Amendment to Current Report (SEC Filing - 8-K/A)

We experienced an increase in broadband connectivity order flow and revenue spanning North America and EMEA during the first quarter of 2021, and a significant increase in order and revenue across all regions year-over-year. In North America, order growth exceeded 100% year-over-year as certain customers in the North American market have been accelerating activity related to government sponsored broadband funding to expand and enhance their access networks. These orders support increasing broadband services demand and growth in internet traffic as the result of a shift towards telecommuting, distance learning, sports gaming and telehealth. Equally important as we strive to further diversify our geographic revenue footprint, orders from EMEA increased nearly 60% year-over-year led by our fixed fiber access portfolio while demand in Asia remained strong for both mobile transport and fixed broadband connectivity solutions, with orders up 163% relative to the same period of 2020. Our Q1 orders in North America, Latin America, and EMEA combined to increase 77% year-over-year and were led by our fixed fiber broadband connectivity portfolio. North America, Latin America, and EMEA collectively represented greater than 50% of total orders in the first quarter of 2021.

North America,

Latin America, and

EMEA collectively

represented greater

than 50% of total

orders in the first

quarter of 2021.

Accelerated Broadband Connections for Work, Education, Healthcare and Entertainment

With innovative cutting-edge technology spanning wireless and wireline solutions, global supply chain partnerships, services supporting customers in more than 100 countries, and a strengthened balance sheet, DZS is well-positioned for a world transformed by COVID in which broadband connectivity has become a necessary lifeline for work, learning, and play.

Our investment thesis and our go-to-market strategy are gaining traction and momentum and are validated with new customer wins and bookings. Building on our mobile-edge transport and broadband connectivity business throughout Asia, during the first quarter of 2021 DZS delivered record orders across North America and the EMEA regions as service providers continued to upgrade and expand their 5G and fixed broadband networks.

...during the first

quarter of 2021 DZS

delivered record

orders across North

America and the

EMEA regions as

service providers

continued to upgrade

and expand their

5G and fixed

broadband networks.

Transformational Initiatives

DZS took steps in the beginning of 2021 to improve its balance sheet and position itself for strategic investments. On Jan. 29, the company raised $64.4 million in gross proceeds via a successful equity offering. These proceeds provided DZS with the financial flexibility to pay down approximately $41.8 million in short- and long-term debt and to make a series of strategic investments.

In the first quarter of 2021, DZS acquired two technology companies which are part of a broader growth playbook to expand our product portfolio, increase our gross margins, enhance engineering expertise, and create incremental opportunities in North America, EMEA, Latin America, India, and beyond.

On Feb. 5, DZS acquired coherent optics innovator Optelian. This acquisition introduced the 'O-Series' to the DZS portfolio of carrier grade optical networking products with 100 gigabits per second (Gig) and above capability, expanding our branded DZS Chronosand DZS Velocityportfolios by providing environmentally hardened, high capacity, and flexible solutions at the network edge. O-series products feature advanced designs supporting remote and far edge deployment scenarios. As 5G and 10 Gig services proliferate around the world, the DZS environmentally hardened coherent optical solutions provide cost effective carrier grade transport options for service providers globally.

In the first quarter of

2021, DZS acquired

two technology

companies which

are part of a broader

growth playbook to

expand our product

portfolio, increase

our gross margins,

enhance engineering

expertise, and

create incremental

opportunities in

North America, EMEA,

Latin America, India,

and beyond.

On Mar. 3, DZS acquired software defined orchestration, automation and network slicing provider RIFT. This acquisition provided DZS with a carrier-grade software platform that simplifies the deployment of any slice, service or application on any cloud, and formed the foundation for the launch of DZS Cloud. This acquisition builds upon the 20 million mobile and fixed broadband products DZS has deployed in more than 100 countries, providing a powerful platform for the new DZS Cloud portfolio, with end-to-end intelligence for software orchestration, network slicing and automation, advanced data analytics, and service management.

The introduction of DZS Cloud accelerates our vision and strategy to balance hardware, software and service solutions. While we expect our software revenue as a percentage of our total

The introduction

of DZS Cloud

accelerates our

vision and strategy

to balance hardware,

software and

service solutions.

New Customers, New Opportunities

Building on our mobile transport and broadband connectivity momentum, our market-leading Open RAN 5G, FTTx PON, and cloud-native software solutions delivered encouraging results in Q1 2021.

The DZS Cloud and O-series portfolios were designed for large scale Tier I service providers. The DZS customer footprint now includes 12 of the top 25 wireline and wireless telecommunications service providers throughout the world measured by 2020 revenues. New additions to our customer base of top 25 service providers included TELUS, AT&T, and LUMEN, as well as major North America service provider Windstream. At the end of Q1, Tier I service providers represented in excess of 50% of total revenue.

Overall, DZS added 24 new customers in Q1 2021, with North America and EMEA experiencing the strongest customer growth, demonstrating traction towards our goal of diversifying our geographic mix.

The DZS customer

footprint now includes

12 of the top 25

wireline and wireless

telecommunications

service providers

throughout the world

measured by

2020 revenues.

Technology and Market Dynamics

Our global product rationalization and research & development alignment associated with our mobile transport, fixed broadband, connected premises, and cloud software technology pillars is complete. We have now formally branded each individual solutions portfolio aligned with each of these four pillars:

● Orchestration, Automation, and Analytics → DZS Cloud portfolio

● Mobile Transport → DZS Chronos portfolio

● Broadband Access → DZS Velocity portfolio

● Customer Premises → DZS Helixportfolio

Our global product

rationalization
and research &

development

alignment associated
with our mobile

transport, fixed
broadband,
connected premises,
and cloud software

technology pillars
is complete.

We believe these portfolios are well aligned with the secular industry trends and opportunities impacting the communications services market today and have been architected to have the agility and flexibility to adapt and thrive during market disruptions.

The market dynamics of the Covid-19 pandemic have been difficult to predict. Despite the economic hardships that impacted many industries, broadband connectivity experienced extraordinary demand for telecommuting, distance learning, gaming, telehealth, streaming video, and entertainment. We believe that these shifts are not temporary and will continue to fundamentally change the way people and businesses connect and communicate in the future.

Our outlook is supported by the latest Fiber and Copper Access Equipment Forecast published by Omdia in February 2021. In this report, Omdia projects year-over-year revenue growth for wireline broadband access equipment every year starting at yearend 2021. Additionally, Omdia has increased their total wireline broadband access equipment revenue forecast for 2025 by 30% over their previous forecast from July of 2020.

Wireline broadband access equipment revenue - PON + P2P + DSL/Gfast: this year's forecast vs. previous forecast (published Jul 2020)

Omdia projects
year-over-year
revenue growth for
wireline broadband
access equipment
every year starting
at year-end 2021.

Source - Omdia, Fiber and Copper Access Equipment Forecast, February 2021, Results are not an endorsement of DZS. Any reliance on these results is at the third-party's own risk.

According to this same Omdia forecast, the majority of this revenue growth will be derived by fiber-based Passive Optical Network (PON) technologies, forecast to grow at a 10% annual CAGR from 2020 through 2026. The PON market is an area of strength for DZS, who is already among the leaders in PON technologies globally both in market share and innovation.

Global PON, P2P, and xDSL/Gfast access equipment revenue

Source - Omdia, Fiber and Copper Access Equipment Forecast, February 2021, Results are not an endorsement of DZS. Any reliance on these results is at the third-party's own risk.

Omdia projects a rapid shift to next-generation PON technology. By year-end 2022 according to the Fiber and Copper Access Equipment Forecast published by Omdia in February 2021, the emerging 10G+ XGS-PON and 10G EPON will represent over half of PON revenues. Next-gen PON equipment revenues are forecasted to grow at a 36.2% CAGR from 2020-2026.

The PON market is

an area of strength
for DZS, who is
already among
the leaders in
PON technologies
globally both in
market share
and innovation.

PON equipment revenue forecast by next-gen vs. non-next-gen

Source - Omdia, Fiber and Copper Access Equipment Forecast, February 2021, Results are not an endorsement of DZS. Any reliance on these results is at the third-party's own risk.

According to the Omdia February 2021 Fiber and Copper Access Equipment Forecast, Asia (excluding China) leads the PON growth pace and outlook through 2026 with 19.4% CAGR, followed by EMEA with 11.7% growth, and the Americas with 8% growth. With Asia representing 53.0% of total revenue in the first quarter of 2021, we are well positioned to participate in Asia's elevated growth potential.

PON equipment revenue by region/country

Source - Omdia, Fiber and Copper Access Equipment Forecast, February 2021, Results are not an endorsement of DZS. Any reliance on these results is at the third-party's own risk.

As noted above, DZS expanded and enhanced its mobile and optical transport portfolio and introduced DZS Cloud in Q1 2021. The introduction of the O-series product family enables a broader mobile transport portfolio which includes coherent optics for higher capacity (100+ Gbps) and longer reach mobile transport applications designed for emerging 5G network requirements. With the rise of 5G-based networks, extreme low latency and high-performance synchronization is required.

The introduction of

the O-series product

family enables a

broader mobile

transport portfolio
which includes

coherent optics

for higher capacity
(100+ Gbps) and
longer reach mobile
transport applications
designed for
emerging 5G network
requirements.

DZS Cloud benefits mobile and fixed broadband access networks through network functions that are designed into the cloud in a container-based architecture.

When TELUS selected DZS Cloud for network service orchestration, slice management, and software automation, the key use cases were the acceleration of their 5G network and digital transformation. DZS Cloud will enable TELUS to deliver agile and automated life cycle management of virtual applications and services, unlock operational cost savings, and decrease churn and time-to-market. These advancements are achieved by reducing manual application management across TELUS data clouds, including end-to-end network service orchestration with slice management functions and software automation designed to accelerate and manage digital transformation across 5G and broadband services.

Chinese supplier security concerns continue to create opportunities for DZS. The number of countries that have banned or cancelled projects is growing, with several countries (Canada, Sweden, Romania, Latvia, Estonia, Poland, and Taiwan joining the United States, United Kingdom, Australia, Finland, Japan, and India) to either discourage or outright ban Huawei equipment deployments. Formal reimbursement programs for replacing Chinese equipment suppliers are underway in the U.S. and the U.K. as well. DZS is experiencing heightened interest spanning many countries and has booked new business as a direct result of Huawei cap & grow or replacement initiatives.

Source: New Statesman (NS Tech) and DZS analysis

● Charlie Vogt, President & CEO

'Playing Long Ball - Mission, Vision, and Momentum'

● Charlie Vogt with Matt Bross (DZS Board Member, Former CTO BT and Huawei)

'Inside Baseball Chat with Hall-of-Famer Matt Bross'

● Andrew Bender, CTO

'Market Scouting Report'

● Customer Perspectives (Speakers TBA)

'Fan Perspective-Customer Testimonial'

● Miguel Alonso, VP Global Product Line Management

'A Powerful Line-up - Portfolio & Innovation Roadmap'

● Tom Cancro, CFO

'Moneyball - Financial Results & Outlook'

● Post-Game Q&A with Management - Charlie Vogt (CEO), Tom Cancro (CFO), Andrew Bender (CTO), Miguel Alonso (VP PLM)

A series of 'Fan Perspectives' will also be shared by a variety of service providers from across the industry and around the world. We highly encourage shareholders, analysts, suppliers, and customers to join us at this virtual event for insights into DZS innovations, opportunities, and insights.

Please visit hereto register.

Building on a strong second half of 2020, DZS delivered its third consecutive strong quarter with revenue of $81.0 million, exceeding the high-end of our $70-75 million guidance range and increasing 70.7% year-over-year. Mobile transport continues to perform well while we are seeing a noticeable increase in broadband connectivity in the Americas (North America and CALA) and in the EMEA regions. During the first quarter, we recognized two customers that each represented 10% or greater of total revenue. New design wins, strong demand from Tier I customers, favorable geographic mix, improved supply chain cost management, and overall spend management discipline resulted in an adjusted gross profit margin of 35.0%-the highest since the first quarter of 2018 and adjusted EBITDA of $3.6 million, an $8.4 million improvement compared to Q1 2020.

DZS Mobile Transport and Fixed Broadband Both Drive Q1 2021 Revenue Growth

Revenue by Customer Segment

(amounts in millions)

Building on a

strong second

half of 2020,

DZS delivered its

third consecutive

strong quarter

with revenue of

$81.0 million,

exceeding the

high-end of our

$70-75 million

guidance range

and increasing

70.7% year-

over-year

Revenue Mix by Geographic Region

(amounts in millions)

Sales to customers in Asia continue to represent our largest region, representing approximately 53.0% of revenue in the first quarter of 2021, or $42.9 million. Revenue from the region reflected continued momentum in South Korea, Japan, Vietnam, and Taiwan for our next generation mobile edge access transport and fixed broadband access solutions. By comparison, revenue from customers in Asia was $24.5 million in the first quarter of 2020 and $53.7 million in the fourth quarter of 2020. The sequential delta was the result of seasonality including project timing of various mobile transport and fixed broadband projects and deployment schedules. The year-over-year increase was the result of new design wins, project activity, and the early onset of the COVID pandemic in Asia.

Sales to customers in the Americas region were $20.2 million in the first quarter of 2021, representing 24.9% of revenue, an increase of 72.4% from $11.7 million in the first quarter of 2020. Revenue increased 11.1% from $18.2 million in the seasonally strong fourth quarter of 2020. The Americas region is benefiting from a noticeable increase in activity related to a new go-to-market strategy, sales personnel enhancements, and various government sponsored broadband access spending initiatives, including RDOF, helping to drive demand for fiber access products.

Sales to customers

in the EMEA region

were $17.9 million,

or 22.1% of total

revenue in the first

quarter of 2021, an

increase of 6.4%

5G, IOT, and fixed broadband connectivity demand continues to exceed the availability of supply across the industry. For DZS, due to its strengthened relationships with key semiconductor suppliers and strong execution, our supply chain and operations team continues to successfully manage a constrained supply chain that has resulted in elongated lead times. Adjusted gross margin for the first quarter of 2021, which excludes depreciation and amortization, and stock-based compensation was 35.0%. We achieved our highest level for adjusted gross margin since the first quarter of 2018 as the initial impacts of our corporate optimization and streamlining efforts are flowing through to our financial results and are inclusive of favorable geographic, customer, and product mix.

During the quarter, we made the strategic decision to streamline our supply chain by initiating the consolidation of our manufacturing facilities. We anticipate completing the product manufacturing transition from our Hanover, Germany facility to a more cost-effective contract manufacturing model designed to deliver improved margins and profitability in the second half of 2021 and into 2022. Our existing Hanover, Germany location is in the process of transitioning to a sales, service, and R&D facility, and we anticipate that transition to be completed in the second half of 2021.

We achieved our

highest level for

adjusted gross

margin since the first

quarter of 2018 as

the initial impacts

of our corporate

optimization and

streamlining efforts

are flowing through

to our financial

results and are

inclusive of favorable

geographic,

customer, and

product mix

GAAP operating expense was $51.2 million, compared to $37.6 million in the fourth quarter of 2020 and $23.6 million in the first quarter of 2020. GAAP operating expense during the first quarter of 2021 was impacted by a $6.3 million restructuring charge associated with the planned shutdown of our manufacturing operations in Hanover, Germany and a $14.2 million increase in bad debt expense for a large-scale, multi-year broadband connectivity project with a government entity in India that began in 2016 and was completed in 2018. Revenue was recognized between 2017-2019 with approximately 70% of the total multi-year project collected. During the fourth quarter of 2020, our GAAP operating expenses were adversely impacted by a $3.1 million reserve for bad debt expense for that same Indian government project. Based on recent government related developments in India which surfaced in Q1 2021, we have reserved the remaining $14.2 million. Despite this non-cash increase in bad debt expense, we will continue to aggressively pursue the entire outstanding balance, including legal action if required. Additionally, we recorded a $1.7 million impairment of assets in the first quarter as we continue to reduce our fixed cost footprint by consolidating U.S. non-manufacturing roles into our new headquarters facility in Plano, TX. During the quarter, we completed the new office space for our new headquarters facility, including a new Center of Excellence and world-class engineering lab.

Adjusted operating expense, which excludes depreciation and amortization, stock-based compensation, executive transition costs, bad debt expense, headquarters relocation costs, intangible asset impairment, acquisition costs, and restructuring costs was $25.7 million compared with $25.2 million in the fourth quarter of 2020 and $22.0 million in the first quarter of 2020. The increase on both a sequential and year-over-year basis was the result of higher sales commissions due to better-than-expected sales volumes during the first quarter of 2021 in addition to strategic hiring decisions across sales, product, and research & development in the second half of 2020 and into the first quarter of 2021 with the intent to accelerate growth and capture market share. Additionally, adjusted operating expenses were modestly higher than initially projected due to the acquisitions of Optelian and RIFT.

Adjusted operating income was $2.6 million or 3.2% of sales which compares with $4.2 million, or 4.7% of sales, in the fourth quarter of 2020 and an operating loss of ($5.6) million in the first quarter of 2020. The sequential decline was the result of lower sales volumes combined with higher operating expenses, partially offset by an improved gross profit margin. The increase compared with the first quarter of 2020 was

due to the significant increase in year-over-year sales volumes combined with the improved gross profit margin and partially offset by the increase in adjusted operating expenses.

Our GAAP net loss was ($23.2) million, or ($0.92) loss per diluted share. This compares to a GAAP net loss of ($14.0) million, or ($0.65) per share, in the fourth quarter of 2020 and a loss of ($8.8) million, or ($0.41) per share, in the first quarter of 2020.

After removing depreciation and amortization, stock-based compensation, executive transition costs, bad debt expense, headquarters relocation costs, asset impairment, acquisition costs, restructuring costs, and a loss on debt repayment, we recognized an adjusted net income in the first quarter of 2021 of $2.5 million, or $0.10 per share. By comparison, we recognized an adjusted net loss of ($1.2) million, or ($0.06) per share, in the fourth quarter of 2020 and an adjusted net loss of ($5.4) million, or ($0.25) per share in the first quarter of 2020. During the fourth quarter of 2020, we also recognized ($3.7) million of realized and unrealized foreign currency exchange losses largely in connection with our Korean Won denominated shareholder loans. Our shareholder loans were repaid in February 2021, and the majority of the remaining debt was repaid by March 31, 2021.

Adjusted EBITDA for the first quarter of 2021 was $3.6 million, or 4.4% of revenue. This compares to an adjusted EBITDA of $0.4 million in the prior quarter and an adjusted EBITDA loss of ($4.8) million in the first quarter of 2020. Adjusted EBITDA during the first quarter of 2021 included $1.0 million of realized and unrealized foreign currency exchange benefit largely in connection with our now repaid Korean Won denominated shareholder loans.

...we recognized an

adjusted net income

in the first quarter of

2021 of $2.5 million,

or $0.10 per share.

By comparison,

we recognized an

adjusted net loss

of ($1.2) million, or

($0.06) per share,

in the fourth quarter

of 2020

Our shareholder

loans were repaid in

February 2021, and

the majority of the

remaining debt

was repaid by

March 31, 2021.