Investor Presentation November 2021
Safe Harbor Statement 2
3 DZS (Nasdaq: DZSI)
4 DZS (Nasdaq: DZSI) Global Innovator of: Broadband Connectivity enabling Multi-Gigabit Customer Experiences Packet-based Mobile Transport enabling Cost Effective 5G Deployments Cloud-Native Software Defined Orchestration & Analytics enabling Network-as-a-Service (NaaS) and Software-as-a-Service (SaaS) SDN Agile Insight Open 10Gbps+ © 2021 DZS – Proprietary and Confidential
750+ Active Customers Broadband Connectivity and Mobile Transport Pure Play 20+ Million Systems in Service Global Footprint HQ in Texas R&D in US / SE Asia Manufacturing in US/SE Asia Technology Partner to 15 of the Top 30 Global Telecom Carriers © 2021 DZS – Proprietary and Confidential 5
6 Transformation Yielding Results Management focused on People, Innovation Growth and Operational Excellence Top-Graded Executive Leadership, Sales and Product Organizations 14% YoY Growth (midpoint guidance) Record Orders / Revenue / Backlog Margin Expansion Underway Two Technology Acquisitions: Complementing Mobile Transport portfolio Accelerating Software Defined Networking and Network Automation $64 million follow-on equity: January 2021 *2021 revenues reflect the midpoint of guidance as of November 1, 2021 $247 $282 $307 $301 $342 $400 $350 $300 $250 $200 $150 $100 $50 $0 Annual Revenue Performance (2017 – 2021*) © 2021 DZS – Proprietary and Confidential
Q3 Ending Financial Metrics © 2021 DZS – Proprietary and Confidential 7 Note: in millions Refer to “Q1-Q3 2021 Shareholder Reports dated May 3, 2021, August 2, 2021, and November 1, 2021” as an exhibit to the 8-K filed with the SEC on May 3, 2021, August 2, 2021, and November 1, 2021 and available on the Company’s website at https://investor.dzsi.com/investor-relations/default.aspx. Refer to “GAAP to Adjusted (non-GAAP) reconciliations in the Appendix”
Bandwidth Access Demand Network Connectivity Demand Upgrade Cycle By 2023, a 5G connection will generate over 3x more traffic than a 4G connection (Cisco, CAIR 2020) By 2023, IoT devices will account for 50% of all networked devices (Cisco, CAIR 2020) Gigabit Multi-Gigabit Device connections per person will increase 1.5X by 2023 (Cisco, CAIR 2020) Average broadband speed will increase 2.5X by 2023 (Cisco, CAIR 2020) Average mobile speed will increase 3.3X by 2023 (Cisco, CAIR 2020) Network traffic increased 60% since start of pandemic (OECD 2020) 4G © 2021 DZS – Proprietary and Confidential 8 Note: 1) Cisco Annual Internet Report (2018-2023) White Paper, March 2020, (www.cisco.com) 2) OECD, “Tackling Coronavirus: Contributing to a Global Effort”, May 2020, (www.oecd.org)
Secular Trends Create Near-Term Opportunity © 2021 DZS – Proprietary and Confidential 9 5G Open RAN 1G 2G 3G 4G Up 600% by 2024 (Omdia 2020) Mbps Gbps 2025 Access revenue projections have increased 40% YoY (Omdia 2020 vs 2021) Multi-Gig Broadband Upgrade Cycle Open & Software Defined Networks Geopolitical Global Stimulus Security Bans Agile Efficient Best-in-Class Note: 1) Omdia, “2021 Trends to Watch: Mobile Infrastructure”, November 2020, (www.omdia.com) 2) Omdia , “Fiber and Copper Access Equipment Forecast”, July 2020 and July 2021, (www.omdia.com)
Differentiated Platforms and Software Portfolio Analyze | Automate | Accelerate 4G / 5G xHaul 10 Gig+ XGS-PON | 10G AE Wi-Fi Everywhere © 2021 DZS – Proprietary and Confidential 10
11 Open and Software Defined Networks Trend: Solution: Developments: 5G Network Orchestration and Automation win with TELUS Collaboration with QCT: Focus on virtualization, MANO, O-RAN Validation of strength of SDN expertise Demo @ Big 5G Event (Aug. 31-Sept 2)
12 5G Drives Mobile Transport Solutions Trend: Solution: Developments: Charlie Vogt joins boards of: O-RAN subscriber growth 4.45M subs 16 companies active in RCP Symphony adoption Partnerships: Announced collaboration with QCT Focus on virtualization, MANO, O-RAN Demo @ Big 5G Event (Aug. 31-Sept 2)
13 Generational Broadband Upgrade Cycle Trend: Solution: XCelerate by DZS portfolio 10G combo line cards / systems Cloud Virtualization ready Helix portfolio New 10G Gig-class / Wi-Fi 6 Systems Leverage DZS Cloud for enhanced experience/efficiencies Multi-gigabit Fiber-based Broadband deployment with DZS 10Gbps+ Developments:
14 Government Sponsored Broadband Initiatives RDOF - $20B Bipartisan Infrastructure - $42B American Rescue Plan Act - $7B CARES Act - $125M Consolidated Appropriations Act - $1B Huawei Rip/Replace - $2B Project Gigabit - $7B Huawei Rip/Replace commitment BMVI - $14B Geo-Political USA Canada Germany Tailwind & Developments: PFTHD - $24B
DZS Launches New SaaS Solution 15 Exciting New Partnership Creates: Partnership with Plume creates a cloud-native SaaS broadband experience and service management solution within DZS Cloud Enables DZS customers to transform from technology providers to experience providers OpenSync Integration into WiFi6 Devices Optimal Smart Home/Business Experience Increase ARPU Improve NPS Accelerate Service Velocity Reduce Support Calls Eliminate Truck Rolls Lower Install Costs Mitigate Churn
16 Broadband Connectivity Core Network Internet Brilliant Buildings/Enterprises Access Ring(s) n x 10-100G Residential CO / Remote OLT Connected PREMISES 4G/5G Mobile Transport Aggregation n x 100-200G Neighborhood xPON (1-10G+) ONU
17 Brilliant Buildings/Enterprises Access Ring(s) n x 10-100G Residential Neighborhood xPON (1-10G+) CO / Remote OLT 4G/5G Mobile Analytics Policy Device and Service Activation Transport Aggregation n x 100-200G ONU Core Network Internet Software Defined Networking + Broadband
18 Mobile Transport Network Fronthaul Gateway Transport Aggregation Backhaul Transport Cell Site Router Existing Radio Site 4G/5G Radio Site eCPRI / OpenFH CPRI <10G Wi-Fi 6 / Small Cell MOBILE Transport n x 100-200G Backhaul 100-200G Midhaul n x 25-50G 10G PON Backhaul Core Network Internet
19 Fronthaul Gateway Transport Aggregation Cell Site Router Existing Radio Site 4G/5G Radio Site eCPRI / OpenFH CPRI <10G Wi-Fi 6 / Small Cell vBBU / CU O-RAN DU Software Defined / Virtual Network Functions n x 100-200G Backhaul 100-200G Backhaul Transport Midhaul n x 25-50G MOBILE Transport Core Network Internet Software Defined Networking + Mobile Transport
20 DZS Product Portfolio 10G - 400G ZR+ outside plant / network edge hardened optical transport system Market first 10G PON FTTx solutions delivering ultra-high speed, disaggregation-ready Internet services PoLAN solutions delivering security, reliability, cost and space savings for Fiber-based enterprises 5G Transport solutions enabling more capacity, coverage and QoS Extensive portfolio of ONTs and fixed wireless delivering High-speed internet service, always-on, service assurance and advanced WiFi service, whole home coverage and QOS prioritization of data and video content GPON ONTs Fixed Wireless Enterprise ONTs XGS PON ONTs End-to-end intelligence platform for software and network orchestration and automation, advanced data analytics and service management
21 © 2021 DZS – Proprietary and Confidential Year 1 Transformational Milestones New Management Surpassed 1.5M Mobile Port Shipment Milestone YTD 2021: 58 New Customers $64M Equity Raise = Zero Debt Acquired RIFT Software Automation Innovator YTD 2021: Record Orders & Backlog YTD 2021 Revenue Growth: Americas (69%), EMEA (16%) Asia (2%), Mobile (32%), Broadband (15%) Acquired Optelian Transport & xHaul Innovator Transformational Milestones (2021) Launched XCelerate by DZS Next Gen PON Innovations Launched DZS Xperience SaaS Platform CEO Charlie Vogt Wins Light Reading “Person of the Year”
22 Management Misty Kawecki Chief Financial Officer Geoff Burke Chief Marketing Officer Jay Hilbert Chief Revenue Officer Laura Larsen-Misunas Chief People Officer Raghu Marthi Chief Information Officer Justin Ferguson Chief Legal Officer Michael Martin Global Operations Officer Andrew Bender Chief Technology Officer Daniel Won Chief Product Officer Charlie Vogt President & CEO © 2021 DZS – Proprietary and Confidential Executive leadership transforming DZS: Delivering record orders / backlog Gaining market share Accelerating revenue growth in the Americas and EMEA Driving future revenue growth & margin expansion
23 Financial Review
24 Q3 2021 Financial Overview Revenue Adjusted EPS(1,2) Adjusted Gross Margin(1,2) Note: $ in millions, except per share data Refer to “Q1-Q3 2021 Shareholder Reports dated May 3, 2021, August 2, 2021, and November 1, 2021” as an exhibit to the 8-K filed with the SEC on May 3, 2021, August 2, 2021, and November 1, 2021 and available on the Company’s website at https://investor.dzsi.com/investor-relations/default.aspx. Refer to “GAAP to Adjusted (non-GAAP) reconciliations in the Appendix”
25 *2021 Annual Revenue reflects the mid-point of guidance as of November 1, 2021 Revenue Growth Quarterly Revenues (amounts in millions) Annual Revenues (amounts in millions)
26 Revenue by Customer Segment & Geography
27 Margin Expansion Strategy 32.9% Adj. Gross Margin $301M $342M* 34.2%-34.7% Adj. Gross Margin 200-250 bps 150-200 bps 200-250 bps * Mid-point of guidance as of November 1, 2021 EXECUTION 450-600 bps GO TO MARKET 200-300 bps DZS Gross Margin Expansion Opportunity 650-900 bps Product Rationalization Manufacturing Consolidation Supply Chain Optimization Tariff Mitigation New Product Designs Geographic Mix Govt Stimulus Participation Services Offerings
28 Balance Sheet Highlights Cash & Debt DSOs Inventory Turns Debt Cash
29 *Reflects the Company’s guidance as of November 1, 2021 Q4 and Full Year 2021 Guidance (1) Item represents a non-GAAP financial measure. A reconciliation to the comparable GAAP measure is provided in the Appendix section at the end of this document.
30 Appendix
31 Reconciliation of GAAP to Adjusted (Non-GAAP) Results – Three Months Ended September 30, 2021 and 2020
32 Reconciliation of GAAP to Adjusted (Non-GAAP) Results – Three Months Ended June 30, 2021 and 2020
33 Reconciliation of GAAP to Adjusted (Non-GAAP) Results – Three Months Ended March 31, 2021 and 2020
34 Reconciliation of GAAP to Adjusted (Non-GAAP) Results – Three Months Ended December 31, 2020
35 Reconciliation of GAAP to Adjusted (Non-GAAP) Results – Nine Months Ended September 30, 2021 and 2020
36 Reconciliation of Net Income to Adjusted EBITDA
37 Reconciliation of Q4 and 2021 Guidance