Q4 2020 Casa Systems Inc Earnings Call
Greetings and welcome to the Casa systems for 2020 earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad zone.
A reminder, this conference is being recorded it is now my pleasure to introduce your host Jackie Marcus. Thank you Jackie you may begin.
Thank you operator, and good afternoon, everyone.
The systems released results for the fourth quarter and full year 2020 ended December 31, 2020. This afternoon after the market close if.
If you did not receive a copy of our earnings press release, you may obtain it from the Investor Relations section of our website at investors Dot catheter system Dot com.
With me on today's call are Jerry Guo Chief Executive Officer, and Scott Bruckner, Chief Financial Officer.
This call is being webcast it 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 business environment as we currently see it and as such does include certain risks and uncertainties.
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 today's discussion.
Any forward looking statements that we make on this call or in the earnings release are based upon information, we believe as of today and undertake no obligation to update these statements as a result of new information or future of that.
In addition to U S. GAAP reporting we report certain financial measures that do not conform to generally accepted accounting principles.
During the call we may use non-GAAP measures. If we believe it is useful to investors or believe it will be helpful to investors to better understand our performance of our business trends and with that I'd like to turn the call over to Gerry Gerry.
Good afternoon, everyone. Thank you for joining us today as we discuss our fourth quarter in the fiscal year 'twenty and 'twenty results. We ended the fourth quarter on the fiscal year 'twenty and 'twenty with excellent results here are some of the highlights.
We successfully delivered on our commitment in 'twenty 'twenty, two growth profitably and to transform our business.
All of fiscal year, 'twenty, 'twenty revenue and profitability exceeded our previously provided and the revised the guidance range with the double digit growth.
55% of our revenue in fiscal 'twenty and 'twenty came from our growth drivers wireless and fixed telco products and wireless became the largest part of our business in Q4 contributing 42% of our revenue.
We made significant customer advances with our growth products.
Demonstrating that major carriers continue to validate our technology over our competitors.
Here are the non browse for fiscal year 'twenty 'twenty.
26, new purchase orders for our forged and of five G of wireless products, including pack of course radio access network products and the C. B R hasn't of five G of fixed wireless access devices.
The major new customer for our recently launched five G of millimeter wave fixed wireless access device sales.
New purchase orders for all of virtual being G router and the multi service router products and the four new customers for all of fiber to the distribution point products.
And the 14 purchase orders from our cable distributor of access and the virtue of C kind of cool.
We achieved all of this despite the significant ongoing headwinds stemming from COVID-19 once again.
I have the highly talented and dedicated people of Casa systems two of thankful of this.
Their hard work and the commitment of truly inspiring.
Now onto our performance.
And with the Q4, we had one of our strongest quarters.
We delivered record wireless revenue and the we ended the quarter with the healthy backlog to support our top line growth in 'twenty and 'twenty one.
Total revenue for the fourth quarter was $125 million instead.
The southern person of the increase year over year end of 14% of the increase sequentially.
Wireless and fixed telco continued to represent the bulk of our business.
<unk> 60 per cent of the revenue during the quarter.
Yes.
For the full year total revenue was 390 $312 million, an increase of over 39% compared to our fiscal year 2019.
And if we compare the second half of 'twenty to 'twenty two of the Saint Pierre already in 2019, one of our 2019 of revenue included our net kind of acquisition, we grew our revenue by over 16%.
Okay.
And in 'twenty and 'twenty, our focus on our operating model and cost structure pay it off.
We generated a 55 point of $3 million in adjusted EBITDA.
This is a 131 per cent of the increase relative to fiscal year 'twenty 19.
Turning now to our product areas in Q4 wireless revenue was $54 million.
This is the 37% of increase relative to the fourth quarter of 2019.
Wireless revenue in fiscal year, 'twenty and 'twenty. It was $118.6 million. This is the sudden increase of 19, 8% relative to fiscal year 2019.
Yes.
Not only do the we grow our wireless revenue, but it will also increase the number of off all of wireless customers. We now have 28 wireless customers globally across all of our wireless product areas for the virtual E. P C.
Five G of cloud native packet core small cell core and the radios and affords you in a five G of fixed wireless access devices.
I want to call out of the particular success, we had the all fixed wireless access business. We now have customers globally for all of our fixed wireless access products. All 40 of devices. Our C. B R. S devices, all five G of sub six devices and our industry, leading five G.
Our weighted outdoor device that has been the feet charting in several of our record breaking five G of fixed wireless access these test trials globally.
Finally, our wireless backlog remains quite robust.
Yeah.
During the Q4, we were successful in shipping of high volume of our true for your wireless backlog.
So net of all of these shipments and with the build up of new orders all wireless backlog stands out of just under $96 million.
I see wireless as our most important growth driver in 'twenty and 'twenty, one with the sales growth across all four wireless product portfolio.
Turning now to a fixed telco fixed telco revenue in Q4 was 22 point of $1 million in fiscal year 'twenty 'twenty of fixed telco revenue was $98 $8 million. This.
This is an increase of 150 per cent compared to fiscal year 2019.
We saw growth in fixed telco across our entire portfolio.
And we now have customers globally for all of our products a virtue of being G router, which is being deployed by easy the largest MSW of Mexico, our multi service router and our G fast products.
I want to highlight the progress we had in capture of new customers for our virtual router products.
In 'twenty and 'twenty, one we are focused on building on the success with the new and existing copper customers.
And finally on cable.
Payroll continues to be a very profitable and it was again steady and consistent for the seventh consecutive quarter.
Q4 of cable revenue was 48 point of $1 million.
Fiscal year, 'twenty, and 'twenty of revenue or $175.8 million.
During 2020, we did see a large volume of hardware purchases by our MSL of customers. We believe that this sets the foundation for our future Sop rate of expansion of revenue.
While we have not changed our outlook for the pace of virtue of C cap and DAA deployments.
I'm very pleased with the number of engagements and the purchase orders we saw in 'twenty to 'twenty four of these products.
In summary, we are proud of outperformance in 2020 of the past year through a highly volatile market conditions are tough.
But for fiscal 'twenty and 'twenty, we exceeded the high end of our revised guidance range, we diversified the our revenue base. We grew our top line I know we drove profitability.
Going forward.
I remain committed to delivering long term profitable growth with an expanded customer base.
Our strong execution in 2020 sets the stage for continued growth in 'twenty and 'twenty one.
We begin the new fiscal year with a robust backlog and we have approximately 80 active customer engagements in the form of trials and rfps for all of our growth products.
We believe that we are in a strong position to capture many of these opportunities.
With that I would like to ask Scott to discuss our financial performance in more detail and to outline our guidance for fiscal year 2021.
Scott.
Thank you Jerry and good afternoon, everyone.
As Jerry mentioned, we had another exceptionally strong quarter and a spectacular year for Casa and I'm really very pleased with our results.
During the quarter and the year, we saw significant full year growth in our top line.
A continuation of the revenue mix shift that we've been targeting so a majority of our revenue now comes from of wireless and fixed telco products.
Higher gross profit dollars both for the full year in the fourth quarter.
Increased operating leverage the drove double digit growth in operating profit and adjusted EBITDA.
And to increase liquidity quarter after quarter during the year.
Let me now turn to our full year 2020 results.
Revenue for the year came in at $393 $2 million, which is up 39% compared to 2019 and as Jerry mentioned exceeded the top end of our revised guidance range for the year.
And if we look at 2022nd half revenue compared to the second half of 2019, when we first consolidated net com.
Our total revenue grew by over 16%.
Looking at our product lines.
Wireless revenue for the year was $118.6 million or 30% of revenue.
This was up 98% compared to full year 2019, and up 38% on a second half comparison.
Fixed telco revenue came in at $98 $8 million or 25 per cent of revenue.
And this was up 150% compared to the prior year and on the second half comparison basis fixed telco was up 43%.
Cable of revenue for the year was relatively stable at 175 $8 million or <unk> 45 per cent of revenue.
While our gross margin for the year came in at 51%.
Our gross profit for the year is $206 million, that's up 23, 4% year over year or.
From a second half comparison basis.
Up over 16%.
This combined with our efficient cost structure is what is increasing their profitability further down on the P&L and it's also fueling resources for investment in growth.
Reducing our financial leverage.
Total GAAP operating expenses for the year were $176 $4 million.
Or <unk> 45 per cent of revenue for the year, that's down from 61% of revenue in 2019 and again, if we look at second half expenses compared to the second half of 2019 GAAP operating expenses in the second half of 2020 with 39% of revenue.
And that's down from 50% of revenue in the second half of 2019.
Adjusted EBITDA for the year was $55 $3 million.
It's up 131%.
Second half 'twenty 'twenty adjusted EBITDA was up 91% over 2019 second half adjusted EBITDA.
Additionally for fiscal year 2020, we delivered of GAAP operating profit of $24 $2 million.
As compared to $9 $1 million operating loss in 2019 and on a non-GAAP basis.
Operating income was $43 $1 million and this is an increase of 256% year over year.
GAAP income tax for 2020 was the benefit of $15 $1 million.
And the provision of $4 $3 million on a non-GAAP basis now you may remember from our last call that our effective tax rate for 2020 is being positively impacted by NOL carry backs that we've been able to take from the cares Act stimulus package.
One of note that we don't anticipate having a similar benefit again in 'twenty and 'twenty one based on current tax law.
For the full year GAAP net income was $24 $8 million or 29 cents per share on a fully diluted basis and this is up significantly from the GAAP net loss of $48 $2 million or negative <unk> 57 per share per fully diluted share that we booked in 2019.
And remember that the large GAAP loss, we booked in 2019 was primarily due to the valuation allowance on our deferred tax assets that we recorded that year.
Non-GAAP net income came in at $24 $3 million or 28 cents per fully diluted share. This is up significantly from non-GAAP net income of $2 $6 million or four cents per fully diluted share that we book for the full year of 2019.
Now, let's take a minute to review our fourth quarter results.
Jerry said, we had one of our strongest quarters.
We had record wireless revenue.
And a healthy backlog to support our top line growth in 2021.
Revenue in the fourth quarter was $125 billion and this is up 7% year over year and up 14% sequentially.
And as Jerry noted wireless at $54 million of work, 42% of total revenue was the largest revenue contributor in Q4.
Fixed telco was at $22 $1 million or <unk> 18 per cent of revenue.
And cable at $48 $1 million was 40% of Q4 revenue.
Turning now to profitability in Q4 GAAP.
GAAP opex of $44 $9 million with 37% of revenue the.
This is a significant improvement from Q4 2019, when GAAP Opex was 44 per cent of revenue.
Fourth quarter GAAP operating income was.
With $17 $3 million up 73% year over year.
And non-GAAP operating income came in at $22 $4 million up 51% from the fourth quarter of 2019.
And adjusted EBITDA for the quarter was $25 $3 million.
That's a 21% margin and an increase of 39% over Q4 2019.
Let me now turn to our balance sheet.
We ended the year in a very strong liquidity position.
We had $157.5 million in cash.
Net receivables of $94 $3 million. This was up sequentially due to orders that were shipped late in the fourth quarter.
And the inventory of $101.2 million of good percentage of which is comprised of backlog that we expect to ship in the first or second quarter of this year.
Total debt was $291 $3 million, including $6 5 million from our revolver.
And finally on debt, our increased liquidity and higher adjusted EBITDA in 2020 true.
Translated into lower net leverage for the company, which on a net debt basis was around two and a half times LTM EBITDA.
Let me conclude my remarks, with our guidance for 2021.
As Jerry mentioned, our backlog gives us an excellent starting point for the year.
And our focus on an efficient cost structure makes us confident the 2021 growth will be delivered profitably.
A couple of quick notes about our 2021 guidance.
First we believe the gross margin is not the best metric for assessing progress on achieving our key objectives of growth and profitability and to be clear, we're not stating this because we expect gross margin to deteriorate significantly.
This change is related to the way that we run and think about our business given the up and down fluctuations of gross margin based on product mix.
So for our business progress and success, we look at operating income EBITDA.
EBITDA and cash that we are able to deliver irrespective of gross margin.
So going forward, we will be providing guidance for GAAP and non-GAAP operating income in place of gross margin.
Second our.
Our EPS guidance is a reflection of the best estimate we currently have the heart 'twenty 'twenty, one effective tax rate.
Unlike in prior years, where we saw a significant tax benefits. This year, we do expect our effective tax rate to be higher due to both the exploration of the cares Act benefits.
And our inability to recognize tax benefits from carryforward Nols, while we continue to be an evaluation allowance position.
Okay that being said, here's our guidance for 'twenty and 'twenty one.
Revenue.
$425 million to $445 million or almost 11% year over year growth at the midpoint.
Adjusted EBITDA.
$60 million to $70 billion.
Or 17, 5% year over year growth at the midpoint.
GAAP operating income 28 million to $38 million.
Non-GAAP operating income.
48 million to $58 million.
GAAP EPS five cents to <unk> 14 cents.
And non-GAAP EPS 23.
The 32 sets.
And with that we're ready to start the Q&A operator.
Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad. The confirmation tone will indicate that your line is in the question queue in the press star two if you'd like to remove your question from the queue.
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One moment, please while we poll for questions.
Yeah.
Thank you. Our first question comes from Rich Valera with Needham and company. Please proceed with your question.
Thank you.
Just a question on the three business segments and the relative growth outlook of those for the for 2021.
Do you expect growth in all of them are maybe still expecting flattish in cable and just any color on sort of the magnitude of relative growth you expect in the different segments. Thank you.
Hi, rich.
Jerry here, let me answer that question, we are in our business model, we are not counting on the growth in the cable product line.
So we will continue to expect the growth in the telco side of the fixed telco in the wireless.
Got it at any of them.
Between the two of them any any color on which one might see stronger growth or just.
Both of them.
Yeah, we do see clearly of wireless is the strongest growth of product line.
Got it and then.
So are you.
The very strong wireless shipments and use some backlog how does the order outlook look for wireless do you expect to be building backlog. The net over the next couple of quarters of any any color on that at all.
Oh.
You know in the end.
And prepared comment we already mentioned that we have.
Ah received the significant waters tool.
The you know what day.
Shipped in Q4, and we do see the wireless orders will continue throughout the year.
Got it.
And then just on the on the supply chain side, there's been a lot of talk about component shortages generally speaking in tech wondering are you guys seeing any of that has that affected you at all at this point.
Scott do you want to take that.
Yeah, absolutely true and I was just coming off mute. So rich you know as we said in our previous calls throughout the year that Casa is absolutely not been immune to disruptions that COVID-19 brought to the supply chain, but we were able to manage the he's extremely well in 2020 with no material delays in product deliveries to our customers. So in <unk>.
'twenty one we will continue to take steps to try to mitigate any impact from supply shortages, but we do acknowledge that this is the risk for the coming year, but with respect to the 2021 guidance that we've given we've used the best information about Theres currently available to develop the budget and guidance.
Got it appreciate it and just one final one from me on the model the.
Tax rate for 2021, you said, it's going to be higher can you give us some kind of range there Scott.
Yeah, So what I would do you know or tax.
I said previously is a little bit funky, so what I, what I'm going to do is guide for the absolute tax dollars that we will pay for 'twenty 'twenty, one and so we expect to be paying in a range of $10 million to $12 million for the year.
Perfect. Okay, Thanks, gentlemen, and congratulations on a strong finish to the year.
Thank you rich.
Yeah.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad. The confirmation tone will indicate that your line is in the question queue.
Our next question comes from meta Marshall with Morgan Stanley. Please proceed with your question.
Great. Thanks, maybe a question on the wireless business and just you know you mentioned quite a number of products that you're seeing traction with but should we assume.
The the vast majority of that revenue is still or I guess the.
The majority of the revenue is still small cell base and then maybe just the second question. You know you mentioned, having kind of a customer on the five G millimeter wave product I'm, just if you could speak a little bit more to the trials that are being done or when do you think that that product could scale either with your main customer.
Kind of with with other customers. Thanks.
Hi, Amit let me answer that question are we actually had the P. O. So the revenue from all.
All three types.
Type stuff of wireless products from the small.
More sales the radio and to our fixed wireless access products, both for the unified and packet of course.
And we did have a more hardware than software in 2020.
As two of millimeter wave.
Trials, Oh, and and and and the ramp we we do expect the minimum of wave to ramp in 2021 and that the.
The trials, we conducted the or with the copper of.
Operators to to basically to break the record on the distances of millimeter wave of can travel with the line of sight and we believe well you know we will continue to hold that records at this point and we.
And.
And we do believe that we're going to have multiple custom.
Customers to ship.
The millimeter wave of wireless products this year, even though the 2020.
<unk>.
The revenue did not include of millimeter wave.
Shipment.
Got it and maybe just on.
You know as you've cleared out some of the wireless pipeline and added additional of kind of new pipeline. How is the visibility of revenue recognition for that pipeline. You know do you guys feel as if you kind of have a better sense of when that pipeline go get recognized or is it largely from new customers.
Are you still need to get qualified ex.
We actually have a much better visibility of this time around the loss share with the with.
The outdoor radio.
We are we.
They're at risk of like we discussed the Scott discussed earlier.
Hi, Chad, but other than that we.
We do expect our.
The customer acceptance, but the risks are very manageable all of you.
Great. Thanks, again meet the didn't meet of the only thing I would add to that question is as we said in the previous quarter. We do expect debt. The bulk of this backlog will get shipped in the next couple of quarters.
Great. Thanks.
Thank you there are no further questions at this time I would like to turn the floor back over to Jerry for any closing comments.
Well thank you for.
For joining this conference and looking forward towards the you as the guys are the next conference call.
Okay.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful evening.