Q2 2024 DZS Inc Earnings Call

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Unknown Executive: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the DCS Q2 2021 financial results conference call. At this time, all participants are in listen-only mode.

Speaker Change: Good day ladies and gentlemen and thank you for studying by. Welcome to the DCS Q2224 financial results conference call. At this time, all participants are in listen only mode.

Unknown Executive: After this biggest presentation, there will be a question-and-answer session.

Speaker Change: As a speaker's presentation, there will be a question and answer session. At this time, I would like to end the conference over to Mr. Jeff Brut, SVP Marketing and Investor Relations. So, please begin.

Jeff Burke: At this time, I would like to join the conference over to Mr. Jeff Burke, SVP Marketing and Investor Relations.

Jeff Burke: Sir, please begin. Thank you, Demi. And welcome to the DCS conference call to discuss Q2 2024 financial results.

Jeff Brut: Thank you, Demi, and welcome to the DZS Conference Call to discuss Q2 2024 financial results.

Jeff Burke: Joining me today are DCS President and CEO Charlie Vote and CFO Misty Kawecki. During our call, we will provide projections and other forward-looking statements based on our current expectations regarding future events or the future financial performance of the company. Such statements are subject to risks and uncertainties, and actual events results made different materially. Please refer to documents that the company files with the SEC, including the most recent 10-Q and 10-K reports and the forward-looking statement section of our Tuesday, September 3rd press release. These documents identify important risk factors which can be cause actual results to differ materially from those contained in our projections or forward-looking statements.

Speaker Change: Joining me today are DZS President and CEO Charlie Vote and CFO Missy Collect.

Speaker Change: During our call, we will provide projections and other forward-lippest statements based on our current expectations regarding future events or the future financial performance of the company. Such statements per subject to risk and uncertainties and actual events results mean differently.

Speaker Change: Please refer to documents that the company files with the SEC, including the most recent 10Q and 10K reports, and the forward-looking statement session of our Tuesday September 3rd, press release.

Speaker Change: These documents identify important risk factors, which can be caused actual results to differ materially from those contained in our projections or forward-looking statements.

Jeff Burke: Please note that unless otherwise indicated, the financial metrics we provide to you in this call will include those determined on a non-GAAP basis. These metrics, together with corresponding gap numbers and a reconciliation to gap, were contained in the press release issued on Tuesday, September 3rd, which we have posted to our website and filed with the SEC on Form 8-K.

Speaker Change: To please note that unless otherwise indicated, the financial metrics we provide to you in this call will include those determined on a non-gap basis.

Speaker Change: These metrics, together with corresponding gap numbers and the reconciliation to gap, were contained in the press release issued on Tuesday, September 3rd, which we opposed to our website and filed with the SEC on Form AK.

Jeff Burke: We will also discuss historical, financial, and other statistical information regarding our business and operation, and some of the information is included in the press release.

Speaker Change: We will also discuss historical, financial, and other statistical information regarding our business and operation. And some of this information is included in the press release.

Charlie Vote: I will now turn the call over to Charlie. Thank you, Jeff. Good morning, and thank you for joining us today. I'm pleased to share that we have now filed our restated and delayed periodic reports, including Netcom's two-year audit of financials and the DCS and Netcom perform a financial analysis as of June 30th, 2024. This means that we are now current with our required SEC periodic report filings. We understand that many customers, suppliers, and shareholders are disappointed with how long the restatement process has taken. The restatement process required all parties involved to be thorough, definitive, and complete.

Speaker Change: I will now turn the call over to Charlie.

Charlie Vote: Thank you Jeff, good morning and thank you for joining us today.

Charlie Vote: I'm pleased to share that we have now filed our restated and delayed periodic reports, including that comes two-year audit of financials, and the DGS and Netcom perform a financial analysis as of June 30th, 2024.

Speaker Change: This means that we are now current with our required SEC periodic report filings.

Speaker Change: We understand that many customers, suppliers and shareholders are disappointed with how long the restatement process has taken.

Speaker Change: The Reciving process required all parties involved to be thorough.

Charlie Vote: As a multinational global business with tens of thousands of orders, shipments, and revenue transactions, our finance and external independent audit firm took the necessary steps and time required to ensure this process was thorough and complete.

Speaker Change: Definitive and Complete

Speaker Change: As a multinational global business with tens of thousands of orders, shipments, and revenue transactions, our finance and external independent audit firm took the necessary steps and time required to ensure this process was thorough and complete.

Charlie Vote: to provide a more detailed timeline. Our finance leadership team self-discovered a revenue recognition matter in June of 2023 associated with two customers for which we recorded revenue in Q1 of 2023. The main portion of the audit committee's independent investigation and connection with the restatement was substantially complete in early 2024. We then began a thorough independent auditor RFP process and ultimately selected BDO as our new independent auditor in March of 2024. Over the next five months, our finance team, audit committee, and independent audit partner worked diligently and collaboratively to complete 2022-2023 in the first half of 2024's quarterly and annual reports, including the divestiture of Asia and are recently acquired NETCOM.

Speaker Change: To provide a more detailed timeline

Speaker Change: Our finance leadership team self discovered a revenue recognition matter in June of 2023 associated with two customers for which we recorded revenue in Q1 of 2023.

Speaker Change: The main portion of the audit committees independent investigation in connection with the restatement was substantially complete in early 2024.

Speaker Change: We then began a thorough independent auditor R of P process and ultimately selected BDO as our new independent auditor in March of 2024.

Speaker Change: Over the next five months, our finance team audit committee, an independent audit partner, worked diligently and collaboratively to complete 2022-2023 in the first half of 2024's quarterly and annual reports.

Speaker Change: including the divestiture of Asia, and are recently acquired netcom.

Charlie Vote: As a result of the various financial workstreams and a compressed timeline, we were unable to file the required filings by the NASDAQ required date. Appreciating that our number one priority from the beginning of this process was to ensure that we followed a thorough and appropriate process. With our SEC periodic reports complete and current, and while it's our goal to relist on the NASDAQ, our number one priority remains delivering for customers, gaining the synergies from our newly acquired NETCOM business, and converting $75 million of paid inventory to cash. Throughout this process, our customers, systems integrators, suppliers, and manufacturing partners have been incredibly supportive.

Speaker Change: As a result of the various financial workstreams and a compressed timeline, we were unable to file the required filings.

Speaker Change: by the NASDAQ required date.

Speaker Change: Appreciating that our number one priority from the beginning of this process was to ensure that we followed a thorough and appropriate process.

Speaker Change: With our SEC periodic reports complete and current, and while it's our gold relift on the NASDAQ, our number one priority remains delivering for customers.

Speaker Change: gaining the synergies from our newly acquired net-com business and converting $75 million of paid inventory to cash.

Speaker Change: Throughout this process, our customers, systems integrators, suppliers, and manufacturing partners have been incredibly supportive.

Charlie Vote: We value our partner alignment and support, and together we are focused on creating incremental momentum with the innovation that spans our networking and connectivity solutions.

Speaker Change: We value our partner alignment and support and together we are focused on creating incremental momentum with the innovation that spans our networking and connectivity solutions.

Charlie Vote: Following Misty's remarks regarding our financials, I will share more specifics about the investments and advancements we have made over the past 18 months, including the divestiture of a former of our former Asia business, and most recently, our acquisition of NETCOM. I will also provide our insights on the broader market and our outlook for the second half of 2024.

Speaker Change: Following Misty's remarks regarding our financials, I will share more specifics about the investments and advancements we have made over the past 18 months, including the divestiture of our former Asia business and most recently, our acquisition of Metcom.

Speaker Change: I will also provide our insights on the broader market and our outlook for the second half of 2024. Mr.

Misty Kawecki: Misty. Thank you, Charlie. We are pleased that we are now current with our SEC periodic reports and can once again resume sharing our earnings and financial details.

Misty: Thank you, Charlie. We are pleased that we are now current with our SEC Periodic Reports and can once again resume sharing our earnings and financial details.

Misty Kawecki: I would like to first review how the restatement unfolded and then discuss our recent financial performance. On June 1, 2023, we issued a press release indicating we would have to restate prior period financial results for the first quarter of 2023. Shortly thereafter, our audit committee engaged with our external audit and legal teams to undergo a very thorough investigation. While the investigation was still going by November of 2023, we determined that we would also restate our financial statements for 2022 and for each quarter therein. We received a readout of investigation findings in early 2024. We hired BDO, our independent auditor, in March of 2024.

Speaker Change: I would like to first review how the restatement unfolded and then discuss our recent financial performance.

Speaker Change: On June 1, 2023, we issued a press release indicating we would have to restate prior period financial results for the first quarter of 2023.

Speaker Change: Shortly thereafter, our audit committee engaged with our external audit and legal teams.

Speaker Change: To undergo a very thorough investigation.

Speaker Change: While the investigation was still going by November of 2023, we determined that we would also restate our financial statements for 2022 and for each quarter they're in.

Speaker Change: We received a readout of investigation findings in early 2024. We hired BDO, our independent auditor in March of 2024.

Misty Kawecki: As you can see from our filings and to summarize the impact of the restatement on our revenue on an annualized net basis, $17 million of revenue previously recorded in 2022 was deferred and not recognized in 2022. In 2023, on an annualized net basis, 200K of previously deferred revenue was recognized, which is the result of $3 million in net recognized revenue for the Americas and AMIA, and a net $2.7 million in net deferred revenue for Asia. A net total of 1.8 million of previously deferred revenue was recognized in Q1 2024, and the remaining 15 million of deferred revenue, which represents the amount of Asia revenue, is still deferred at the time if it is the bestiture of the Asia business, will not be recognized by the company.

Speaker Change: As you can see from our filings and to summarize the impact of the restatement on our revenue on an annualized net basis, 17 million of revenue previously recorded in 2022, was deferred and not recognized in 2022.

Speaker Change: In 2023, on an annualized net basis, 200K of previously deferred revenue, which recognized, which is the result of

Speaker Change: $3 million in net recognized revenue for the Americas and Amia, and a net $2.7 million in net deferred revenue for Asia.

Speaker Change: A net total of 1.8 million as previously deferred revenue was recognized in Q1224.

Speaker Change: and the remaining 15 million of deferred revenue, which represents the amount of Asia revenue still deferred at the time of that as a debustiture of the Asia business, will not be recognized by the company.

Misty Kawecki: As we reflect on our revised financial results, please keep in mind that the bestiture of the Asia business in April 2024 was approximately 50% of the consolidated business and reflected in our results from continuing operations at beginning in Q1 2024. Further, in 2023, industry revenue associated with shipments of access equipment declined over 25% relative to 2022 due to a telecom service provider spending pause, resulting from excess inventory at customer locations. This inventory buildup was caused by a surge in lead times the 52 weeks or longer during the pandemic that resulted in panic buying, delayed deployment and trial timelines, and the higher cost of capital due to the rapid increase of interest rates in 22 and 23.

Speaker Change: As we reflect on our revised financial results, please keep in mind that the best nature of the Asia Business in April 2024 was approximately 50% of the consolidated business and reflected in our results from continuing operations at the beginning in Q1 2024.

Speaker Change: Further, in 2023, industry revenue associated with shittments of access equipment declined over 25 percent, relative to 2022 due to a telecom service provider spending pause, resulting from excess inventory at customer locations.

Speaker Change: This inventory buildup was caused by a surge in lead times the 52 weeks or longer during the pandemic that resulted in panic buying delayed deployment and trial timelines and the higher cost of capital due to the rapid increase of interest rates in 22 and 23.

Misty Kawecki: Accordingly, we experienced an increase in inventory in the second half of 2023. As a result, gross margins for 2023 included a charge for excess inventory of $25 million. Further, in response to the reduction in industry-wide top line declines, the company reduced its operating expenses by approximately 29% during the second half of 2023.

Speaker Change: Accordingly, we experienced an increase in inventory in the second half of 2023. As a result, gross margins for 2023 included a charge for SS inventory of $25 million.

Speaker Change: Further, in response to the reduction in industry-wide top-line declines, the company reduced operating expenses by approximately 29% during the second half of 2023.

Misty Kawecki: Turning to our first half 2020 performance, our first half results from continuing operations reflect a reduction in top line but an improvement in profitability as a result of lower revenue conversion, including backlog and booking, and government delays, offset by improved margins and reduced operating expenses. Revenue in the first half of 2024 was $68.7 million, including only one month of net com, compared to $74.9 million in the first half 2023, a decline of 21% year over year. Software is a percentage of revenue from continuing operations, with 17% in the first half of 2024 and 14% in the same period of the prior year.

Speaker Change: Train to our first half 2020 performance.

Speaker Change: Our first half results from continuing operations reflect a reduction in top line, but an improvement in profitability as a result of lower revenue conversion, including backlog and booking and government delays, offset by improved margins and reduced operating expenses.

Speaker Change: Revenue in the first half of 2024 was $58.7 million, including only one month of netcom compared to $74.9 million in the first half 2023, a decline of 21% year over year.

Speaker Change: Software is a percentage of revenue from continuing operations with 17% in the first half of 2024 and 14% in the same period of prior year.

Misty Kawecki: Adjusted gross margin from continuing operations in the first half of 2024 was 39.8% compared to 38.1% in the first half of 2023. Adjusted operating expenses declined by $14 million, down 29% in the first half of 2024 compared to the first half of 2023, as a result of cost reduction efforts in the second half of 2023. Adjusted EBITDA in the first half was a loss of $11 million compared to a loss of $20 million in the first half 2023, and improvement of $9 million. During Q2, we divested the Asia business, recording a $2.8 million loss on sale, net of transaction fees.

Speaker Change: I've just a grist margin from continuing operations in the first half of 2024. We're 39.8% compared to 38.1% in the first half of 2023.

Speaker Change: I've just had operating expenses declined by $14 million down 29 percent in the first half of 2024 compared to first half 2023 as a result of cost reduction efforts in the second half of 2023.

Speaker Change: Adjusted EBITDA and the first half was a loss of $11 million compared to a loss of $20 million in the first half, 2023, and improvement of $9 million.

Speaker Change: During Q2, we divested the Asia Business, recording a $2.8 million law-fund-sale net of transaction fees.

Misty Kawecki: Additionally, in June 2024, we acquired Netcom for $8.2 million of total consideration without any accounts receivable or accounts payable, recording an estimated bargain purchase gain of $41.5 million, resulting in positive gap EPS of 61 cents per share for the quarter. Turning to the balance sheet, as of June 30th, 2024, we had approximately $128 million at working capital on the balance sheet between cash, accounts receivable, and inventory, including acquired netcom inventory, offset with approximately $49 million of accounts payable. As previously mentioned at the end of 2023, we undertook a thorough evaluation of our inventory, recording excess reserves of approximately $25 million, providing confidence in the value of the remaining inventory, resulting in a stronger balance sheet.

Speaker Change: Additionally, in June 2024, we acquired netcom for $8.2 million of total consideration without any accounts receivable or accounts payable, recording an estimated bargain purchase gain of $41.5 million.

Speaker Change: resulting in positive gap EPS of 61 since per share for the quarter.

Speaker Change: Turning to the balance sheet, as of June 30th, 2024, we had approximately $128 million at working capital on the balance sheet between cash, accounts receivable, and inventory, including a acquired net common inventory, offset with approximately $49 million of accounts payable.

Speaker Change: As previously mentioned at the end of 2023, we undertook a thorough evaluation of our inventory, recording accessories of approximately $25 million, providing confidence in the value of the remaining inventory, resulting in a stronger balance sheet.

Misty Kawecki: Second half 2024 and full year 2025 focus will be achieving netcom synergies, drawing down inventory levels, and converting the inventory to cash, converting active trials, profitability, and strengthening the balance sheet. Further, now that we are current on our SEC periodic reports, we have more options to address working capital requirements to align with and fuel our growth as we enter 2025. We are working closely with existing, as well as other potential financial sponsors, to optimize our current three-year term note of $30 million and upsize our working capital aligned with our anticipated growth during the second half of 2024 and into 2025.

Speaker Change: 2nd half 2024 and full year 2025 focus will be achieving net com synergies, drying down in inventory levels and converting the inventory to cash, converting active trials, profitability, and string-sitting the balance sheet.

Speaker Change: Further, now that we are current on our SEC Periodic Report, we have more options to address working capital requirements to align with and fuel our growth as we enter 2025.

Speaker Change: We are working closely with existing, as well as other potential financial sponsors, to optimize our current three-year term note of $30 million. And websites are working capital aligned with our anticipated growth during the second half of 2024 and into 2025.

Misty Kawecki: We believe that the addition of Netcom was very strategic to the business from both a product and business perspective. The acquisition brought VCS not only complimentary and leading-edge new technology and the sixth wireless access, fiber extension, and home broadband connectivity domains, but it also brought a number of marquees here, one customer. Financially, we believe the acquisition will be accretive, adding significant scale and new revenues to our connectivity products. In the second half of 2024, we expect improved performance in the form of higher orders in revenue compared with the first tap due to the inclusion of Netcom and the timing of fiber to the home and enterprise projects that are expected to accelerate and convert during the second half of the year.

Speaker Change: We believe that the addition of Netcom was very strategic to the business from the product and business perspective. The acquisition brought the ZES not only complimentary and leading edge new technology and the fixed wireless access, fiber extension and home broadband connectivity domains.

Speaker Change: But it also brought a number of markies here one customer.

Speaker Change: By initially, we believe the acquisition will be a creed of adding significant scale and new revenues to our connectivity products.

Speaker Change: In the second half of 2024, we expect improved performance in the form of higher orders in revenue compared with the first half due to the inclusion of net com and the timing of fiber to the home and enterprise projects that are expected to accelerate and convert during the second half of the year.

Misty Kawecki: With the addition of Netcom's leading-edge products and the divestiture of our lower margin Asia business, our growth margins are expected to improve compared to 2023 that slightly lower than first half performance from continuing operation. With our spending optimized over the 12 months, the divestiture of our Asia business, and with our acquisition of Netcom, we expect to operating expenses to be in the $15 to $17 million range exiting 2024. Our interest payments on our term debt annualized as approximately $4 million, and we expect a 21% non-GAAP tax rate going forward.

Speaker Change: With the addition of net-con fleeting-edge products and the divestature of our lower margin Asia business, our gross margins are expected to improve compared to 2023 that slightly lower than first-half performance from continuing operations.

Speaker Change: With our spending optimized over the 12 months, the divestiture of our Asia business, and with our acquisition of net calm, we expect operating expenses to be in the $15-17 million range.

Speaker Change: Siting 2024

Speaker Change: Our interest payments on our term debt annualizes approximately $4 million and we expect a 21% non-gap tax rate going forward.

Misty Kawecki: As Charlie mentioned, it is our goal to be relisted on the NASDAQ, especially as we expect to market in our business to stabilize during the second half of 2024 and into 2025. Our number one priority is delivering for customers, becoming current with our supplier ecosystem, and generating positive cash flow during the second half of 2024.

Speaker Change: As Charlie mentioned, it is our goal to be re-listed on the NASDAQ that, especially as we expect the market and our business to stabilize during the second half of 2024 and into 2025.

Speaker Change: Our number one priority is delivering for customers, becoming current with our supplier ecosystem, and generating positive cash flow during the second half of 2024. With that, I'll hand the call back to Charlie.

Charlie Vote: With that, I'll hand the call back to Charlie.

Charlie Vote: Next, Misty. Period from 2020 through the first half of 2023 represented an industry-wide acceleration of high-speed broadband access fueled by the COVID pandemic. At the same time, broader silicon chips and components of the fire market were challenged in responding and delivering to meet these unprecedented demands. The work and learn from home phenomena fueled by COVID prompted service providers to accelerate their deployment plans of high-speed fiber, fixed wireless, and 5G mobile broadband services, responding to consumer and business requirements. The inability for critical and essential employees within the supplier ecosystem disrupted the timeliness and availability of silicon chips and system components, resulting in unprecedented 52-weekly times and created an increase of costs of goods sold as well as freight logistics costs.

Mr. Steve: Thanks, Mr. Steve.

Speaker Change: Period from 2020 through the first half of 2023 represented an industry-wide acceleration of high-speed broadband access fueled by the COVID pandemic.

Speaker Change: At the same time, broader silicon chips in components of fire market was challenged in responding and delivering to meet these unprecedented demands.

Speaker Change: The work and learn from home phenomena fueled by COVID prompted service providers to accelerate their deployment plans of high-speed fiber, fixed wireless and 5G mobile broadband services, responding to consumer and business requirements.

Speaker Change: The inability for critical and essential employees within the supplier ecosystem disrupted the timelyness and the availability of silicon chips and system components.

Speaker Change: resulting in unprecedented 52 weekly times and created an increase of cost of good sold, as well as freight logistics costs.

Charlie Vote: In the early days of COVID, DZS embarked on a company-wide transformation. We began with a vision and mission to differentiate our broadband access portfolio from a design, architecture, performance, and scale perspective, aligned with service providers, emerging technology, and business models. During this period, we also advanced our IT systems, outsourced two manufacturing facilities, acquired three companies, divested our Asia business, and most recently acquired NETCOM. Over the past few years, we have invested approximately $130 million in advancing and differentiating our broadband access, optical connectivity, and cloud software portfolios. From 2020 to 2022, and prior to divesting our Asia business, top-line revenue grew from $300 million to $358 million, and backlog grew from $80 million to approximately $300 million.

Speaker Change: In the early days of COVID, DCS embarked on a company-wide transformation.

Speaker Change: We began with a vision and mission to differentiate our broadband access portfolio from a design, architecture, performance and scale perspective, aligned with service providers, emerging technology and business models.

Speaker Change: During this period, we also advanced our IT systems, outsourced two manufacturing facilities, acquired three companies, divested our Asia business, and most recently acquired Netcom.

Speaker Change: Over the past few years, we have invested approximately $130 million in advancing and differentiating our broadband access, optical connectivity, and cloud software portfolios.

Speaker Change: From 2020 to 2022, and prior to divesting our Asia Business, top line revenue grew from $300 million to $350 million, and backlog grew from $80 million to approximately $300 million.

Charlie Vote: As we entered 2023 with optimism based on a robust backlog, government stimulus programs that were forecasted to begin, and with numerous technology trials and RFPs that were underway. During the second half of 2023, and into the first half of 2024, our industry and DZS experienced a pause in capital spending due to an over-rotation of inventory consumption that occurred in 2022 in the first half of 2023, and combined with slower-than-expected disbursements of pandemic-inspired government stimulus funds. Pause and timeline shifted by service providers led to delays in backlog consumption and pushouts with anticipated new orders and shipments.

Speaker Change: As we entered 2023 with optimism based on a robust backlog, government stimulus programs that were forecasted to begin, and with numerous technology trials and RFPs that were underway.

Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the DCS Q2 2021 financial results conference call. At this time, all participants are in listen only mode.

Speaker Change: During the second half of 2023 and into the first half of 2024, our industry and DCS experienced a pause in capital spending.

Operator: After this biggest presentation, there will be a question and answer session.

Speaker Change: due to an over-rotation of inventory consumption that occurred in 2022 in the first half of 2023. And combined with lower than expected disbursements of pandemic-inspired government stimulus funds.

Jeff Burt: At this time, I would like to join the conference over to Mr. Jeff Burt, SVP Marketing and Investor Relations. So, please begin. Thank you, Demi.

Speaker Change: Pause in timeline shifted by service riders, led to delays in backlock consumption and push-outs with anticipated new orders and shipments.

Jeff Burt: And welcome to the DCS conference call to discuss Q2 2021 financial results. Joining me today are DCS President and CEO Charlie Vote and CFO Missy Coekie. During our call, we will provide projections and other forward looking statements based on our current expectations regarding future events or the future financial performance of the company. Such statements are subject to risks and uncertainties and actual results made different materially. Please refer to documents that the company files with the SEC, including the most recent 10Q and 10K reports, and the forward looking statement session of our Tuesday, September 3rd press release.

Charlie Vote: The contributing year-term results have shifted more of our working capital to invested inventory, which remains aligned with backlog and anticipated new orders. As of the end of June, we had approximately $75 million of paid for finished goods and raw materials on the balance sheet. We expect Q3 and the second half of 2024 to experience double-digit growth in orders and revenue, compared to Q1 and the first half of 2024, as service providers continue to fleet excess inventory and with the inclusion of our recently acquired connectivity portfolio. As we look forward to 2025, we anticipate a recovery to a more normal free COVID investment cycle.

Speaker Change: The contributing near-term results have shifted more of our working capital to invest in inventory, which remains aligned with backlog and anticipated new orders.

Speaker Change: As of the end of June, we had approximately $75 million of paid for finished goods and raw materials on the balance sheet.

Speaker Change: We expect Q3 in the second half of 2024 to experience double-digit growth in orders in revenue.

Speaker Change: Compared to Q1 and the first half of 2024, as service providers continue to plate access inventory and with the inclusion of our recently acquired connectivity portfolio.

Jeff Burt: These documents identify important risk factors, which can be cause actual results to differ materially from those contained in our projections or forward looking statements. Please note that unless otherwise indicated the financial metrics we provide to you in this call will include those determined on a non-gap basis. These metrics together with corresponding gap numbers and a reconciliation to gap were contained in the press release issued on Tuesday, September 3rd, which we have posted to our website and filed with the SEC on Form 8K. We will also discuss historical, financial, and other statistical information regarding our business and operation, and some of this information is included in the press release.

Speaker Change: As we look forward to 2025, we anticipate a recovery to a more normal, free COVID investment cycle.

Charlie Vote: Broadband connectivity portfolio we acquire from NetGOM includes category-defining fixed wireless access, fiber extension, home broadband, and IoT solutions. We believe the secular demand drivers for high-speed fiber and fixed wireless broadband services remain intact and ultimately will benefit from government stimulus programs, including the United States Building by America stimulus program that we expect to begin in 2025.

Speaker Change: Broadband connectivity portfolio we acquire from Netcom includes Category defining fixed wireless access, fiber extension, home broadband and IoT solutions.

Speaker Change: We believe the secular demand drivers for high-speed fiber and fixed wireless broadband services remain intact and ultimately will benefit from government stimulus programs, including the United States, build and buy America stimulus program that we expect to begin in 2025.

Charlie Vote: DGS has been manufacturing broadband solutions in the United States for more than 20 years. As of today, DGS has certified with the NTIA that we believe to be the industry's broadest range of Building by America-ready OLT systems and fiber-terminating ONTs with integrated Wi-Fi routing capabilities. As service providers continue to invest in their fiber and fixed wireless networks to deliver multi-gig of its services, they are being architecturally thoughtful with their network design, ensuring that the technology investments they're making today will allow them to position their networks to be future-ready. As technology shifts to the network edge, DGS is capitalizing on new opportunities fueled by the demands of emerging applications to which we are responding with embedded software-defined elements including AI and machine learning.

Speaker Change: DGS has been manufacturing broadband solutions in the United States for more than 20 years.

Charlie Vote: I will now turn the call over to Charlie. Thank you, Jeff.

Speaker Change: As of today, DCS has certified with the NTAA that we believe to be the industry's broadest range of build and bi-America-ready OLT systems and fiber terminating ONTs with integrated Wi-Fi routing capabilities.

Charlie Vote: Good morning and thank you for joining us today. I'm pleased to share that we have now filed our restated and delayed periodic reports, including netcom's two-year audit of financials and the DCS and netcom perform a financial analysis as of June 30th, 2024. This means that we are now current with our required SEC periodic report filings. We understand that many customers, suppliers, and shareholders are disappointed with how long the restatement process has taken.

Speaker Change: As service providers continue to invest in their fiber and fixed wireless networks to deliver multi-gig-of-it services

Speaker Change: They are being architecturally thoughtful with their network design, ensuring that the technology investments they are making today will allow them to position their networks to be future ready.

Speaker Change: As technology shifts to the network edge, VZS is capitalizing on new opportunities, fueled by the demands of emerging applications to which we are responding with embedded software defined elements including AI and machine learning.

Charlie Vote: The restatement process required all parties involved to be thorough, definitive, and complete. As a multinational global business with tens of thousands of orders, shipments, and revenue transactions, our finance and external independent audit firm took the necessary steps and time required to ensure this process was thorough and complete, to provide a more detailed timeline. Our finance leadership team self-discovered a revenue recognition matter in June of 2023 associated with two customers for which we recorded revenue in Q1 of 2023.

Charlie Vote: With consumers and businesses fueling fixed and mobile broadband with intelligence and security at the network edge, DGS is better positioned than ever before to capitalize on opportunities created by this transformation due to the investments we have embarked on over the past several years. Our acquisition of Optilian added a hundred and four hundred gig-of-it optical transport expertise, complementing our broadband access portfolio. In Q4 of 2023, we began shipping our flagship Saver 4400 optical-edge, hardened road and platform, and today have a growing number of customers that are leveraging Saver's modular form factor and economic cost structure. During the first half of 2024, we also began shipping our Velocity V6 OLT systems, which delivers 800 gig-of-its of non-blocking capacity per slot in a compact six-slot chassis design, making it the industry's most advanced OLT and architecturally designed to support 50 gig-of-its and beyond.

Speaker Change: With consumers and businesses fueling fixed and mobile broadband with intelligence and security at the network edge, DCS is better position than ever before to capitalize on opportunities created by this transformation through the investments we have embarked on over the past several years.

Speaker Change: Our acquisition of Uptilian added 104-hundred gigabit optical transport expertise.

Speaker Change: and we're implementing our broadband access portfolio. In Q4 of 2023, we began shipping our flagship Saver 4400 optical edge, hardened road-and-platform, and today, have a growing number of customers that are leveraging Saver's modular form factor and economic cost structure.

Charlie Vote: The main portion of the audit committee's independent investigation and connection with the restatement was substantially complete in early 2024. We then began a thorough independent auditor RFP process and ultimately selected BDO as our new independent auditor in March of 2024. Over the next five months, our finance team audit committee and independent audit partner worked diligently and collaboratively to complete 2022-2023 in the first half of 2024's quarterly and annual reports, including the divestiture of Asia and a recently acquired netcom.

Speaker Change: During the first half of 2024, we also began shipping our velocity V6 OLT systems.

Speaker Change: which delivers 800 gigabits of non-blocking capacity per slot in a compact six-flot chassis design, making it the industry's most advanced OLT and architecturally designed to support 50 gigabits and beyond.

Charlie Vote: Our network assurance and Wi-Fi software management solutions support more than 100 unique Wi-Fi devices spanning third-party connectivity vendors and support more than 50 million subscribers. We expect that our former Asia business, divested in April, will lessen the competitive exposure to markets that continue to employ high security risk equipment vendors and will allow us to focus our go-to-market strategy on markets that are adopting open and standard-based platforms. We also expect the divestiture of Asia will improve our gross margins and reduce our exposure to foreign exchange volatility. Most recently, in June of this year, we acquired Netcom, underscoring our commitment to innovation at the network edge and amplifying a broader connectivity portfolio which now includes fiber extension, fixed wireless, and IoT solutions.

Speaker Change: Our network assurance and Wi-Fi software management solutions support more than a hundred unique Wi-Fi devices spanning third-party connectivity vendors in support more than 50 million subscribers.

Charlie Vote: As a result of the various financial work streams and a compressed timeline, we were unable to file the required filings by the NASDAQ required date. Appreciating that our number one priority from the beginning of this process was to ensure that we followed a thorough and appropriate process. With our SEC periodic reports complete and current, and while it's our goal to relist on the NASDAQ, our number one priority remains delivering for customers, gaining the synergies from our newly acquired netcom business and converting $75 million of paid inventory to cash. Throughout this process, our customers, systems integrators, suppliers and manufacturing partners have been incredibly supportive.

Speaker Change: okay

Speaker Change: We expect that our former Asia business divested in April will lessen the competitive exposure to markets that continue to employ high security risk equipment vendors and will allow us to focus our go-to-market strategy on markets that are adopting open and standard base platforms.

Speaker Change: We also expect the Investor of Asia will improve our growth margins and reduce our exposure to foreign exchange volatility.

Speaker Change: Most recently, in June of this year, we acquired Netcom, underscoring our commitment to innovation at the network edge, and amplifying a broader connectivity portfolio, which now includes fiber extension, fixed wireless and IOT solutions.

Charlie Vote: The acquisition of Netcom accelerates our Wi-Fi seven-time-to-market and uniquely extends the reach of high-speed broadband access with differentiated fiber extension and fixed wireless access solutions. These newly acquired connectivity solutions have been standardized and deployed by some of the world's largest service providers, including U.S. cellular, bright-speed, and lumen. The Netcom acquisition also expands our customer footprint across North America and Europe and creates a new customer footprint within Australia and New Zealand. Our technology investments over the past few years have delivered on the vision, strategy, and playbook we outlined in early 2021 and aligns with what service providers around the world required to differentiate their fiber and fixed wireless offerings.

Charlie Vote: We value our partner alignment and support, and together we are focused on creating incremental momentum with the innovation that spans our networking and connectivity solutions.

Speaker Change: The acquisition of Netcom accelerates our Wi-Fi 7-time to market and uniquely extends the reach of high-speed broadband access with differentiated fiber extension and fixed wireless access solutions.

Charlie Vote: Following Misty's remarks regarding our financials, I will share more specifics about the investments and advancements we have made over the past 18 months, including the divestiture of our former Asia business and most recently, our acquisition of netcom.

Speaker Change: These newly acquired connectivity solutions have been standardized and deployed by some of the world's largest service riders, including U.S. Cellular, Bright Speed, and Lumen.

Speaker Change: The net-com acquisition also expands our customer footprint across North America and Europe and creates a new customer footprint within Australia and New Zealand.

Charlie Vote: I will also provide our insights on the broader market and our outlook for the second half of 2024.

Speaker Change: Our technology investments over the past few years have delivered on the vision, strategy, and playbook, we outlined in early 2021, and aligns with what service providers around the world require to differentiate their fiber and fixed wireless offerings.

Misty Coekie: Misty. Thank you, Charlie. We are pleased that we are now current with our SEC periodic reports and can once again resume sharing our earnings and financial details.

Charlie Vote: As we look ahead to the immediate and mid-term future, our sales pipeline and technology trials are expected to result in growth during the second half of 2024 and end of 2025, especially as service providers navigate through access inventory resulting from elongated lead times caused by the COVID-impacted supply chain challenges. With approximately $150 million of backlog, $75 million of paid inventory as of June, and the first half 2024 operating expenses lower by $14 million compared to the first half of 2023, we anticipate our balance sheet to improve over the next six to 12 months.

Misty Coekie: I would like to first review how the restatement unfolded and then discuss our recent financial performance. On June 1, 2023, we issued a press release indicating we would have to restate prior period financial results for the first quarter of 2023. Shortly thereafter, our audit committee engaged with our external audit and legal teams to undergo a very thorough investigation. While the investigation was still going by November of 2023, we determined that we would also restate our financial statements for 2022 and for each quarter of their end.

Speaker Change: As we look ahead to the immediate and mid-term future, our sales pipeline and technology trials are expected to result in growth during the second half of 2024 and into 2025.

Speaker Change: Especially as service providers navigate through access inventory, resulting from elongated lead times caused by the COVID-19-packed supply chain challenges.

Speaker Change: With approximately $150 million of backlog, $75 million of paid inventory as of June, and the first half 2024 operating expenses lower by $14 million compared to the first half of 2023, we anticipate our balance sheet to improve over the next six to 12 months.

Misty Coekie: We received a readout of investigation findings in early 2024. We hired BDO, our independent auditor, and March of 2024. As you can see from our filings and to summarize the impact of the restatement on our revenue on an annualized net basis, $17 million of revenue previously recorded in 2022 was deferred and not recognized in 2022. In 2023, on an annualized net basis, $200K of previously deferred revenue was recognized, which is the result of $3 million in net recognized revenue for the Americas and Amia and a net $2.7 million in net deferred revenue for Asia.

Charlie Vote: In conclusion, we anticipate an improved demand environment during the second half of 2024 and end of 2025. We expect to deliver incremental sales energies in conjunction with our acquisition of NETCOM, and we remain focused on converting active technology trials into new design wins.

Speaker Change: In conclusion, we anticipate and improve demand environment during the second half of 2024 and into 2025.

Speaker Change: We expect to deliver incremental sales energies in conjunction with our acquisition of netcom. And we remain focused on converting active technology trials in the new design wins.

Charlie Vote: I want to thank our employees and board of directors for their commitment, resilience, and perseverance over the past year. Furthermore, I want to thank our committed customers who have seen past the external noise related to our restatement matters and self-serving competitor commentary. Finally, I want to thank our technology manufacturing and broader supplier ecosystem, who remain committed to our next chapter together.

Speaker Change: I want to thank our employees and Board of Directors for their commitment, resilience and perseverance over the past year.

Speaker Change: Furthermore, I want to thank our committed customers who have seen past the external noise related to our restatement matters and self-serving competitor.

Speaker Change: Commentary

Misty Coekie: A net total of 1.8 million of previously deferred revenue was recognized in Q1 2024 and the remaining 15 million of deferred revenue, which represents the amount of Asia revenue is still deferred at the time if it is the bestiture of the Asia business will not be recognized by the company. As we reflect on our revised financial results, please keep in mind that the bestiture of the Asia business in April 2024 was approximately 50% of the consolidated business and reflected in our results from continuing operations at beginning in Q1 2024.

Speaker Change: Finally, I want to thank our Technology Manufacturing and broader supplier ecosystem who remain committed to our next chapter together.

Unknown Executive: Following this call, we expect to post an updated investor presentation.

Speaker Change: Following this call, we expect to post an updated investor presentation.

Unknown Executive: We plan to share our Q3-2024 business and financial results in early November. Until then, thank you for your time today.

Speaker Change: We plan to share our Q3 2024 business and financial results in early November.

Unknown Executive: With that, I'll now turn the call back over to the operator to facilitate questions. Thank you.

Speaker Change: Until then, thank you for your time today.

Speaker Change: With that, I'll now turn the call back over to the operator to facilitate questions. Thank you.

Unknown Executive: We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to enjoy your question, simply press star one again. If you are called upon to ask your question and are listening, real loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star one to join the queue.

Speaker Change: Thank you. We will well begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to reach your hand and join the queue.

Misty Coekie: Further, in 2023, industry revenue associated with shipments of access equipment declined over 25% relative to 2022 due to a telecom service provider spending pause resulting from excess inventory at customer locations. This inventory buildup was caused by a surge in lead times the 52 weeks or longer during the pandemic that resulted in panic buying, delayed deployment and trial timelines, and the higher cost of capital due to the rapid increase of interest rates in 22 and 23.

Speaker Change: If you would like to withdraw your questions, simply press star one again. If you are called upon to ask your question and I listening to you, we allow speaker on your device, please pick up your hand set and ensure that your phone is not on you to ask your question.

Speaker Change: Again, press R1 to join the queue.

Ryan Koontz: Your first question comes from the line of Ryan Koontz with Needham and Company. Your line is open. Hi, great. Thanks for the question, and great to hear from you guys. Charlie, it looks like you're up just showing some resilience here in first half, 24, a nice uptick into queue while the America's businesses down, just maybe a little bit more than the broader market.

Speaker Change: If your first question comes from the line of Ryan Kunt, we didn't need him and company. Your line is open.

Misty Coekie: Accordingly, we experienced an increase in inventory in the second half of 2023. As a result, gross margins for 2023 included a charge for excess inventory of $25 million. Further, in response to the reduction in industry-wide top line declines, the company reduced to operating expenses by approximately 29% during the second half of 2023.

Speaker Change: I great thanks for question and great deal for me guys

Ryan Kunt: You know, Europe is showing some resilience here in first half 24, a nice uptick into Q while the America's business is down, just maybe a little bit more than the broader market. Maybe can you shed some light on your thoughts about?

Charlie Vote: Can you shed some light on your thoughts about your fiber, your core fiber opportunities across those two markets, where you're most excited about? I know you had some tier one traction going and you're up. Last we heard from you, maybe give us an update on some of the fiber opportunities as you see it that could impact, say, the next few quarters. Thanks. Sure, sure. It was good to hear from you, Ryan. First, I think the most important thing for everybody to appreciate is just the dynamics that happened in 2023, as I sort of highlighted in my script at remarks.

Speaker Change: your fiber, your core fiber opportunities across those two markets, you know, where you're most excited about.

Misty Coekie: Turning to our first half 2020 performance, our first half results from continuing operations reflect a reduction in top line but an improvement in profitability as a result of lower revenue conversion including backlog and booking and government delays offset by improved margins and reduced operating expenses. Revenue in the first half of 2024 was $58.7 million including only one month of netcom compared to $74.9 million in the first half 2023, a decline of 21% year over year.

Speaker Change: I know you had some Tier 1 traction going in Europe last week heard from you. Maybe give us an update on some of the five-rop opportunity as you see it, that could impact to say the next step, you quarters. Thanks. That was good. Good to hear from you, Ryan.

Speaker Change: First, I think the most important thing for everybody to appreciate is just the dynamics that happened in 2023 as I sort of highlighted in my scripted remarks.

Charlie Vote: You know, the first half of 2023, we had a lot of backlog that we were aligned to, and we obviously went into 2023 with an outlook that a lot of the pacing of a lot of the trials that we were involved with would convert during the second half. That didn't happen, I think, frankly, for a lot of reasons. I think one was just where a lot of service providers were in the management of the inventory that they had acquired over the previous, let's call it, 12 months. And so there was, in our view, a different sort of pacing in the second half of 23 and maybe into the first half of this year with the general sort of grouping of at least our customers.

Speaker Change: You know, the first half of 2023, we had a lot of backlog that we were aligned to and we obviously went into 2023 with Penn Outlook that a lot of the the the patient of a lot of the trials that we were involved with would convert during the second half.

Misty Coekie: Software is a percentage of revenue from continuing operations with 17% in the first half of 2024 and 14% in the same period of prior year. Adjusted gross margin from continuing operations in the first half of 2024 were 39.8% compared to 38.1% in the first half of 2023. Agency. Adjusted operating expenses declined by $14 million down 29% in the first half of 2024 compared to first half 2023 as a result of cost reduction efforts in the second half of 2023.

Speaker Change: That didn't happen, I think, frankly, for a lot of reasons. I think one was just where a lot of service providers were in the management of the inventory that they had acquired over the previous, let's call it, 12 months.

Speaker Change: And so there was in our view a different sort of pacing in the second half of 23 and maybe into the first half of this year.

Speaker Change: with the general sort of grouping of at least our customers. As it relates to a lot of the new trials that we've invested a lot of time and energy into over the last 18 months.

Charlie Vote: As it relates to a lot of the new trials that we've invested a lot of time and energy into over the last 18 months, we're still very optimistic about the outcome of those. I would say that a lot of those in 23 got pushed out just because they were prioritizing their core business and just deploying as much inventory as they had before they brought on a new technology supplier like us. We certainly feel like getting through this restatement, which was obviously very unfortunate and disappointing for all of us, has created, I guess, a bit more resilience in everything that we're doing. But at the same time, we feel like a lot of the larger scale tier one and tier two trials that we've talked about back in late 22 and early 23 are still very much intact.

Misty Coekie: Adjusted EBITDA in the first half was a loss of $11 million compared to a loss of $20 million in the first half 2023 and improvement of $9 million. During Q2, we divested the Asia Business, recording a $2.8 million loss on sale net of transaction fees. Additionally, in June 2024, we acquired netcom for $8.2 million of total consideration without any accounts receivable or accounts payable. Recording an estimated bargain purchase gain of $41.5 million, resulting in positive gap EPS of 61 cents per share for the quarter.

Speaker Change: We're still very optimistic about the outcome of those. I would say that a lot of those in 23 got pushed out just because they were prioritizing.

Speaker Change: Other core business and just deploying as much inventory as they had before they brought on a new technology supplier like us.

Speaker Change: We certainly feel like getting through this restatement, which was obviously very unfortunate and disappointing for all of us.

Speaker Change: has created, I guess, a bit more resilience in everything that we're doing but at the same time we feel like a lot of the larger scale Tier 1 and Tier 2 trials that we've talked about.

Misty Coekie: Turning to the balance sheet, as of June 30th, 2024, we had approximately $128 million of working capital on the balance sheet between cash, accounts receivable, and inventory, including acquired netcom inventory offset with approximately $49 million of accounts payable. As previously mentioned at the end of 2023, we undertook a thorough evaluation of our inventory recording excess reserves of approximately $25 million, providing confidence in the value of the remaining inventory, resulting in a stronger balance sheet.

Speaker Change: back in late 22 and early 23 are still very much intact. And we believe that a lot of those will convert in the second half of this year giving us an opportunity to deploy and ship in 2025.

Charlie Vote: And we believe that a lot of those will convert in the second half of this year, giving us an opportunity to deploy and ship in 2025. As it relates to the comment that you had around just the mix, I would say that it was our goal in the second half of 23 and the first half of this year to ship as much as we could to those who had the ability to take products and that still had a very active deployment schedule that wasn't dependent on and reliant on the inventory that they already had. So I think a lot of the sort of regional mix and the product mix that you saw, I think from us, at least in the second half of last year and first half of this year, had a lot to do with that.

Speaker Change: You know, is it relates to the comment that you had around?

Speaker Change: Just the mix, you know, I would say that it was our goal in...

Speaker Change: In the second half of 23 in the first half of this year to ship as much as we could to those who

Misty Coekie: Second half 2024 and full year 2025 focus will be achieving netcom synergies, drawing down inventory levels, and converting the inventory to cash, converting active trials, profitability, and strengthening the balance sheet. Further, now that we are current on our SEC Periodic Reports, we have more options to address working capital requirements to align with and fuel our growth as we enter 2025. We are working closely with existing, as well as other potential financial sponsors, to optimize our current three-year term note of $30 million, and up size our working capital aligned with our anticipated growth during the second half of 2024 and into 2025.

Speaker Change: You know, had the ability to take products and that still had a very active deployment schedule that was dependent on and reliant on the inventory that they already had. So I think a lot of the...

Speaker Change: The sort of regional mix and the product mix that you saw, I think from us at least in the second half of last year and first half of this year had a lot to do with that. I think as we go forward in the second half of this year, things seem to be a bit more clear.

Charlie Vote: I think as we go forward in the second half of this year, things seem to be a bit more clear. I think most of our customers have worked through the bulk of the excess inventory that they took on in the previous 12 months. And so we feel like the second half of this year will begin to look a bit more traditional, and certainly as we go into next year, we think that next year becomes a much more normalized year for the space and for us.

Speaker Change: I think most of our customers

Speaker Change: I have worked through the bulk of the access inventory that they took on, you know, in the previous 12 months.

Speaker Change: We feel like the second half of this year will begin to look a bit more traditional and certainly as we go into next year, we think that next year becomes much more normalized year for the space and for us.

Misty Coekie: We believe that the addition of netcom was very strategic to the business from busy product and business perspectives. The acquisition broad VCS not only complementary and leading edge new technology and the sixth wireless access, fiber extension, and home broadband connectivity domains, but it also brought a number of marquee tier one customers. Financially, we believe the acquisition will be accretive, adding significant scale and new revenues to our connectivity products. In the second half of 2024, we expect improved performance in the form of higher orders in revenue, compared with the first half due to the inclusion of netcom and the timing of fiber to the home and enterprise projects that are expected to accelerate and convert during the second half of the year.

Charlie Vote: I tell Paul Charlie, and on the middle mile opportunity with Saber, you know, how are you feeling about that? The product's been shipping for a little while now. Have you kind of narrowed in your key niche that you're looking to enter that market? Because I'm sure the product's not featured to do everything for everybody, so you have a good feel for where the opportunities are and what the competitive landscape is there for the new Saber 4400. Yeah, no, I mean, a great question, and I appreciate the question. You know, look, we launched Saber to really wedge our way between the gap that we saw in last mile, and we're the high dense DWDM optical transport metro and long haul market was.

Speaker Change: God, that's a tough little Charlie. And on the middle mile opportunity with Saber, you know, how are you?

Speaker Change: Feeling about that, product's been shifting for a little while now.

Speaker Change: Have you ever seen it?

Speaker Change: kind of narrowed in your

Speaker Change: Your key niche that you're looking to enter that market because I'm sure the product's not featured to do everything for everybody.

Speaker Change: You have a good field where the opportunities are and what the competitive landscape is there for the

Speaker Change: Yeah, no, I'm in a great question and I appreciate the question. You know, look, we eat.

Speaker Change: We launched Saber to really

Misty Coekie: With the addition of netcom's leading edge products and the divestiture of our lower margin Asia business, our growth margins are expected to improve compared to 2023 that slightly lower than first half performance from continuing operations. With our spending optimized over the 12 months, the divestiture of our Asia business, and with our acquisition of NetCom, we expect to operating expenses to be in the $15-$17 million range exiting 2024. Our interest payments on our term debt annualize is approximately $4 million, and we expect a 21% non-gap tax rate going forward.

Speaker Change: Wedge our way between the gap that we saw in last mile and were the high-dense D.D.V. at the end optical transport metro and long-haul market was. And so, you know, what we were beginning to see over the let's call it.

Charlie Vote: And so, you know, what we were beginning to see over the, let's call it, two years as more or more XGS pawn was being deployed and as more service providers and technology companies were talking about 25 and 50 gig, you know, became very evident to us that there was going to be a bottleneck issue at the access edge and that, you know, it was a great opportunity for us, especially with the acquisition of Optilian, to turn a lot of the resources to building a next gen access optical transport product that would sit co-located right at the OOLT and more economically aggregate last mile fiber and hand that off to, you know, the Ciennes and the Infinite Errors and the Nokia's of the world that are driving higher DWDM bandwidth.

Speaker Change: 2 years as more or more XGS Pond was being deployed and as more

Speaker Change: Service providers and technology companies we're talking about 25 and 50 gig.

Speaker Change: You know, it became very evident to us that there was going to be a bottleneck issue at the access edge. And that, you know, it was a great opportunity for us, especially with the acquisition of up tilling and to turn a lot of the resources to building a next gen.

Misty Coekie: As Charlie mentioned, it is our goal to be relisted on the NASDAQ, especially as we expect to market in our business to stabilize during the second half of 2024 and into 2025. Our number one priority is delivering for customers, becoming current with our supplier ecosystem, and generating positive cash flow during the second half of 2024.

Speaker Change: Access Optical Transport product that would sit co-located right at the OLT and more economically aggregate last mile, fiber and hand that off to.

Speaker Change: You know, the CNS and the Infaners and the Nokia's sort of world that are driving higher on DWDM bandwidth. So we think that that's a big market opportunity for us. I would tell you, we were probably six months late.

Charlie Vote: So, we think that that's a big market opportunity for us. I would tell you we were probably six months late in getting that product to market. And with most new products, you know, you're looking for two or three new customers to really help validate the product, to work out some of the early kinks and issues that don't get determined until, you know, you're first deploying. And I say we're in, we're sort of past that window right now, and we're now into that reference cycle where we now have a couple of customers that are very happy and that we believe will become the references that we need for that.

Charlie Vote: With that, I'll hand the call back to Charlie. Next, Miss D.

Charlie Vote: Period from 2020, through the first half of 2023, represented an industry-wide acceleration of high-speed broadband access fueled by the COVID pandemic. At the same time, broader silicon chips and components of the fire market was challenged in responding and delivering to meet these unprecedented demands. The work and learn from home phenomena fueled by COVID prompted service providers to accelerate their deployment plans of high-speed fiber, fixed wireless, and 5G mobile broadband services, responding to consumer and business requirements.

Speaker Change: and getting that product to market. And with most new products, you know, you're looking for two or three new customers to really help validate the product to work out some of the...

Charlie Vote: The inability for critical and essential employees within the supplier ecosystem disrupted the timeliness and availability of silicon chips and system components, resulting in unprecedented 52-weekly times and created an increase of costs of goods sold, as well as freight logistics costs.

Speaker Change: early um

Speaker Change: and things and issues that don't get determined until, you know, you're first deploying. And I say we're kind of past that window right now and we're now into that reference cycle where we now have a couple of customers that are very happy.

Charlie Vote: But is it related to the actual application in design? We think that the market opportunity for Sabre is very encouraging for us. Great, Charlie, that's all I got for now. Thank you.

Speaker Change: And that we believe will become the references that we need for that. But is it relates to the actual application and design? We think that the market opportunity for saber is very encouraging for us.

Speaker Change: Great job. That's all I got for now. Thank you.

Speaker Change: Thank you.

Timothy Savageaux: Next question comes from the line of team, Savigeo with Smoyden Capital Market. Your line is open. Hi, good morning. I wanted to drill down a bit on the second half guidance. You know, clearly you're going to include a full quarter of Netcom here in Q3. I don't know if that gets in incremental 10 million or so. And I guess the question is in terms of the growth commentary, to what extent do you expect the kind of organic DZS business to grow in the second half and, you know, kind of what order of magnitude. And you know, if you add all that up.

Thema Sushil: Next question comes from the line of theme, service show with noise and capital markets. Your line is open.

Charlie Vote: In the early days of COVID, DZS embarked on a company-wide transformation. We began with a vision and mission to differentiate our broadband access portfolio from a design, architecture, performance, and scale perspective, aligned with service providers, emerging technology and business models. During this period, we also advanced our IT systems, outsourced two manufacturing facilities, acquired three companies, divested our Asia business, and most recently acquired NECOM. Over the past few years, we have invested approximately $130 million in advancing and differentiating our broadband access, optical connectivity, and cloud software portfolios.

Theeran Sivarajasingam: Hi, good morning. I'm one or two.

Theeran Sivarajasingam: Jill Diamond bit on the second half guidance.

Speaker Change: Now clearly you're going to include a full quarter of Metcom here.

Speaker Change: In Q3, I'll forget your incremental 10-millimeter so.

Speaker Change: And I guess the question is in terms of the growth commentary, to what extent do you expect the kind of organics?

Speaker Change: GZS business to growing second half and, you know, kind of what order of magnitude and, you know, if you add all that up, along with your opx commentary, and again I imagine gross margins will come my come down a bit with with a full quarter of the coming Q3.

Charlie Vote: along with your op-ex commentary. And again, I imagine gross margins might come down a bit with a full quarter of their common Q3s. But it seems like you could have a reasonable shot at break even exiting the year. I'll be interested in your comments on that. Thanks.

Charlie Vote: From 2020 to 2022, and prior to divesting our Asia business, top-line revenue grew from $300 million to $358 million, and backlog grew from $80 million to approximately $300 million. As we entered 2023 with optimism based on a robust backlog, government stimulus programs that were forecasted to begin, and with numerous technology trials and RFPs that were underway.

Speaker Change: But it seems like you could have a reasonable shot at break even, eggs living in the air. I'm going to be asking your comments on that. Nice.

Charlie Vote: During the second half of 2023, and into the first half of 2024, our industry and DZS experienced a pause in capital spending due to an over-rotation of inventory consumption that occurred in 2022 in the first half of 2023, and combined with slower than expected disbursements of pandemic-inspired government stimulus funds. Pause and Timeline shifted by service providers led to delays in backlog consumption and push-outs with anticipated new orders and shipments. The contributing year-term results have shifted more of our working capital to invested inventory, which remains aligned with backlog and anticipated new orders.

Charlie Vote: I was good to hear your voice, Tim. I think you got it right. You know, obviously we're purposely being thoughtful about what we're going to guide to, especially coming out of a pretty challenging, let's call it 12 months. And so our thought process right now is that we would soft guide in the second half of this year and hopefully get to a more formalized guidance profiling, starting in 2025. I think, you know, if you're us and having endured what we just did, you know, there's not a lot of upside for us right now to be overly ambitious with investors and analysts.

Speaker Change: Being thoughtful about what we're going to guide to, especially coming out of a...

Speaker Change: a pretty challenging.

Speaker Change: Let's call it 12 months and so our thought process right now is that

Speaker Change: We would soft guide in the second half of this year and hopefully get to a more formalized guidance profiling starting in 2025. I think, you know, if you're us and having endured what we just did.

Speaker Change: You know, there's not a lot of upside for us right now to be overly ambitious with investors and analyst. And so...

Charlie Vote: And so, you know, I mean, look, I mean, you're absolutely right. I mean, you know, we've now provided pro forma financials for anyone to look at as it relates to the business that we acquired. I mean, you know, acquiring Netcom, the way we were able to acquire it for the price that we were able to pay was extremely favorable for us. And we certainly see a lot of favorability from the customers that we acquired. There seems to be a lot of continuity. There's certainly a lot of sales energies. We're, you know, the former cost of team wasn't very focused on a lot of the products, especially in North America and AMIA.

Charlie Vote: As of the end of June, we had approximately $75 million of paid for finished goods and raw materials on the balance sheet. We expect Q3 and the second half of 2024 to experience double-digit growth in orders and revenue compared to Q1 and the first half of 2024, as service providers continue to fleet excess inventory and with the inclusion of our recently acquired connectivity portfolio.

Speaker Change: You know, I mean, look, I mean...

Speaker Change: You know, you're absolutely right. I mean, you know, we've we've we've

Speaker Change: We've now provided pro-form of any controls for...

Speaker Change: For anyone to look at as it relates to the business that we acquired, I mean, you know, acquiring netcom

Speaker Change: The way we were able to acquire it for the price that we were able to pay was extremely favorable for us. And we certainly...

Speaker Change: See a lot of favorability from the customers that we acquired. There seems to be a lot of continuity. There's certainly a lot of sales energies.

Charlie Vote: As we look forward to 2025, we anticipate recovery to a more normal free COVID investment cycle. Broadband connectivity portfolio we acquired from Netcom includes category defining fixed wireless access, fiber extension, home broadband and IoT solutions. We believe the secular demand drivers for high-speed fiber and fixed wireless broadband services remain intact and ultimately will benefit from government stimulus programs, including the United States building by America stimulus program that we expect to begin in 2025.

Speaker Change: You know, the former cost of the team wasn't very focused on a lot of the products, especially in North American Amiga. They had a very high-save robust business in Australia and New Zealand, but...

Charlie Vote: They had a very, I'd say, robust business in Australia and New Zealand, but as it relates to accelerating things in North America and Europe, they just didn't have the sales focus and the customers to really take advantage of the technology, which, you know, that was a big part of our investment thesis was looking at our customers, looking at their technology and how we could gain the sales energies just within our own customer base, not to mention their run rate business. So I think you're you're looking at it right. There's no reason why we can't exit 2024 as has a key event business and really position ourselves to be better positioned in 25.

Speaker Change: As it relates to accelerating things in North America and Europe, they just didn't have the sales.

Speaker Change: focus and the customers to really take advantage of the technology which

Speaker Change: You know, that was a big part of our investment thesis was looking at our customers looking at their technology and how we could.

Charlie Vote: DGS has been manufacturing broadband solutions in the United States for more than 20 years. As of today, DGS has certified with the NTIA that we believe to be the industry's broadest range of building by America-ready OLT systems and fiber-terminating ONTs with integrated Wi-Fi routing capabilities. As service providers continue to invest in their fiber and fixed wireless networks to deliver multi-gig of its services, they are being architecturally thoughtful with their network design ensuring that the technology investments they're making today will allow them to position their networks to be future-ready.

Speaker Change: I think you're looking at it right. There's no reason why we can't exit 2024 as has a break even business and really position ourselves.

Speaker Change: to be better positioned in 2025.

Unknown Executive: Okay, great.

Timothy Savageaux: And then one to ask a question about the kind of US world fiber market, you know, what we've seen this year is, you know, kind of the least initial approvals piling up in the bead process.

Speaker Change: Okay, great. And then one guy has a question about them.

Speaker Change: kind of U.S.

Speaker Change: World Fiber Market

Speaker Change: You know, what we've seen this year is kind of the, at least initial approvals piling up in the bead process.

Charlie Vote: As technology shifts to the network edge, DGS is capitalizing on new opportunities fueled by the demands of emerging applications to which we are responding with embedded software defined elements, including AI and machine learning. With consumers and businesses fueling fixed and mobile broadband, with intelligence and security at the network edge, DGS is better positioned than ever before to capitalize on opportunities created by this transformation due to the investments we have embarked on over the past several years.

Charlie Vote: I wonder if you can give us an update on the opportunities when you're seeing develop their understanding that, you know, probably don't get any big flow of funding until next year, but I'd be curious as to the kind of activity pipeline that you're seeing across that part of your business. Yeah, I would say that, and it's probably the same with our peers, what we're seeing is for the first time, and maybe that's a really good indication that progress is being made with the local state broadband offices and the allocation of funds is just the application in formality and process and helping at least our core customers who are planning on using our products to apply for and ensure that we qualify. And I think that was one of the reasons why we wanted to go out of our way, and my script to highlight the fact that we have most recently certified with the NTIA hour products that would align with our customers that would qualify for BEAD funds, which is a big deal.

Speaker Change: I wonder if you can give us an update on

Speaker Change: The opportunities when you're seeing develop their understanding that

Speaker Change: You know, probably don't get any big flow of funding until next year.

Speaker Change: I'd be curious as to the kind of activity pipeline that you're seeing across that part of your business.

Speaker Change: Yeah, I would say that, and it's probably the same with our peers, what we're seeing is for the first time, and maybe that's a really good indication. Progress is being made with the...

Charlie Vote: Our acquisition of Optilian added 100 and 400 gigabit optical transport expertise, complementing our broadband access portfolio. In Q4 of 2023, we began shipping our flagship Saver 4400 optical-edge hardened road and platform and today have a growing number of customers that are leveraging Saver's modular form factor and economic cost structure. During the first half of 2024, we also began shipping our Velocity V6 OLT systems, which delivers 800 gigabits of non-blocking capacity per slot in a compact six-slot chassis design, making it the industry's most advanced OLT and architecturally designed to support 50 gigabits and beyond. Our network assurance and Wi-Fi software management solutions support more than a hundred unique Wi-Fi devices spanning third-party connectivity vendors and support more than 50 million subscribers.

Speaker Change: The local state broadband office is in the allocation of funds is just

Speaker Change: the application for malady and process and helping, you know, at least our core customers were planning on using our products to apply for and ensure that we qualify. And I think that was one of the reasons why we wanted to go out of our way.

Speaker Change: And in my script, to highlight the fact that we have most recently certified with the NTA, our products that would align with our customers that would qualify for bead funds.

Charlie Vote: I mean, that is one thing, Tim, I'd say, that is really now starting to be scrutinized: is, you know, what vendors are certain service providers planning on using, and are they truly certified? And there is a process to qualify and certify, and we've done that with our OLTs and ONTs. And so, you know, that that, I think, is a leading indicator, at least for us, with our customers that, you know, the process is working, and I think you're right. I think, you know, we don't expect to see meaningful dollars really show up on our doorstep until probably the second half of next year.

Speaker Change: Which is a big deal. I mean, that is one thing to him. I'd say that is really now starting to be scrutinized.

Speaker Change: You know, what vendors are certain service providers planning on using and are they truly certified? And there is a process to qualify and certify and we've done that with our OLDs and ONTs. And so, you know, that that, I think.

Charlie Vote: We expect that our former Asia Business, Divided in April, will lessen the competitive exposure to markets that continue to deploy high security risk equipment vendors and will allow us to focus our go-to-market strategy on markets that are adopting open and standard-based platforms. We also expect that the investor of Asia will improve our gross margins and reduce our exposure to foreign exchange volatility. Most recently, in June of this year, we acquired NECOM, underscoring our commitment to innovation at the network edge and amplifying a broader connectivity portfolio which now includes fiber extension, fixed wireless and IoT solutions.

Speaker Change: is a leading indicator, at least for us with our customers that, you know.

Speaker Change: The process is working and I think you're right, I think.

Speaker Change: You know, we don't expect to see meaningful dollars really show up on our doorstep until

Charlie Vote: I mean, I think the way the funds are going to ultimately work is on the precursor side before electronics are being purchased and installed. There's, as you know, a lot of phases in the construction process and in the deployment process, but I do think that we're seeing progress, and I do think funds are going to roll into our segment with us and our peers, I think, by the second half of next year, for sure.

Speaker Change: Probably the second half of next year. I mean, I think the way the funds are going to ultimately work is on the precursor side before electronics are being purchased and installed. There's, as you know, a lot of phases in the construction process and in the deployment process.

Charlie Vote: The acquisition of NECOM accelerates our Wi-Fi 7 time-to-market and uniquely extends the reach of high-speed broadband access with differentiated fiber extension and fixed wireless access solutions. These newly acquired connectivity solutions have been standardized and deployed by some of the world's largest service providers, including U.S, cellular, bright-speed, and lumen. The NECOM acquisition also expands our customer footprint across North America and Europe and creates a new customer footprint within Australia and New Zealand.

Speaker Change: I do think that we're seeing progress and I do think funds are going to roll into our segment with us and our peers. I think by the second half of next year for sure.

Timothy Savageaux: Great. Thanks very much. Oh, thanks, Jim. Thank you.

Speaker Change: i

Speaker Change: Great, thanks very much, all our thanks, cheers.

Unknown Executive: Again, if you would like to ask a question, press part one on your telephone keypad.

Charlie Vote: Our technology investments over the past few years have delivered on the Vision Strategy and Playbook we outlined in early 2021 and aligns with what service providers around the world require to differentiate their fiber and fixed wireless offerings. As we look ahead to the immediate and mid-term future, our sales pipeline and technology trials are expected to result in growth during the second half of 2024 and end of 2025, especially as service providers navigate through access inventory resulting from elongated lead times caused by the COVID-19 impacted supply chain challenges.

Speaker Change: Again, if you would like to ask a question, press power 1 on your telephone keypad.

Speaker Change: [inaudible]

Speaker Change: [inaudible]

Unknown Executive: There are no questions at this time.

Jeff Burke: Mr. Jeff Burt, I turn the call back over to you. Thank you, Demi. Thank you for participating to everyone on today's call.

Speaker Change: There are no questions at this time Mr. Jeff Britt, I turn the call back over to you.

Jeff Britt: Thank you, Denny. Thank you for participating to everyone on today's call. We look forward to seeing you on our Q3 2024 financial results call in early November.

Unknown Executive: We look forward to seeing you on our Q3 2024 financial results call in early November. Thanks again. Goodbye.

Unknown Executive: This includes this conference call. You may now disconnect.

Charlie Vote: With approximately $150 million of backlog, $75 million of paid inventory as of June, and the first half 2024 operating expenses lower by $14 million compared to the first half of 2023, we anticipate our balance sheet to improve over the next six to 12 months.

Speaker Change: Thanks again, goodbye.

Speaker Change: This includes this conference call, you may now disconnect.

Charlie Vote: In conclusion, we anticipate an improved demand environment during the second half of 2024 and end of 2025. We expect to deliver incremental sales energies in conjunction with our acquisition of NETCOM and we remain focused on converting active technology trials into new design wins.

Charlie Vote: I want to thank our employees and board of directors for their commitment, resilience and perseverance over the past year. Furthermore, I want to thank our committed customers who have seen past the external noise related to our restatement matters and self-serving competitor commentary. Finally, I want to thank our technology manufacturing and broader supplier ecosystem who remain committed to our next chapter together.

Speaker Change: Thank you for watching!

Operator: Following this call, we expect to post an updated investor presentation. We plan to share our Q3-2024 business and financial results in early November.

Charlie Vote: Until then, thank you for your time today.

Operator: With that I'll now turn the call back over to the operator to facilitate questions. Thank you.

Operator: We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to enjoy your question, simply press star one again.

Operator: If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star one to join the queue.

Ryan Koontz: Your first question comes from the line of Ryan Koontz with Needham and Company. Your line is open. Hi, great. Thanks for the question and great to hear from you guys. Charlie, it looks like you are showing some resilience here in first half, 24, a nice uptick and two queue. While the America's business is down, just maybe a little bit more than the broader market, maybe can you shed some light on your thoughts about your fiber or your core fiber opportunities across those two markets where you are most excited about your tier one traction going in Europe. Maybe give us an update on some of the fiber opportunities as you see it that could impact the next few quarters. Thanks. Sure, sure. It was good to hear from you, Ryan.

Charlie Vote: First, I think the most important thing for everybody to appreciate is just the dynamics that happened in 2023. As I sort of highlighted in my script at remarks, the first half of 2023, we had a lot of backlog that we were aligned to and we obviously went into 2023 with an outlook that a lot of the pacing of a lot of the trials that we were involved would convert during the second half.

Charlie Vote: That didn't happen, I think, frankly, for a lot of reasons. I think one was just where a lot of service providers were in the management of the inventory that they had acquired over the previous, let's call it 12 months. And so there was, in our view, a different sort of pacing in the second half of 23 and maybe into the first half of this year, with the general sort of grouping of at least our customers.

Charlie Vote: As it relates to a lot of the new trials that we've invested a lot of time and energy into over the last 18 months, we're still very optimistic about the outcome of those. I would say that a lot of those in 23 got pushed out just because they were prioritizing their core business and just deploying as much inventory as they had before they brought on a new technology supplier like us. We certainly feel like getting through this restatement, which was obviously very unfortunate and disappointing for all of us has created, I guess, a bit more resilience in everything that we're doing, but at the same time, we feel like a lot of the larger scale tier one and tier two trials that we talked about back in late 22 and early 23 are still very much intact.

Charlie Vote: And we believe that a lot of those will convert in the second half of this year, giving us an opportunity to deploy and ship in 2025. As it relates to the comment that you had around just the mix, I would say that it was our goal in the second half of 23 and the first half of this year to ship as much as we could to those who had the ability to take products and that still had a very active deployment schedule that wasn't dependent on and reliant on the inventory that they already had.

Charlie Vote: So I think a lot of the sort of regional mix and the product mix that you saw, I think from us, at least in the second half of last year and first half of this year had a lot to do with that. I think as we go forward in the second half of this year things seem to be a bit more clear. I think most of our customers have worked through the bulk of the access inventory that they took on in the previous 12 months.

Charlie Vote: So we feel like the second half of this year will begin to look a bit more traditional and certainly as we go into next year we think that next year becomes a much more normalized year for the space and for us.

Charlie Vote: God, that's helpful, Charlie.

Charlie Vote: On the middle mile opportunity with Saber, how are you feeling about that? The product has been shipping for a little while now. Have you narrowed in your key niche that you're looking to enter that market? Because I'm sure the product is not featured to do everything for everybody. So you have a good feel for where the opportunities are and what the competitive landscape is there for the new Saber 4400. Yeah, no, I mean, a great question and I appreciate the question.

Charlie Vote: You know, look, we launched Saber to really wedge our way between the gap that we saw in last mile and were the high dense DWDM optical transport metro and long haul market was. And so, you know, what we were beginning to see over the let's call it two years as more and more XGS pawn was being deployed and as more service providers and technology companies were talking about 25 and 50 gig, you know, became very evident to us that there was going to be a bottleneck issue at the access edge and that, you know, it was it was a great opportunity for us, especially with the acquisition of optilian to turn a lot of the resources to building a next gen access optical transport product that would sit co-located right at the OLT and more economically aggregate last mile fiber and hand that off to, you know, the CNS and the infant errors and the Nokia's of the world that are that are driving higher on DWDM bandwidth.

Charlie Vote: So we think that that's a big market opportunity for us. I would tell you, we were probably six months late in getting that product to market and with most new products, you know, you're looking for two or three new customers to really help validate the product to work out some of the early kinks and issues that don't get determined until, you know, you're your first deploying and I say we're in we're sort of past that window right now and we're now into that reference cycle where we now have a couple of customers that are very happy and and that we believe will will become the references that we need for that. But is it related to the actual application in design? We think that the market opportunity for for saver is very encouraging for us.

Charlie Vote: Great, Charlie, that's all I got for now. Thank you.

Tim Savage: Next question comes from the line of team, SavageO, with noise and capital markets. Your line is open.

Charlie Vote: I hate good morning. I wanted to drill down a bit on the second half guidance. Clearly you're going to include a full quarter of netcom here in Q3. I don't know if that gets in incremental 10 million or so. And I guess the question is in terms of the growth commentary, to what extent do you expect the kind of organic DCS business to grow in the second half and you know kind of what order of magnitude.

Charlie Vote: You know, if you add all that up along with your op-ex commentary. And again, I imagine gross margins might come down a bit with with a full quarter of their common Q3s. But it seems like you could have a reasonable shot at break even exiting the year.

Charlie Vote: I'll be interested in your comments on that. Thanks. Well, I was good to hear your voice, Tim. I think you got it right. You know, obviously we're purposely being thoughtful about what we're going to guide to, especially coming out of a pretty challenging, let's call it, 12 months. And so our thought process right now is that we would soft-guide in the second half of this year and hopefully get to a more formalized guidance profiling starting in 2025.

Charlie Vote: I think, you know, if you're us and having endured what we just did, you know, there's not a lot of upside for us right now to be overly ambitious with investors and analysts. And so, you know, I mean, look, I mean, you know, you're absolutely right. I mean, you know, we've now provided pro-form of financials for anyone to look at as it relates to the business that we acquired. I mean, you know, acquiring netcom, the way we were able to acquire it for the price that we were able to pay was extremely favorable for us.

Charlie Vote: And we certainly see a lot of favorability from the customers that we acquired. There seems to be a lot of continuity. There's certainly a lot of sales energies. We're, you know, the former cost the team wasn't very focused on a lot of the products, especially in North America and Amia. They had a very, I'd say, robust business in Australia and New Zealand, but as it relates to accelerating things in North America and Europe, they just didn't have the sales focus and the customers to really take advantage of the technology, which, you know, that was a big part of our investment thesis was looking at our customers, looking at their technology and how we could gain the sales energies. Just within our own customer base, not to mention their run rate business. So I think you're looking at it right.

Charlie Vote: There's no reason why we can't exit 2024, as has a big event business and really position ourselves to be better positioned in 25. Okay, great. And then I wanted to ask a question about the kind of US world fiber market. You know, what we've seen this year is kind of the least initial approvals piling up in the feed process. I wonder if you can give us an update on the opportunities when you're seeing develop their understanding that, you know, probably don't give me a big flow of funding until next year, but I'd be curious as to the kind of activity pipeline that you're seeing across that part of your... Business.

Charlie Vote: I would say that, and it's probably the same with our peers, what we're seeing is for the first time, and maybe that's a really good indication that progress is being made, you know, with the local state broadband offices and the allocation of funds is just the application, formality, and process, and helping, you know, at least our core customers were planning on using our products to apply for and ensure that we qualify. And I think that was one of the reasons why we wanted to go out of our way in my script to highlight the fact that we have most recently certified with the NTIA hour products that would align with our customers that would qualify for bead funds, which is a big deal.

Charlie Vote: I mean, that is one thing, Tim, I'd say, that is really now starting to be scrutinized, is, you know, what vendors are certain service providers planning on using, and are they truly certified? And there is a process to qualify and certify, and we've done that with our OLTs and ONTs. And so, you know, that, I think, is a leading indicator, at least for us, with our customers that, you know, the process is working, and I think you're right.

Charlie Vote: I think, you know, we don't expect to see meaningful dollars really show up on our doorstep until probably the second half of next year. I mean, I think the way the funds are going to ultimately work is on the precursor side before electronics are being purchased and installed.

Tim Savage: There's, as you know, a lot of phases in the construction process and in the deployment process, but I do think that we're seeing progress and I do think funds are going to roll into our segment with us and our peers, I think, by the second half of next year, for sure. Great. Thanks very much. Oh, thanks. Again, if you would like to ask a question, press part one on your telephone keypad. There are no questions at this time, Mr. Jeff Britt.

Jeff Burt: I turn the call back over to you. Thank you, Demi. Thank you for participating to everyone on today's call.

Jeff Burt: We look forward to seeing you on our Q3 2024 financial results call in early November. Thanks again. Goodbye.

Operator: This includes this conference call.

Operator: You may now disconnect.