Q1 2021 Casa Systems Inc Earnings Call

Greetings and welcome to Casa Systems Q1, 2021 earnings Conference call. At this time, all participants are in a listen only mode for <unk>.

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.

Reminder, this conference is being recorded.

I would now like to turn the call over to your conference host Jackie Marcus Investor Relations.

Thank you operator, and good afternoon, everyone have the systems released results for the first quarter of 2021 ended March 31st 2021. This afternoon. After the market close 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 day Catholics systems Dotcom.

With me on today's call are Jerry Guo Chief Executive Officer, and Scott Bruckner, 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 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 for in 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 of new information or future events.

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 we believe it will help investors better understand our performance or 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 the results of all first quarter of 'twenty 'twenty. One we have continued to execute according to plan and had another great quarter I'd like to share some of the highlights from it with you.

We delivered on our commitment to grow the business with a 25 per cent year over year revenue growth, while delivering significant profitability.

This is one of the strongest growth increases we have experienced as a public company.

54% up the revenue in Q1 came from our wireless and fixed telco products.

With three consecutive quarters from wireless and fixed telco, making off over half of our revenue.

I'd like to emphasize that we are a truly diversified company uniquely able to serve the needs of.

Andy broadband customer.

Whether it be wireless fixed cable for enterprise.

Hi, mom the market segments wireless showed the strongest growth in Q1 with 80% year over year growth.

The strength and resilience for our cable business demonstrated fight this steady revenue and a growing number of msos adopting our virtual C cap core and D. I E solutions.

We again, there are numerous customer out advances with our strategic growth products here other number for the quarter.

17, new purchase orders for all for G and a five to your wireless products, including packet cores radio access network for Us and C. B R S and <unk> fixed wireless access devices.

Five new purchase orders for all virtual router and a fiber extension products.

And six purchase orders for our cable distributed access and the virtue of C cap core product.

And finally, something that I'm very excited about we have integrated our cloud native five G stand alone core functions with two of the largest global Hyperscale public cloud platforms.

Elastic for Banana is service and the Google Cloud Anthos.

This significantly expands the way we can deploy our five standalone core to a service provider customers and now to enterprise customers as well.

It enables our customers to additional come up related to provision and deploy services and applications in the public cloud or a combination of public and private clouds.

Now onto our first quarter performance during Q1, we had one of the strongest quarters ever.

For a public company.

In terms of growth and profitability.

We delivered record wireless revenue growth.

We ended the quarter with a healthy backlog to support our growth for the remainder of the year.

Total revenue for the first quarter was $104 $3 million 25 per cent year over year increase.

And with our continued focus on our operating model and cost structure, we again delivered excellent profitability.

$22 million adjusted EBITDA. This is a for hunting of 52 per cent increase from the first quarter of 2020.

Turning to our product areas wireless revenue was $43 million up 80% from the first quarter of 2020.

Wireless bookings during the quarter also up strongly so our wireless backlog now stands at $156 million, that's off by 427 per cent a year over year.

And 63 per cent of sequentially. After we shipped a record number of wireless products.

Finally, we added several new significant novartis customers during the quarter and now we have 32 wireless customers globally across all our wireless product areas. That's an increase from the 28 per 28 wireless customers. We had at the end of 'twenty 'twenty.

Turning now to our fixed telco segment Fios telco revenue in the first quarter was $16 $5 million, we are seeing some quarter to quarter lumpiness in our fixed telco revenue.

And this is largely due to both customer and product concentration.

We have addressed this in two ways first we have added new customers for our fiber extension products and second we've been increasingly successful in securing purchase orders for all virtual router products.

In fact in the past two quarters, we have seen eight purchase orders for a virtue of being G. In the multi service routers.

The results of day is evident in the increased fees telco bookings and backlog that we saw in Q1.

And finally onto cable cable revenue in the first quarter was $47.5 million.

That's up 10 five per cent year over year.

This increase was driven by cable customers reinvesting in their existing network infrastructure, particularly soft for a capacity licenses.

To address the net where hotspots from continued increases in bandwidth demand and usage.

Before turning the call over to Scott to discuss our financial results in detail I would like to touch on a question that we are frequently asked what the impact our business from Argos and Biden administrations proposed infrastructure plan.

Well, it's still early for us to quantify as a broadband infrastructure company. We believe the two programs will provide tailwind for all the business across all off for all product lines.

That could be incremental to the traction we are currently forecasting in our business.

We will have more to say about this as the year progresses with that I would like to ask Scott to discuss our financial performance in more detail Scott.

Thanks, Jerry and good afternoon, everyone just to reiterate Jerry's remarks, we had a very strong first quarter.

And it was marked by year over year revenue growth of 25 per cent.

Year over year wireless revenue growth of 80%.

And almost 11% increase in our cable revenue year over year and this was as our cable customers increase their investments in existing infrastructure to meet bandwidth demand.

Improved profitability due to higher revenue and.

And an efficient cost structure and this was evident in the significant improvements we saw in both our GAAP and non-GAAP operating margins and as Jerry noted the 452% increase in our EBITDA.

Relative to the first quarter of 2020.

And then finally, we saw year over year growth in our working capital improvements in our liquidity position.

And continued deleveraging.

So all in all this was a really great quarter.

Okay now turning to our performance.

Revenue for the first quarter came in at $104 $3 million.

Breaking this down across our product lines first quarter wireless revenue was $40 $3 million or 39% of revenue.

Cable revenue was $47.5 million.

For 46 percentage of total revenue in the quarter.

And our fixed telco revenue came in at $16 $5 million were 16 percentage of revenue.

Looking further at the income statement GAAP gross profit for the quarter came in at $56 million, that's up 31, 4% year over year.

With a GAAP gross margin of 53, 7%.

Okay.

Total GAAP operating expenses for the quarter were $43 $5 million and that's a decline of 6%.

To the first quarter of 2020.

And as a percentage of revenue GAAP operating expenses were 42% in this year's for first quarter.

Which is down from 55% in Q1 of 2020.

Adjusted EBITDA for the quarter was $20 $2 million or $19 four per cent of revenue.

GAAP operating profit was $12 $6 million in Q1 as compared to an operating loss of $3 $5 million in the first quarter of 2020 and on a non-GAAP basis operating profit was $17 $4 million, that's a significant increase from our non-GAAP operating profit.

314000 in the prior comparable quarter.

GAAP net income was $5 $7 million or six cents per share on a fully diluted basis.

And this is up from GAAP net income of $1 $2 million or one cents per fully diluted share that we booked in the first quarter of 2020.

Non-GAAP net income came in at $9 4 million or 11 cents per fully diluted share and this is up significantly from the non-GAAP net loss of $5 $3 million or negative seven cents per fully diluted share.

We booked in Q1 of 2020.

Okay. Let me now turn to our balance sheet. We ended the first quarter as I mentioned in a very strong liquidity position with an 18, 9% year over year increase in our working capital.

Looking at working capital at quarter end, we had $146 million in cash.

Net receivables of $92 $3 million.

Inventory of $96 $5 million and payables of $25 $5 million.

Now the 8% sequential decline in our cash balance was driven by two things first the timing of payments for component purchases, but this was related to our large backlog.

And second like payments that are normally higher in the first quarter like annual bonuses and prepaid corporate insurance premiums and much of this is reflected in the 38% reduction in our payables balance during the quarter.

But despite the fluctuation in our cash balance.

We do remain on track to continue to grow our cash balance for the remainder of the fiscal year.

And finally, our receivables aging once again remained quite strong with less than 1% at greater than 90 days.

Yeah.

Total debt at the end of the quarter was $298 million and that includes six and a half million dollars from our revolver.

And with our higher adjusted EBITDA in the quarter, our net debt was down to two times trailing 12 months EBITDA.

So to conclude we're very proud of our first quarter.

But before opening the call to questions I do want to comment briefly on our outlook for Q2.

As many of you know the second quarter is usually our lowest quarter in terms of revenue and this is just normal seasonality.

And while we had an exceptional Q1 Q.

Q1 revenue came in ahead of our expectations in part because a few of the orders that we were expecting in Q2 actually materialized in Q1.

So we do expect to see a strong Q2 with year over year growth.

But from what we know today and this includes expected shipping schedules from our large backlog.

Growth in the second quarter will most likely be in the mid single digits versus the double digit growth that we saw in Q1, and then of course for the full year. We are on track to at least meet our guidance numbers.

Okay with that let me turn the call back over to the operator for Q&A.

Operator.

Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is and the question for you you May press star two if you'd like to remove your question from the queue.

Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

And our first question is from meta Marshall with Morgan Stanley. Please proceed.

Hi, This is crown jewel for car on for me to thank you for the question I have two questions first being how do you feel like your visibility is for your overall business a year ago, and I guess, how does that differ between wireless fixed wireless and cable.

Hi, Colin this is Jeremy Yeah, let me answer that question, we feel so much better off all of the ability for the whole business.

Mostly because the compensation for the business.

Much different than what we had a year ago, we have now for more than 50 per cent of our business from Florida is a big telco is set up for cable along and also we have a very large.

Backlog compared to a year ago, we just Florida was below <unk> hundred $56 million.

That helps with that visibility as well.

You know cable space.

You know we have a better visibility now and we also have backlog and to help with that but still compared to wireless that debt book to ship time is short.

Got it thank you and I guess, just a follow up on the wireless side or where are you seeing the most incremental interest in the wireless portfolio is it more on the software side or on the small cell side any color there would be helpful. Thank you.

We you know as we are.

Got it in the past that you know we.

Number three.

Yes.

Package for that radio and other fixed wireless access devices, we see a lot of our activities on the core side.

In terms of number of activities that the that's the number one.

Got it thank you very much.

And our next question is from Kim <unk> from Northland capital markets.

Okay.

Hi, good afternoon, and I'm hopping on late so apologies for them.

Repeating anything.

And just want to focus back in on the wireless backlog.

And then Jerry I think you said 156 million or also a third or.

400, and something per cent.

Growth will figure out which number that is but obviously, that's a substantial increase and I guess my question is.

No.

Yeah, My sense is that your customer traction, especially among tier one carriers globally has been broadening out a bit is this.

Kind of a reflection of that you know how would you sort of characterize this.

Order for order input and increase in backlog with regard to.

Breadth of customers geographically.

In addition to product type I don't know if your last comment was about.

We're kind of broader interest is or specifically regarding the backlog versus core radio access and CPE.

So any color along the other one of those lines would be great.

Alright, okay.

Let's say about the broad interest in terms of number of travelers and deals we have going on.

You know in terms of HUD debt that backlog increase we.

No.

The contribution that we have two country vision and one is the broadening of that portfolio and we continue to appeal with debt.

Backlogs in.

In fixed for artist access packet core and and reduce its more sales as well and.

And we do have Uh huh.

Or is that new customers, adding to the backlog as well as existing customers, placing long term purchase orders as well.

Okay.

Well I guess, let me come back at that another way I mean, as you look across your base of wireless customers. It looked like you know in Q4 came up with at least one new one in terms of a tier one wireless player on the 10% customer list and one other one that was pretty close.

As you look across your your your business right now in your backlog.

On the wireless side in particular.

Many tier one carriers would you say there are potential.

Significant customers for Casa kind of capable of approaching the 10 per cent range.

I'm not ready to give up.

But number yet, but we do have a quite a few there is various thickness it can deal with <unk>.

At this time.

And our next question is from some neat chatterji. Please proceed.

Okay.

All right.

Exactly.

And last one for me.

Welcome.

Uh huh.

One thing.

All.

Why did you guys not really the full year guidance I know you mentioned.

Some of the orders.

From Q do materialize in Q1.

Explains a human skin.

But.

Are there any.

Turns about any slippage in the timing of the project.

Why don't I take that Scott.

Good question, let me just remind you that our guidance is based on the visibility that we currently have into our business. So we had a great first quarter in my comments I noted I think we are on track to have a very strong second quarter and that means that we believe that we're still on track for double digit growth in 2021, So we're extremely confident.

And about our opportunities this year.

And as Jerry mentioned, the backlog grew significantly so.

At this point, we don't perceive that there's any slippage that gives us concern, but as we get more visibility into the second half, we'll update our guidance as appropriate, but I do want to be very very clear.

We are having a very strong year, we started the year very strongly and as I said, we are in my comments. We are on track and this is an important two words to at least meet our guidance range.

Okay.

Okay, and then I had another question.

So how do you see the opportunity around D. C. B other small says well this year.

We are we think that has to be our assets cannot be a really good a tailwind to our tower business in general and you.

You know that we have other three types of stuff artist products from the core to the video to the.

Fixed wireless access we have CBS capabilities in both all right.

<unk> and access devices.

Of course, the poise not spectrum specific thought.

We do see that the court will be part of the solution to serve those customers.

Okay.

Thanks for that.

And our next question is from Scott Fessler with Stifel.

Hey, guys. Thank you for taking my question given the step up we saw there in cable where do you see as the right quarterly run rate for the segment going forward and then what's your outlook there for the back half for the year.

Hey, Scott.

It's a good question and in fact, we thought that given the step up that we saw in the first quarter somebody would ask this question and I'll remind you that we also saw a step up in the in the fourth quarter. In fact, we had about $48 million of revenue for the last eight consecutive quarters. We have seen cable will be in a very steady range of <unk> 40.

The $50 million and that is that continues to be our view on cable for the remainder of the year and remember that.

The step up that we saw Jerry mentioned, it and I mentioned it in my remarks is as a result of our customers investing in existing infrastructure to meet bandwidth demands and increased usage demands and then on top of that we did see new orders coming in already this is like three or four quarters in a row, where we're at.

Seeing.

Strong orders coming in for DAA, and virtual C cap and it's our view that that will be a slower ramp we probably will start seeing the benefit of that towards the end of this year, but it doesn't pick up significantly until next year and the year after.

Great. Thanks.

And then on the millimeter wave side the trials Youre doing there or is it still only for the line of sight lengths are there more edge focused appointments in the works.

Are you, referring to our fixed wireless access that deployment.

With the millimeter wave.

Yeah, Yeah, you had mentioned a millimeter wave trial for.

For the last quarter. So I was just wondering other progress for that.

Yeah, we did and so that that is going extremely well and in fact, you know part of what we announced in our wireless backlog is in fact takes into consideration that acceleration deployment that is still the line of sight product that we announced but we also you know.

I.

Do want to say that it's just not about one customer for from the five millimeter waves.

Got it that's what I was looking for alright, thanks, guys I appreciate it.

And our next question is from Tim long with Barclays.

Thank you.

Two two questions if I could first on the on the gross margin.

You could talk a little bit.

About that it's been pretty strong in the quarter.

Talk a little bit about kind of sustainability to now that the mix is stabilizing a little bit and then.

I think you guys mentioned.

The rural broadband and government initiatives.

That's happening here and in other parts of the world as well so I understanding it's a tailwind or any color you can give us on how you think you guys will participate from a product standpoint, do you think it will be across product categories.

And any color you could give on what you think kind of a timing or magnitude would be for for some of these as drivers for Casa. Thank you.

Sure Hey, it's Scott, let me start with the gross margin and then I'll hand over to Jerry to talk about where we see the opportunities in <unk>.

For all broadband and then also in the recently announced Biden infrastructure program. So the gross margin did trend up this quarter that was largely related to more software, obviously, but in the cable mix.

Remember, we noted over the last several quarters that the tailwind that we saw from COVID-19 with our cable business drove a significant number of chassis sales.

And that was largely related to meet.

Congestion on upstream channels and cable networks. So we saw a lot of node splitting.

We also mentioned that every time, we put a new chassis down with our customers, we not only take additional footprint, but we set up the possibility for new software sales and there. It's a little early to say that debt, we're benefiting from that new hardware and software I think we need to see a few more quarters in order to save so definitive.

But over time, there would be a shift away from hardware towards software in terms of the trend that we see for the year. Just remember that we are not guiding on gross margin. This year. We are focused on delivering profitability further down on the P&L and also free cash flow.

So let me answer that question on the on the other side.

Yeah.

The debt.

Operators for who got the funding from the government are the <unk> findings.

Usually two types one is that the traditional fixed telco and the other one is the cable cable companies and we have products for fall.

All with operators and other cable of course, we have the integrated C cap plus that debt.

Distributed architecture that can provide a gig or multi gig services and on the fixed telco side we are.

Providing fiber extension products as well as debt virtual routers for being G applications for service provider edge routing applications. So those well.

Both benefited from that and rural broadband expansion.

Session.

Okay. Thank you.

As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad confirmation tone will indicate your line is in the question queue. You may price starts if you'd like to move your question from the queue for park.

Thank you for speaker equipment, it may be necessary to pick up your handsets for for question to start.

And our next question is.

From 10 savvy, Joe with northern capital markets.

Alright, sorry about that.

Sideways for the phone last time I wanted to follow up with a couple of questions.

Which is how'd, you discussed 10% customers in the quarter.

In terms of number.

I agree a concentration.

What type of operators et cetera.

Yeah.

And then you kind of addressed the second one a little bit already but.

I wanted to get a maybe a little more color on what youre seeing.

In terms of access across distributed access remote phy in cable it sounds like the activity levels picking up but maybe the.

Deployments for a little bit further out is that a fair way to characterize it.

So Tim it's Scott, let me start with your first question, which is the 10% customers. We did not mention that on the call, but obviously as you know we do disclose that in the Q, which will be filed tomorrow morning. So why don't let me, let that get out into the market and then you and I can have income.

<unk> about that.

Sounds good.

Tim in terms of a distributed architecture and.

We you know we are seeing more and more activities, we do see deployments, but the scale for deployments are not you know.

Uh huh.

And also you know there is a new industry trend up.

Non Mac phy asphalt and that's probably been a also day license a bit so lot of things going on in a way.

<unk> engaged with that.

All types of solutions not just for one single type at this point.

Okay.

Yeah, Thanks very much.

All right, ladies and gentlemen, <unk> reached the end up for question and answer session now I would like to turn the call back over to CEO, Jerry Guo for closing remarks.

Thank you everyone for joining us today before ending the call I want to announce that Casa systems will be hosting an investor day in September 2021 put it at low cost for our press release with more specific details on the event.

We look forward to seeing you all day, yeah. Thank you again.

Okay.

This concludes Tonight's conference you may disconnect. Your lines at this time. Thank you all for your participation and have a great evening.

Yeah.

Yeah.

Yeah.

[music].

Yes.

[music].

Okay.

[music].

Right.

Okay.

Okay.

[music].