Q4 2021 DZS Inc Earnings Call
Good day, and thank you for standing by and welcome to the D. C. S fourth quarter 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star 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 head of Investor Relations. Please go ahead.
Thank you Katherine and welcome to the <unk> fourth quarter 2021 earnings conference call. Joining us today are <unk>, president and CEO , Charlie vote and CFO Mr. <unk>.
Yesterday after market close we published to the Investor Relations section of the Dcs 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.
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 in its most recent 10-Q and 10-K reports and 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 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 a 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 horizon 'twenty, two investor and analyst day on May 12 at our headquarters in Plano, Texas.
Will simultaneously be webcast.
I'd now have the pleasure to turn the call over to Charlie.
Thank you Ted and welcome investors analyst 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 <unk> networks is simultaneously, creating demand for fiber connected densification and packet based networks.
This reshaping of the global communications landscape is fueling a wave of experience driven innovation for.
Our high speed fixed and mobile broadband services for homes buildings and cities.
ECS is becoming a key enabler of this transformation, providing next generation broadband connectivity and cloud software platforms.
At power communication service providers.
Grade their infrastructure and launch new services.
Our customers range from the world's most sophisticated advanced fiber and <unk> service providers, including <unk> 16 of the top 30 global Telecom service providers to agile fiber overbuild or <unk>.
Internet utility municipalities providers.
2021 was a transformational year for Dcs.
As we achieved record setting orders revenue and backlog, we began 2021 with a bold vision.
Our new go to market playbook and $71 million 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 accelerated 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 2009 new products.
Strong global demand for fiber connectivity <unk> and optical edge solutions continued during the fourth quarter. Despite.
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 book to Bill ratio of one four and <unk>.
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 year end backlog of $225 million or 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 the deployment of hyper fast broadband across an expanding customer base, we are creating new opportunities in our 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 network and consumer software portfolio released in 2021.
We will unveil SD NAS, our unified software defined network operating system in 2022.
Our converged edge and cloud software solutions are designed to improve long term margins can 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 to new roles at Dcs.
Each brings a deep history of experience in broadband mobile optics and cloud software.
Jennifer <unk> joined <unk>, as our Chief operations officer, leading supply chain manufacturing logistics and compliance.
Jennifer brings three decades of industry experience from Ericsson, <unk>, Comcast and time Warner cable.
<unk> joined <unk> as our vice President of strategic operations, adding to our talented operations team focused on continued improvement in sourcing procurement and manufacturing.
<unk> has been in the access networking industry. His entire career, having led operations at AFC Calix, and scion, which is now part of Calix, sorry, which is now part of Seattle.
Jeff Burt who has served as our chief marketing officer for the past two years transitioned 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 <unk> as our Chief marketing Officer, most recently Gunter lead global marketing at Aten networks.
Prior to a 10 countries spent two decades with Ericsson, bringing for Dcs experience in the areas of cloud software artificial intelligence cyber security and mobile networks.
Finally earned Hirst I joined <unk> as Vice President of business development. Most recently earned was the senior director of standards marketing and thought 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.
A multi gigabit broadband upgrade cycle, which we expect the last seven to 10 years, the evolution of <unk> mobile to <unk> <unk> and eventually <unk>.
<unk> expansion into North America, and Europe , and the numerous Chinese vendor.
And grow.
<unk> spanning North America, Europe , Middle East, Australia, India, and the rest of the 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 Missy to walk through our Q4 and full year 2021 financial highlights as well as our 2022 outlook.
Thank you Charlie and good morning, everyone. We delivered a very strong Q4 to wrap up a transformational 2021 total orders for the fourth quarter reached a record $134 million in revenue in the fourth quarter reached a record at $98 million, an increase of 11% sequentially.
Year over year.
So with the high end of guidance.
In Q4, we have successfully capitalized on several of our growth pillars that Charlie mentioned.
First demonstrating our success and then multi gigabit broadband upgrade cycle broadband connectivity revenue increased 12% sequentially and 18% year over year to $72 million.
The year broadband connectivity revenue increased 16% year over year to $258 million.
Second reflecting on file and open ran our mobile transport revenue increased 9% sequentially $26 million as we benefited from strong momentum at two marquee customers in Japan.
On a year over year basis mobile transport revenue declined 6% after strong spending in 2020.
We are optimistic about our future in Taiji, an open ran as a result of our collaboration with rocket two as company and anticipate additional opportunities from this reference design later this year.
Lastly, our overall revenue growth is also reflects our success capturing share in North America, a higher margin region.
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 as 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 margin 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 reported an adjusted EBITDA of $2 million compared to $4 million in Q4, 2020, and our non-GAAP EPS at <unk> compared to negative <unk> in Q4 2020.
Regarding our performance for the full year 2021.
We delivered 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 27%.
<unk> to a loss of one and 2020.
Yes.
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 J P. Morgan, which includes a $30 million credit facility.
Additionally, our board of directors has approved a new S. Three registration statement to replace our existing shelf registration statement that expires in April .
Ltd component availability over the past several quarters has necessitated increased raw material inventory levels to align with our strong backlog and customer forecast.
Our balance sheet has helped support the supply chain constraints.
Annualized inventory turns were four five times during the fourth quarter of 2021, compared with five six times a year ago.
Days sales outstanding continued to improve to 81 days in Q4, 2021 versus 105 days a year ago.
Looking ahead, we have a strong visibility of our opportunities including record backlog entering the year.
We anticipate continued supply chain constraints persists throughout 2022.
Binding typical industry seasonality for the first quarter with supply chain headwinds, we are guiding our first quarter revenue to $75 million to $90 million.
We are guiding Q1 gross margins to 33% to 34%.
Operating expenses to decline by $1 million to $2 million sequentially to 28% 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 of between $17 million to $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.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw.
Your question press the pound key.
And our first question comes from Ryan Koontz with Needham <unk> Company.
Your line is open.
Alright, thanks for the question.
Really nice growth in the Americas, there I assume that's dominantly U S. Can you give us any color on kind of where that's coming from across the tier one twos and threes or Huawei displacement opportunities.
With that.
Thanks Ryan.
As Mr. Yu 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 two and tier threes.
It also and I think I tried to highlight it in my opening remarks, I mean, there is a pretty significant emergence of <unk>.
What we see as the sort of next generation.
Turning to providers in the category of utility municipalities fiber over builders.
Traditional wireless Internet service providers are emerging into fiber to the home service provider. So we're seeing a great opportunity to participate in those non traditional smaller ILEC.
Service providers.
Alright, I assume that includes folks like the electric co ops and power providers like that.
That's exactly right.
Great and then on the gross margins can you quantify any impact there from supply chain logistics or expedite piece those sorts of things.
Yes, if you remember in Q3, we talked about the fact that if you eliminated.
Unforeseen expedite fees and freight logistics and FX, specifically from Japan, our normalized gross margin in Q3 would have been 39%.
<unk>.
Same margin model would have 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 yen.
On a normalized basis gross margin in Q4 would have been 39%.
Got it great. Thanks for the questions.
Our next question comes from Christian Schwab with Craig Hallum. Your line is open.
Great. Thanks for taking my question.
As far as topline growth at the midpoint.
Of your guidance is up nice.
Leslie above 10% given the backlog and the.
The growth drivers that you highlight that only the letter but quickly at the beginning of the phone call.
Think that where may be now in a position where.
I guess.
Thinking.
Over the next few years.
Do we feel more comfortable returning to a double digit top line growth.
Well I think if you look at our our growth projections for 2022.
Correct me, if I'm wrong, but I think our range of somewhere between 8% to 16%.
So we're certainly on the on the high end of our projections for the year well above 10%.
And.
I mean, we closed the year with $225 million of backlog.
Thank.
<unk>.
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.
Could ship Asap from a customer acceptance perspective, so there's close to $165 million to $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.
Within supply chain.
Situation hopefully eases at some point some people hoping.
Maybe as soon as the second half of this year.
When you are having discussions with your clients kind of given the recent shocks to the system.
Over the last few years do you think that your business will be.
Be able to maintain.
Strong visibility in backlog or do you think that customers will quicker.
Quickly revert to previous buying patterns.
Well I don't think we're going to get back to eight to 12 week lead times anytime soon and in fact, we.
We have been.
<unk>.
Pretty cautionary about everyone's expectations with regards to supply chain I mean.
Got to give my team a lot of credit.
I think we did a fantastic job navigating what I think was 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.
There is something thats very significantly different as we enter 2022, and we enter 2021 and even 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 clearer and much more defined than it was in a pretty.
<unk>.
Dynamic environment.
And when.
Are 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 with.
The vaccines that have now been implemented in virtually all of the countries that we are building products. We've certainly seen a stabilization of the workforce and that certainly is giving us a lot more assurance that we will see less disruptions and unexpected manufacturing throughput than what we saw I think throughout <unk>.
2021 .
Great. Thank you for that no other questions. Thank you great quarter.
Thank you and our next.
Thank you and our next question comes from Dave Kang with B Riley Your line is open.
Thank you. Good morning, My first question is regarding supply chain.
Situation how much.
Revenue.
What's impacted.
You are talking about in Q4.
In Q4.
Well I think I was saying we.
What I was trying to articulate to Christian's 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 tens of millions of dollars more in Q4 than what we were able to ship.
Got it and.
Regarding your comments on gross margin so it.
It would have been 39% for both the third and fourth quarter.
Without supply chain.
Okay.
Cost.
And yet you're saying you expect to exit 2023 at 40%.
Actually being overly conservative I mean, you're almost at 40% already.
I should 40% occurs much earlier than fourth quarter of next year.
Yes, 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 <unk>.
An entire ecosystem of downstream components 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 too.
<unk> react.
And communicate effectively with our customers partner with our customers to find ways to find a middle ground and raise prices, where it mutually 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 ones, where we've got pretty comprehensive contracts that has 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 and really thinking through our normalized long term margins for me is not having a blip of <unk>.
40% margins one quarter in 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 then my last question is regarding our thoughts regarding your 22.
Our revenue outlook, how much of our revenue.
Is factored in and.
And how should we think about that going forward beyond beyond this year.
Yes, I mean.
If you look at it.
I think I've tried to explain this.
To try to level set everyone. That's following the industry.
If you look at the art off funds.
The $20 billion.
<unk> been allocated.
It's a 10 year path, there's been about $2 billion of that 'twenty. That's been released so far of the $2 billion.
Figure somewhere between eight and 10% gets allocated to access.
So for US I mean, yes, a lot of our customers.
Have applied for and have been awarded.
<unk> funds.
And aggressive.
Path with a lot of our existing customers that are certainly pursuing.
$42 billion bipartisan broadband bill that Theres a lot of movement there.
Remember, we also are participating heavily in UK, and Germany, and there is $7 billion of.
Government funding in the UK with the freedom fiber program Theres third thing a $14 million in Germany, there's funds all over the world.
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.
Don amplify the art funds, so much I think that the overall dynamics of what's going on in the industry right now on the drivers.
And the industry go way beyond broadband stimulus I mean, 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 its been in the last decade. So I think that it's in a good way a perfect storm in the sense that there is.
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 they're all participating in one way or another and the funds that are available to them.
Got it thank you.
Thank you. Our next question comes from Paul <unk> with William K, well just 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 , you've had pretty entrenched competitors there.
Pretty formidable.
And.
If you look around the space has got strong orders everywhere. So is there just maybe this is a big picture question is theres just so much business out there that it's overwhelming the space and we possibly in a land grab of sorts and then also how much of this business. I think you may have answered part of my question earlier is due to the stimulus.
And that is taking place and when these funds actually begin to flow do you see another leg up in this demand and then I've got a quick follow up.
Well I appreciate that we have about 750 active customers around the world and I appreciate that in most networks.
Aside the small 5000 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 there is growth that multiple companies are having across similar landscapes.
So the growth that we're seeing.
Across the entire globe.
You look at.
Korea, where we do business with all three of the incumbent operators in Korea.
Going through a massive upgrade cycle from sub one gig to 10 gig.
We're seeing the same kind of growth projections across the Pan Asia region.
Japan, we've been really fortunate to be on the leading edge.
The upgrade cycle from <unk> to <unk> and with rockets on there.
Their proliferation into a new architecture around open ran and now with rockets on symphony, having spun off and tracking team managing and running that company.
I think 15 16 trials, we're part of their reference designs. So I think when you look at Dcs you have to look at us a little differently than maybe add train and calix and some of the others and the fact that.
We've got three.
Distinct portfolios that are participating in the management of <unk>.
This new demand cycle, whether it's a.
Wireless operator, moving aggressively from <unk> to <unk>, whether it's a wireline operator, that's carrying a lot of wireless spectrum.
Ah.
Transport perspective, or it's an access service provider that's providing an.
An upgrade path from sub one gig in Europe . When you look at Europe , and we put it in the shareholder report that 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.
It 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 wished it a lot of the Huawei replacement projects, we're moving faster, but most of the Huawei replacement projects are all tier one and tier twos and that whole process just takes time.
I would say that we feel that we're involved in most everyone that is.
As looking to cap and grow some of the Chinese suppliers.
The opportunity in my opinion goes way beyond the broadband stimulus funds I think the.
And 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 two year upgrade cycle. The upgrade cycle takes many years, depending on the size of the service provider.
And do you expect the level of demand to stay at this level.
The next three or four years.
We do.
If you just if you analyze what has to happen once once the service provider decides to upgrade their network.
Got it.
For the most part a set aside none.
<unk>.
Capex dollars that they're going to invest in the different parts of their network.
And depending on the size and scale.
The company incumbents, certainly have a multi year upgrade cycle whats exciting to US is also some of the new emerging.
Service providers, who are taking share I mean, I think Ryan It made mentioned about the co ops and the utility operating I mean, the utility companies the co ops, the state and local governments and municipalities I mean, they're all becoming their own. They are all participating in this sort of take share sort of environment.
When you're 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 in the wireless service providers, who are moving into the fiber base service provider marketplace.
It's 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.
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 thats coming in and supporting a lot of our emerging customers I mean, we announced.
Pretty big strategic partner with a partnership with a company called hosted America for example, and I think they've allocated $1 billion to fiber over the next several years. So there is a lot of that that's going in at layers onto the existing incumbency and again not to mention.
The.
The densification that magnitude of wireless traffic that is being carried by cable operators and fixed wireline operators and we're participating in that business with our mobile and optical transport portfolio.
Thank you.
One last question last spring you had mentioned about 90% of your orders were coming from pre.
Pre existing customers.
That mix changed today, and how do you see that going forward.
As we mentioned in the shareholder report in my opening remarks, we added 105, new customers this year 86 of which.
Stemmed from North America, and Europe , specifically.
Oftentimes when you are when you are landing new customers.
The initial orders.
Oftentimes depending on the project can be smaller because you are in that initial rollout phase and so we're hopeful that.
The the new customers that we added in 2021, we will participate in a much greater way in 2022 that said when we build our 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 a with an outlook that was <unk>.
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.
From new customers that way that we secured in 'twenty one.
Mhm.
Okay. Thank you very much that's all my questions. Thank.
Thank you.
Thank you and we have a question from Tim <unk> with Northland Capital. Your line is open.
Hey, good morning.
Hey, Tim.
Hey, Charlie Congrats on.
The results, especially the strong orders in 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, it looks like to the extent you went into 'twenty one with what ended up is.
20% of your year end backlog metrics.
Metrics now closer to 60, and I think you've talked about kind of a book ship metric in the year that you are implicitly guiding down something like 40%. So.
And looking at where you are guiding it.
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 Youre expecting.
Customers ordering farther out, although probably not more than a year out or extended lead times on your part.
Bucket number two in bucket number three some degree of conservatism given the environment we're in.
Yes.
Trying to get behind that.
20% to 60% metric in terms of the backlog.
Yes, no it's a great question.
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.
And in the environment that we're in is pretty amazing.
And one would ask with $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.
And converting as much new orders into revenue in 2021.
And I think.
I don't know if I would say, Tim it's just our conservative nature, I think that we need to.
He 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 what we feel like.
Especially with the allocation of semiconductor chips and so forth.
The real answer.
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 if we oversized 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.
It seems like every time, we're on the phone with some of our downstream component suppliers. They are feeling like things.
Are getting a little bit better visibility is getting better.
Yes 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 thanks for that and just to follow up.
Sorry on one of those elements.
Which is on the comments about increasing customer diversification.
I guess I wanted to kind of dig into that a little bit more on the face of it.
It's likely that you mean youre going to grow the rest of the business larger.
At a greater rate than you expect out of your two big customers in Japan.
But anything more to that in terms of other customer categories emerging as major pieces of the business, maybe the U S roller.
Any other tier ones that you see stepping up too.
Impact that customer.
Diversification dynamic thanks.
Yes.
And we have 53 new customers in.
In the U S in 2021 and so.
Most of those are in the tier two tier three category.
When we acquired <unk>. It certainly gave us an entry into some some tier ones like AT&T and there is a lot of activity that we're pursuing with many tier ones around the world and most of the Huawei replacement projects as I said earlier, our with the large tier one and tier twos.
Those decisions tend to be binary although I certainly feel like.
<unk> 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 and proof of concepts that have evolved into trials.
Has been very good but look until we do we do we sign.
Sign a contract until we get an order it's hard for us to forecast really big numbers because.
It's by an area 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 into 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.
Okay.
Thanks very much.
Thank you and Thats 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.
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