Q3 2020 Casa Systems Inc Earnings Call
[music] screening.
Welcome to the Casa systems third quarter 2020 earnings call.
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A brief question answer session will follow the formal presentation.
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It is now my pleasure to introduce your host Jackie Marcus Thank.
Thank you Jackie you may begin.
Thank you operator, and good afternoon, everyone.
[laughter] systems released results for the third quarter of Twentytwenty ended September Thirtyth 2020. This afternoon.
If you did not receive a copy of our earnings release, you may obtain it from the Investor Relations section of our website at Investor <unk> Dot Com systems Dotcom.
Today's call are Jerry quell Chief Executive Officer, Scott Parker, Chief Financial Officer.
This call is being webcast and will be archived on the Investor Relations section of our website.
Before I turn the call over to Jerry I'd like to note that today's discussion will contain forward looking statements based on the environment as we currently see it and as such does include certain risks and uncertainties. Please.
Please refer to our press release, and our SEC filings for more information on the specific risk factors that could cause our actual results to differ materially from the projections described in todays discussion.
Any forward looking statements that we make on this call or the earnings release are based upon information that we believe as of today and we undertake no obligation to update these statements as a result, you exclamation feature of that.
In addition to U.S. GAAP reporting we will.
Certain financial measures that do not conform to generally accepted accounting principles. During the call. We may use non-GAAP measure if we believe it is useful to investors. When we believe it will help investors better understand the former school districts.
And with that I'd like to turn the call over to Jerry Jerry.
Good afternoon, everyone and thank you for joining us today as we discuss our third quarter results.
The third quarter presented a number of highlights Ross I'm very pleased to assure that all financial operational and strategic momentum accelerated during the third quarter.
We delivered exceptional top line performance with double digit revenue growth both year over year and sequentially.
The majority of our revenue in the quarter came from that growth drivers across the business.
Oh artist and fix telco products.
We have several wincing optics telco with a wireless second line in North America, Europe, and Asia Pac this.
Again indicates that major carriers are validating our technology over our competitors.
Demand for our growth products increased this is evident in our wireless backlog, which grew to $118 million net oh shipments.
We now have good visibility into Q4, so we are raising our full year revenue guidance. This represents an important turning point for a copy.
What is particularly gratifying for us is that this inflection point comps during a challenging business environment globally.
Do you have the P. profit cost system in Japan for this.
The hard work on the commitment they demonstrated during these unprecedented times was truly inspiring.
They are without a doubt best in class and they have my deepest gratitude.
Now onto the performance during Q3, we grew our top line.
We diversified our customer base, we grew our cash position.
And we improved profitability.
Third quarter total revenue, a $100 million to $5.7 million.
29% increase year over year, and a 27% an increase sequentially.
This marked a significant improvement in our business.
It's driven by continued robust growth in six telco and watch.
As expected cable was steady and consistent accounted for $42.1 billion revenue.
Wireless and fixed telco now represent the bulk of our business.
Delivering 60% of revenue.
Yes, it validates the strategic direction in which we have been taking our company.
So as we look at the road ahead, one of the biggest challenges we had used to be a spell it commonly how misconception about the nature of our business.
To sum up we have seen primarily as the cable supplier in transition.
That characterization is simply not accurate anymore.
With our current revenue mix.
<unk> Dot com sites, primarily about cable just like saying that Amazon is only about books.
As we achieved this milestone we continue to add new customers for our wireless and the fixed telco products.
Further strengthens the foundation, a growing new product revenue in Q4 and beyond.
Turning to all product areas.
This revenue for the third quarter was $29.2 million, a 40% increase year over year and that 76% an increase sequentially.
Wireless revenue in Q3, it was fueled by a mix of organic and acquired products.
Oh, Gee Fiveg cloud native core.
Smartest CPM.
Small cell core.
And small salary deals.
Additionally, during the quarter, we continue to lay the foundation for additional five G. revenue.
We unveiled the first high powered five g. a million middle way customer premise axis device, which are now in cost my trials.
We added a new wins in enterprise Marcellus part of our focus on private enterprise networks.
And our Fourg to Fiveg cloud native core with the wireless operators in North America and Asia.
And we are deploying your large scale of Fiveg fixed wireless access project for a tier one mobile operator in North America.
All of this service has a further proof points that cost that will be a key player in fiveg.
In Q3, we also saw significant progress across our fixed telco product portfolio.
With the revenue of $34.5 million.
Representing year over year growth helped a 92%.
On a sequential growth of 43%.
In Q3, we also saw new to your wife fix telco customer wins in Europe, and North America.
Turning to cable revenue was $42.1 million.
People in sales over the past six quarters I'd be a relatively steady.
To get to give you have to assess the degree to which our business has been trying to score.
Our percentage of revenue from people has gone from almost 100% a little over a year ago to now just 40%.
All related to the growth of our wireless and the fixed telco revenue.
This is a pivotal shift in our business.
In Q3, as we have seen the last two quarters COVID-19 continue to drive demand for our products.
On supply chain short term shipment delays have been resolved.
Well, what do we continue to address our limited cases of component lead times, well some of our products.
This could push some of our backlog into Q1.
Finally, I like to update you on our outlook for the fourth quarter and the States code 2020.
Due to increased demand for wireless fix telco products. We believe that we are on track to exceed the high end of our revenue guidance range.
Based on our performance year to date as well as I'll, let you has the visibility from our large backlog.
We are raising our full year revenue guidance to $370 million to $380 million.
God will provide more detail in his remarks in a moment.
In summary.
We are outperforming our expectations, yes, bite off a challenging macroeconomic environment.
I am optimistic about our ability to drive long term profitable growth with the more predictable results and expanded customer base.
While there is more work to be done we are well on our way to achieving these goals.
With that I would like to ask Scott to discuss our financial performance in more detail.
Thank you Gerry good afternoon, everyone.
As Jerry mentioned this was an exceptionally strong quarter for college and I'm very pleased with the results we had in the third quarter.
It was a quarter in which we saw significant growth in our topline.
The revenue mix shift, we've been seeking and that 60% of our revenue now coming from our wireless and fixed teleco products.
Higher gross profit dollars, both year over year and sequentially.
Increased operating leverage that drove higher year over year and sequential operating profit.
GAAP and non-GAAP EPS and EBITDA.
Increased cash on our balance sheet as I told you, we would deliver and perhaps what is the most tangible sign of our business progress.
Another significant increase in our wireless backlog.
Turning now to our third quarter results.
Revenue for the quarter came in at $105.7 million, that's up 29% year over year and 27% sequentially in terms of growth. This is exactly the range that we've been working very hard to get back to you.
Looking at our product segments wireless revenue for the quarter was $29.2 million or 27.6% of revenue.
This was up 40% year over year and 76% sequentially.
Six telco revenue came in at $34.5 million or 32.6% of revenue.
And this was up 92% year over year.
And 43% sequentially.
Cable revenue for the quarter came in at $42.1 million.
Were 39.8% of our revenue to emphasize a point the Jerry was making.
The percentage of our business driven by cable is going down well overall gross is up by double digits.
Well, our gross margin in the quarter came in at 49.7%.
Our gross profit for the quarter is $52.6 million, that's up 34% year over year and.
And 22% sequentially.
It's just what's driving our profitability further down on the personnel.
And also fueling resources for investment in growth, while allowing us to reduce our financial leverage.
Total GAAP operating expenses in the quarter were $43.5 million, a 9% decline relative to the third quarter of 2019.
And a 4% increase relative to the second quarter of 2020.
The slight increase in GAAP operating expenses relative to the second quarter was due primarily to increased commission expenses from higher sales in the third quarter from our significant gross and.
And also from increased R&D in Fiveg.
I continue to expect GAAP opex to be in an average quarterly range of 42 million to $44 million.
Non-GAAP Opex was $39.5 million and that's an 8% decrease from our non-GAAP operating expenses in the third quarter of 2019.
Adjusted EBITDA for the third quarter of 2020 was $17 million.
Sequentially, that's up 81% and.
And year over year.
Over 300%.
Additionally, we delivered an operating profit of $9.1 million in a profit before tax of $5.9 million, both figures representing significant sequential increases as well.
Provision for income tax for the third quarter was $2.4 million and we expect tax for the full year to be a benefit of approximately $10 million. This is based in part on adjustments that we anticipate being able to take from the carriers Act.
GAAP net income was three and a half million dollars or four cents per share on a fully diluted basis, and that's a significant improvement relative to the GAAP net loss of eight and a half a million dollars or negative 10 cents per fully diluted share in the third quarter of 2019 and.
The net loss of $3 million were negative four cents per fully diluted share in the second quarter of 2020.
Non-GAAP net income came in at $5.9 million or seven cents per fully diluted share.
Which compares to a non-GAAP net loss of $2.9 million in the third quarter of 2019.
On a non-GAAP net income of zero point $7 million in the second quarter of 2020.
Let me now turn to our balance sheet, and then briefly discuss our liquidity profile.
We ended the quarter with a cash balance of $157.2 million, that's up 4.7% sequentially and 38% year to date.
Total debt includes our term loan b balance of $288.8 million, which as a reminder, doesn't mature until the end of 2023.
And $6.5 billion, if our revolver that we drew down during the quarter and this was to bridge a refinancing of the mortgage on our Andover office facility.
Total inventory increased by 12, and a half a million dollars in the quarter.
And this was related to our increased backlog a good portion of which we expect to ship during Q4.
Accounts receivable increased by $13.1 million due to increased order volume and the timing of certain orders during the quarter and in spite of the receivables increase the aging of receivables in the quarter remains very attractive with less than 1% at greater than 90 days.
Shifting to our supply chain, but we are not immune to the disruptions that cobalt has brought but we have managed better than most in executing on our delivery deadlines.
And in Q4, we will continue to take steps to try to mitigate any impact to our customers.
Turning now to our outlook.
We're entering the fourth quarter with year to date revenue at 76% of the way towards achieving the high end of our full year revenue guidance range.
During the year, we saw significant growth in both our new product revenues and our backlog with stronger activity than expected and this includes increasing momentum in our fiveg and our six telco products.
Wireless backlog at the end of Q3 as Jerry mentioned stood at $115 million, that's a 36% sequential increase from our previous backlog and this is net of new orders deliveries and acceptances during the quarter.
Well a possible second wave of COVID-19, absolutely brings uncertainty with it.
We believe that we are on track to exceed the high end of our full year guidance range. So as Gerry already mentioned, we are updating our full year guidance range as follows.
Revenue.
$370 million to $380 million.
Gross margin.
With hardware comprising a substantial portion of our revenue.
Gross margin will likely be at the very low end of our range, but.
With revenue is expected to be up we expect gross profit dollars to be in line.
Adjusted EBITDA.
38 million to $44 million.
GAAP net income between $4 million and $10 million or between five cents and 10 cents per fully diluted share.
Non-GAAP net income between $7 million and $13 million.
Or between nine cents and 14 cents per fully diluted share.
The P.S. updates that I, just outlined are based on our expectation of both higher revenue.
And higher profitability for the full year EPS.
Well, there's a substantial tax benefit that we expect to book in the fourth quarter.
So in conclusion, we're really proud of our performance year to date.
This quarter demonstrates our ability to execute on what we said we would deliver.
Before turning the call back to the operator, I do want to Echo Jerrys kind words, and I want to express our gratitude to our staff.
Suppliers and manufacturers worldwide, who continue to do exceptional work in these difficult times.
So with that we're ready to start skewing operator.
Thank you.
We'll now be conducting a question and answer session.
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One moment, please while we know poll for questions.
Our first question comes from meta Marshall with Morgan Stanley. Please proceed with your question.
Yes, Hi, this is Chris do you have a car on for meta. Thanks for the question. So just wanted to ask quickly when it comes to fixed wireless growth is there any project base completion risk and 2021.
Oh, we don't believe so we are you know we have being a you know working with multiple.
Multiple customers on.
You know a new pockets that test, we believe Oh is well under control.
Got it thank you and if I could just ask one more on the wireless business can you give a sense of where you're seeing the growth like small cells or software and as you look at the pipeline what is that mostly composed of thank you.
Yeah. So we you know, yes, you know down to we do have a you know a.
Multiple products in the wireless that meant we have a fourg to fiveg packet core small cell pool and.
And the fixed wireless access devices and us more salary deal we do see a growth in all categories a were not able to actually you know.
Segment them at this point.
Yeah, I would just the one thing that I would add to that I'm I'm, probably very close to our backlog I would say that of the 115 million in the backlog, it's a pretty good mix of all of our products that extend from core to small cells or small cell radios, but also for private networks and enterprise and then also the.
The fixed wireless access products.
Got it. Thank you that's very helpful. I appreciate it.
Thank you all.
Our next question comes from Scott Fessler with Stifel. Please proceed with your question.
Hi, guys congratulations on the quarter as more you'll start to flow in which likely carry better margins and fourg, but on the other hand are still hardware heavy what should be the net effect on margin longer term.
So look we don't necessarily focus on that in terms of the product makes hardware and software what we focus on and I think that was evident in the last quarter is growing our top line and growing our gross profit dollars you know as I mentioned this was evident in the third quarter, where we grew gross.
Profit, 34% year over year in 22% from the second quarter and that drove profitability all the way down on the piano and we think that that's an exceptional achievement and that well continue to be our focus.
Great. Thanks, and then sort of going off that with the software piece you know once the hardware is installed is there then an opportunity for for very high margin work there with software coming in on top of it or services be I'm not running over that hardware.
I'd say, yes on both.
All right great. Thank you.
Thank you.
As a reminder to our audience if you'd like to ask a question. Please press star one on your telephone keypad.
Our next question comes from Tim Savageaux with Northland Capital markets. Please proceed with your question.
Hi, good afternoon.
My congratulations as well on the increase.
<unk> guidance.
Just a couple of question as we look into Q4.
Flying but flat maybe up slightly depending on where you are in the range.
Revenue wise, a couple of questions about that and do you expect the mix between your segments.
To change.
In any material way.
Q4 to Q3 and.
Given your commentary around margins I'm, assuming you're not.
Building any some of what we've seen historically kind of.
Capacity, yet or budget flush on the cable side into Q4, so I'll follow up.
Hi, Tim. Thank you are we.
Yeah, we we are still looking at both the new bookings as well as the backlog Giordano at this point, we're not able to answer that Ah Ah you know that the final mix yet at this point. We you know traditionally you know our customers tend to have a year and budgets, but.
Oh, we do not want to comment on that.
Okay.
Well, then I'll move on to <unk>.
The margin.
God, you've guided margins right down to the low end of the gross margins to the low end of that range for the year.
And so when my question is when you talk about kind of a hard where have you been taken in previous quarters. This year.
It has been as focused on the table.
Anything else, you know, adding capacity and adding hardware.
To address those issues is that does that remain the case or.
We also look at maybe the wireless segment or other or fix telco. It's also.
I'm, having a more hardware heavy mix in terms or you know what we have in the market there.
Yeah, Tim let me actually answer from a product or a mix you know on the hardware side we.
We do have a server hardware.
Product in a in a in a or a second Matt and though we have a.
They kind of chassis and I'd be a nose for cable and we have a deep views in that big telco side, and we also have fixed or wireless access devices as well as a small town radios no. It's all hardware components.
We did see a mixture and a and in this past quarter in Q3.
Okay and last question from me, obviously, the telco side, there are real or.
Among the real standout in the quarter in terms of growth I Wonder if you might be able to.
On a drill down from either customer did drop there or.
Fiber.
<unk> <unk> <unk> or enter high speed copper application.
Standpoint, and give us a little more color on what's driving that growth.
Well, we do see that cobin on Ting is driving some of that demand growth, but on the other hand in no. There is no.
Secular growth of bandwidth demand, probably continue to drive that and we when we we might find it very hard to separate those and and in general It's a it's a band the Mad Ah Dr., Linda you know that that shipment in this quarter.
Great. Thanks very much.
Thank you.
Thank you.
There are no further questions at this time I'd like to turn the floor back over to Mr. glow for any closing remarks.
[noise] well, thank you operator, as Scott and I mentioned in our earlier remarks, we are well positioned to take advantage of the five de acceleration on the ship off iden network functions to the cloud. Thank you everyone for joining US today, we look forward to updating you on our progress next quarter.
Ladies and gentlemen. This concludes today's web conference you May now disconnect. Your lines at this time. Thank you for your participation and have a great day.
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