgrade these networks.

I mean, it's not a one year or a two-year upgrade cycle, the upgrade cycle takes many years, depending on the size of the service provider..

And do you expected the level of the band to stay at this level, going next three, four years?.

We do, because if you just -- if you if you analyze, what has to happen. Once a service provider decides to upgrade their network they've got for the most part, set aside number of CapEx dollars that they're going to invest in the different parts of their network.

And depending on the size and scale of the company incumbents certainly have a multi-year upgrade cycle. What's exciting to us is also some of the new emerging service providers who are taking share.

I mean, I think Ryan had mention about the Co Ops and the utility operator, I mean, the utility companies, the Co Ops, the state and local governments and municipalities, I mean, they're all becoming their own -- they're all participating in this sort of take share sort of environment.

And when you're entering a new market and a new business, you have to build the network, independent of what your ultimate take share is going to be.

And so the initial build out cycle, for a lot of these new emerging service providers, and the wireless service providers who are moving into the fiber base, service provider marketplace, is going to take a number of years, and what their percentage of the market ends up being is something to be determined.

But in the meantime there's a pretty hefty capital spend, that's going to take place from our perspective, for a number of years. There's also a lot of private equity that's coming in and supporting a lot of our emerging customers.

I mean, we announced pretty big strategic partner with partnership with a company called hosted America, for example, and I think they've allocated a billion dollars to fiber over the next several years. So there's a lot of that that's going in at layers on to the existing incumbency.

And again, not to mention the densification, the magnitude of wireless traffic that is being carried by cable operators and fix wireline operators and we're participating in that business on with our mobile and Optical Transport portfolio..

Thank you. That's very helpful. One last question.

Last spring, you had mentioned about 90% of your orders were coming from preexisting customers, how is that mix changed today? And how do you see that going forward?.

As we mentioned in the in the shareholder report, and in my opening remarks we added 105 new customers this year 86 of which stem from North America and Europe specifically. Oftentimes when you're landing new customers, the initial orders oftentimes, depending on the project can be smaller, because you're in that initial rollout phase.

And so we're hopeful that the new customers that we added in 2021 will participate in a much greater way in 2022.

That said when we build our forecast, our forecast is always built based on as much known projects and formalized rollout schedules whereas even this year, I mean, we went into this year, with an outlook that was lower than what we ended up finishing the year on.

And if I were to tell you, what the Delta was, most of it came from new customers that we secured in '21..

Okay, thank you very much. That's all my questions..

Thank you. And we have a question from Tim Savageaux with Northland Capital, your line is open..

Hey, good morning. And, hey, Charlie, congrats on the results, especially the strong orders, and the double digit growth outlook. And that was kind of going to be the focus of my question. And you've mentioned a couple of metrics here that kind of play into that.

But overall looks like to the extent you went into '21, with what ended up as 20% of your year in backlog that metrics now closer to 60. And I think he talked about kind of a book ship metric in the year that you're implicitly getting down something like 40%.

So in looking at where you're guiding and also kind of touching on the more customer diversification that was also mentioned on the call.

What kind of buckets, can we put the, the dynamics around the guidance in those buckets might be some moderation amongst your top customers in Japan, that you're expecting customers ordering farther out, although probably not more than a year out? Or extended lead times on your part? Maybe bucket number two, and bucket number three some degree of conservatism given the environment we're in trying to get behind that 20% to 60% metric in terms of the backlog? Thanks..

Yes, it's a great question. It's a fair question. And we anticipated that there would be questions along this lines. And I actually purposely went out of my way, to sort of articulate that in 2021 we converted $279 million of new orders to revenue in the year, and in the environment that we were in was pretty amazing.

And one would ask the $225 million of backlog of which most of it is scheduled to ship in 2022? Why aren't you guiding higher than the high end of the range especially since you were successful in converting as much new orders into revenue in 2021.

And I think it's I don't know if I would say, Tim is just our conservative nature, I think that we need to make sure that some of the large projects that we have a lot of visibility to materialize in the first half of this year we think the second half of this year could be materially stronger.

But I think that the guidance that we're providing is what we feel like it especially with the allocation of semiconductor chips and so forth, that, I mean, that's the real guiding principle right now is while we -- I think we've got a great relationship with Broadcom and others. And we've had a lot of success in 2021.

The question is, is if we oversize orders in 2022 are we going to be able to have the same success in book ship revenue in the second half of the year based on what feels like a constrained allocation across the entire sector.

So if that alleviates and you it seems like every time we're on the phone with some of our downstream component suppliers, they're feeling like things are getting a little bit better, their visibility is getting better, there's less people not coming into work to manufacture products.

And you'll see us guide upwards when we have that better visibility, but right now, we just don't feel comfortable guiding more than what we have despite the fact that we have a pretty significant backlog, most of which is scheduled to ship this year, just because we don't know whether or not our downstream supplier partners can actually support us on the new orders..

Great, thanks for that. And just to follow-up, briefly on one of those elements, which is on the comments about increasing customer diversification.

I guess I want to kind of dig into that a little bit more, I mean, on the face of it, that it's likely to that you mean, you're going to grow the rest of the business larger at a greater rate than you expect out of your YouTube customers in Japan.

But anything more than that, in terms of other customer categories emerging as major pieces of the business, maybe the U.S. role or any other Tier 1 that you see stepping up to impact that customer diversification, dynamic? Thanks..

I mean, we have 53 new customers in the U.S. in 2021. And so most of those are in the Tier 2, Tier 3 category, I mean, when we acquired Optelian it certainly gave us an entry into some Tier 1s like AT&T, and there's a lot of activity that we're pursuing with many Tier 1s around the world.

And most of the Huawei replacement projects, as I said earlier, are with the large Tier 1 and Tier 2s. And those decisions tend to be binary, although, I certainly feel like DZS is in a really good place.

The feedback that we're getting from some of the large customers that we've been knee deep in, in proof of concepts that have evolved into trials has been very good.

Look until we so we sign a contract until we get an order, it's hard for us to forecast really big numbers, because it's binary and so the forecast that we're sharing in this report, and what we're sharing here on this call is based on what we feel is very high probability.

But the wildcard this year and in the next year is the success that we may have with some of the projects that we've been working really hard on over the last year. .

Thanks very much..

Thank you. And that's all the time we have for questions today. This concludes today's conference call. Thank you for participating, you may now disconnect and everyone have a great day..