Q2 2021 Casa Systems Inc Earnings Call
Greetings and welcome to the Casa systems.
From Q2, 2021earnings 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. As 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. Casa systems released results for the second quarter of 2021 ended June 30th 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 Doc Casa 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 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.
<unk> 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 that we believe as of today and undertake no obligation to update these statements as a result of new information or future events.
In addition to U.
The different map reporting we report certain financial measures that do not conform to generally accepted accounting principles during.
During the call we may use non-GAAP measures. If we believe it is useful to investors or we believe it to help investors better understand our performance and business metrics.
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 all of second quarter results I am pleased to report that Q2 wasn't not the growth quarter for of Casa systems.
Here are some of the highlights.
The percent topline growth year over year 108 of 11% year over.
Wireless revenue growth with continued strong momentum all of wireless products.
A 63 per say year over year increase you know of wireless backlog.
Which now stands at over $139 million.
56% of total revenue in the quarter.
From all wireless and the fixed telco products. This makes 4 consecutive quarters of for all of new product offerings comprising over half of our revenue.
And numerous customer advances with all of our strategic growth products that show a growing demand for our products.
You are all of the numbers for quarter.
The 11, new purchase orders from DAA and the virtual C cap.
The <unk> purchase orders for wireless course radios on the fixed wireless products.
And an increasing all of wireless customer count to 41 from <unk> 32 in the previous.
Quarter.
And non new purchase orders from virtual router and a 5 day extension products.
Before I review all of second quarter performance I would like to comment on the ongoing supply chain situation.
As you know our business relies on the sales of both software.
And the hardware products.
While our software of production and then unaffected we are seeing component shortages for our hardware products.
During the first half of the year, we were able to take measures non minimize the impact of the shortages on our business.
I see this you know of stronger.
Sales for the 2 quarters.
However, since the end of Q2 of the situation has continued to worsen.
As a result, we are seeing component of lead times extending further.
In order of delivery schedules increasingly being pushed out into the first half of 'twenty to 'twenty 2.
As of today.
Strong growth contribution of software to our business I believe that we remain on track to meet all of our full year guidance.
And that's how large backlog demonstrates we are continuing to benefit from strong demand that's driving our growth.
However, while we reviewed the supply chain issue.
U as transitory I would like to note that if the supply chain situation continues to deteriorate.
The fifth code 2021 results could be adversely impacted.
With that said, let's turn to our Q2 performance.
Total revenue for the.
Given the kind of being at $92.7 million, that's up 11% year over year.
And if we look at all the first half performance revenue was up 18% year over year.
To put these numbers in perspective as of June 30th we have delivered 45 per cent.
<unk> of all of our fiscal of 2021 revenue guidance.
This is ahead of our initial expectations of 40 per cent.
And we'll deliver at this point for all of them as profitably.
Q2, adjusted EBITDA was $11.7 million of 25 per cent year over year.
Quarter of first half adjusted EBITDA was $31.9 million, that's up 100 of 45% over the first half of 2020.
Turning now to our product areas and starting with the wireless we saw significant progress in all of the wireless business in the second quarter not all.
It was wireless revenue up by 111% year over year by the we continued to receive meaningful industry and the customer recognition for our differentiated cloud native 5 G core.
And our industry, leading 5 G of millimeter wave.
The fixed wireless access products.
To name a few.
5 of Chi of millimeter wave using our Auras AI device Optus in Australia set of war record with a single use of reaching peak speeds of over 5 gigabits per second using the 5 G of fixed or wireless.
Wireless connection.
This is now the fourth world record for our fixed wireless that demonstrates the power of fixed wireless as a broadband access technology.
And I'm proud to say that each of these wont records relied on cost of 5 G of fixed wireless access devices.
Oh 5 G of core we now have several deployments in the moment to pull the strong performances, including.
Red hat and naming Casa as partner of the year after deploying our 5 G of converged core all of these industry, leading kubernetes platform open shift.
Orange announcing Europe's first 5 G of Standalone end to end cloud network that featured the concepts cloud native <unk>.
And the working with the Intel on the Red hat, we unveiled our private of 5 G of multi access network solution that rule of law allows service providers.
Providers and enterprises to deploy the personal lives and the private networks with the higher level of security application customization and differentiate the performance.
These are in addition to the deployment of from cloud Native 5 G core on Google Cloud and Amazon Web services.
Services that I noted last quarter.
Truly a great quarter for all of wireless products.
Okay moving onto the fixed telco fifth telco revenue was $17.2 million. This is down 29 per cent year over year, but is up around 4% sequentially.
As I mentioned last quarter of the Lumpiness. We are seeing you know of Fios telco revenue has been due to product and customer concentration and also noted that we are making progress in reducing this concentration. This segment is again, gaining traction and is ramping well for reference.
We are seeing increased demand from our fixed telco and this is evident in the non purchase orders we received in the quarter for all of virtue of being G router and the fiber of extension products.
Finally, let's turn to cable as expected cable was steady in the quarter.
With the revenue of $45 million well this is where the end of $40 million to $50 million range. We have seen for the last 9 quarters in.
In Q2, we had of several of quantitative advancements with our cable products first we expanded our footprint by taking share from.
If all of our competitors.
Second we saw an acceleration you virtuosity of kept of license I know spend by some of our M. S O customers well.
While we still believe that of virtue of C Cup of India, It spending will ramp up gradually.
This is clearly a very positive sign that the cable operators are more ready to make.
Some of the infrastructure upgrade decisions.
Before I turn the call over to Scott to walk through our financials in detail I would like to reiterate that.
But I am very pleased with our progress year to date, we delivered the growth we do so profitably.
Net where we've made meaningful progress with our nextgen infrastructure products for the remainder of the year as we continue to grapple with supply shortages impacting our hardware products I do see unimportant opportunity for us to of continued to grow all of software revenue with us at all.
I'd like to turn the call over to Scott Scott.
Thank you Jerry and good afternoon, everyone.
Just to build on Jerry's remarks, I'm really very pleased with our second quarter results.
In addition to the business achievements of the Jerry noted in all of our product areas, we delivered year over year growth in revenue.
EBITDA and operating profit.
And we ended the quarter with a strong balance sheet in the.
Hence the liquidity.
And lower leverage these are great results, Okay, let's look at these results in detail.
Revenue for the second quarter came in at $92.7 million and breaking this down across our product lines in the second quarter.
And realists revenue, including services was $35 million or <unk> 38 per cent of revenue and as Gerry mentioned this was a significant increase of 111% over the second quarter of 2020.
Cable revenue, including services was $45 million or <unk> 44 per.
Wireless revenue in the quarter.
And our fixed telco revenue came in at $17.2 million or $18.5 percentage of total revenue.
Moving down the income statement.
GAAP gross profit for the quarter came in at 45, and a half million dollars, that's up 5.5% year over year.
A set of GAAP gross margin in Q2 was 49, 1%.
But for the first half of 2021 it was 51 and a half per cent and just a quick note on GAAP gross margin in the second quarter. The 49% margin was driven by product mix, we saw a larger than expected shipments of wireless CPE from customer.
Customers, who are building up inventory to mitigate any impact from component shortages on their product rollout schedules.
Turning to GAAP operating expenses Opex for the quarter was relatively flat year over year at $41.9 million and this represented 45, 2% of revenue.
And this compares quite favorably to opex of 51% of revenue in the same quarter of 2020 and for the second quarter of this year, we did see higher head count and higher stock based compensation expenses as compared to the second quarter of 2020, but these costs were offset by a payroll tax benefit of $2.4 million.
You may recall that we also saw this benefit in the first quarter of 2021 and the benefit was from of cares Act provision that unfortunately ceased when the federal government lifted COVID-19 restrictions in the second quarter. So I don't expect to see this benefit in the second half of the year and as a result quarterly GAAP opex for the remaining.
Remainder of the year will likely be between $45 million and $47 million.
To the EBITDA for the quarter was $11.7 million or 12, 7% of revenue.
And this is up 25% from the second quarter of 2020.
If we look at our results from the first half of the year adjusted EBITDA was $31.9 million or 16, 2% of revenue.
That's up 145% year over year.
GAAP operating profit was $3.6 million in the second quarter, that's up 173% from the prior.
Quarter.
And on a non-GAAP basis operating profit was $9.2 million, which increased 45% relative to the second quarter of 2020.
After interest and other expenses and a provision for tax in the quarter of $3.2 million, we did have a GAAP.
GAAP net loss in the second quarter of $3.2 million or negative <unk> <unk> per share on a fully diluted basis.
Non-GAAP net income however came in at just under $1 million or 1 cent per fully diluted share.
Let me now turn to our balance sheet.
We ended the quarter in a very.
Your your liquidity position with the 20% year over year increase in our working capital.
Looking at working capital at quarter end, we had $169.7 million in cash and that includes $1 million of restricted cash.
Net receivables of $65.6 million.
Inventory of 90.
The strong point $8 million.
And payables of $26.3 million now our cash balance was up 16, 2% sequentially and the increase in the cash balance was driven primarily by our collections in the quarter.
Finally, as Ive mentioned for several quarters in a row, our receivables aging remained.
95, strong with less than 1 percentage of greater than 90 days.
Okay, let's look at our debt.
At the end of the quarter gross debt was $286.2 million and that's down from $293.8 million at the end of Q1 of this year.
Our gross debt is comprised of 200.
Verdi $9.7 million from our term loan b.
And $6.5 million from our revolver.
Gross leverage currently stands at 386 times, LTM EBITDA of $74.2 million and with net debt at $116.5.
<unk> $7 net leverage is now just under 1.6 times last 12 months EBITDA.
The reduction in total debt was mostly due to an excess cash flow payment. We made in the second quarter against our term loan B principal balance.
Before opening the call to questions I do want to mention a couple of things.
Despite the issues, we've seen in our supply chain.
We had a strong second quarter and a strong first half of 2021, we've already delivered 45 per cent of our revenue guidance for the full year and as Gerry mentioned this puts US ahead of our initial expectations for the year.
Ever.
And as Jerry noted for the next few quarters our focus.
To be on working through the supply chain situation, which as you know everyone in our industry is facing.
In order to minimize the impact it may have on our business.
As we do this and this is the final thing that I want to leave you with our.
Our company has never been stronger.
In spite of the industry wide disruption we've seen.
Growing demand for our products as our large backlog demonstrates and.
And we have a very strong balance sheet that we've been leveraging and will continue to leverage as needed to procure inventory for the long lead orders in our large backlog.
Okay with that said I will turn it back over to the operator for Q&A.
Operator.
Well. Thank you we will now be conducting a question and answer session.
I would like to ask the question. Please press star 1 on your telephone keypad. The confirmation tone will indicate that your line of them. The question queue. You May press Star 2 of you would like to remove your question from the queue.
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1 moment, please while we poll for questions.
Thank you. Our first question comes from meta Marshall with Morgan Stanley. Please proceed with your question.
Hi, This is Dave will cargo on for meta Marshall.
So I was wondering sort of Crown Castle mentioned, a slowdown in small cell deployments to make room for macro departments.
Are you seeing any pause and small cell deployments of duty just the ability to allocate labor.
And are there any changes to expectations on the cable side of the business.
Thanks.
Okay. Let me answer that question. We are we are continuously demand force.
The Marcellus of course.
The deployment.
Speed could be impacted by the component of the situation and we're watching the best basically the closely and as true cable we will continue to be cautious about the.
The the short term, but we do see positive signs in the MA.
The impulse.
I would just add 1 very quick thing to that on the small cell side, just kind of amplify gerry's point so wow.
We think the deployments could potentially be impacted by <unk>.
By the supply chain situation, what we are not.
Is the slowdown in demand and in fact, that's evident in the growth that we've seen in our wireless business and in particular in the quarterly growth in our bookings in wireless so our customers continue to order of our customers continue to plan for deployment and everyone's just grappling with what the supply side is throwing.
Net loss.
Got it thank you.
Thank you. Our next question comes from Tim Savage aisle with Northland Capital markets. Please proceed with your question.
Hi, good afternoon pardon me.
C.
A couple of questions on the wireless side as well and you mentioned.
From kind of order dynamics, although it looks like the background did backlog did come down a bit I wonder if you could talk about the dynamics. There you also mentioned maybe some some pull ins of some wireless CPE products.
In.
Backing up to a higher level.
With Ericsson and Nokia over the last couple of weeks were pretty significantly increasing the.
Their estimate of fire of radio access network growth this year, principally driven by 5 G.
What sort of impact do those.
A more.
Domestic views of the market have on Casa.
Thanks, Ken.
We delivered 92 quite of $7 million in our in the in products last quarter and you know you know.
Do you see that Inc.
The significant part of is a wireless Iowa, we replenish.
We're off to finished the backlog with the new orders so we still.
Have a very strong backlog after the delivery of the wireless you know due to the new demand and of the same time, we have the 3 categories of wireless products, the core the CPE and and the smallest house.
Weakness as of right overlap with the Nokia.
In all of the categories, So I wouldn't.
<unk>.
In the K Cup that as a positive or negative from 1 vendors view.
Okay.
Okay.
Great and if I could follow up on the cable side.
And you know a pretty good number of them.
P OS in the Virtualized C cap and remote Phy space I mean wonder if you could characterize those youre getting the significant deployments are the Roes, you're relatively kind of initial deployments.
We don't sit or small.
And.
Is that how does that compare to what you've seen in the past in terms of activity I know you had 1 big order a while back but is it.
More broad based at this point would you say in terms of the operator movement toward the Virtualized C cap and remote Phy and do you expect that.
Appointment of an important factor in your second half.
I would characterize it more.
More of a broad based we have the.
The P O S from both the tier 1 operators as well as Uh huh.
Smaller operators. So it is more broad based and.
The deployment.
1 of them pace still relatively slow both impacted by of course, the that the debt.
Raj will ramp of a D a M.
The architecture as was the partly by supply chain.
Okay. Thanks.
Thank you. Our next question comes from Simon Leopold with Raymond James. Please proceed with your question.
Great. Thank you for taking the question.
I wanted to see if you could talk a little bit about your expectations for mix.
The mix and I'm looking for insight in 2 dimensions..1 is just your sense of how mix well, we'll end up for the for the full year in your reported segments, but the other 1 is given what you've talked about in terms of supply chain constraints versus software. It feels like maybe you should see a little.
[noise] bit about of the gross margin tailwind in the second half of the year software. It's a bigger part of the mix than your original expectations and then I've got a follow up.
The assignment on the mix. So we continue to see of wireless to be.
It's a big a component.
2 hour of second half and as true the gross margins.
We you know.
Our gross margins as you actually noted that very much impacted by the product mix.
We continue to <unk>.
We tried to.
Share for both the software and the.
We still cannot be certain that the mix at this point yet.
And in terms of the supply chain constraints.
In general we hear a lot about semiconductors, so that feels sort of known but just wondering whether there are other constraints that you think are worthy of highlighting or.
Hardware at really the primary issue for you.
Mostly the semiconductors.
And then just finally, if you could give us an update on your thoughts of regarding government stimulus programs, both art off here as well as the other opportunities abroad. How are you thinking about that layering.
Moving to the business it and at what point thanks.
Yeah, we continue to be encouraged by that our government programs. We are engaged with the and quite a few customers, which are in that program and but we still cannot quantify.
<unk> dot yet.
Thank you for taking the questions.
What kind of Simon.
Other reminder, if you would like to ask a question. Please press star 1 on your telephone keypad. The confirmation tone will indicate that your line is in the question queue.
Thank you. Our next question comes from John Marchetti with Stifel. Please proceed with your question.
Hey, guys. Thanks for taking the question. This is Jim Barrett <unk> on for John.
I wanted to go back to the wireless backlog comment.
Fell a little bit sequentially.
<unk> you guys had some pretty good customer adds.
The net on the on the quarter is that indicative that maybe some of these newer customers are still earlier say more more trial.
As of the orders and aren't really havent really ramped yet.
And kind of along that.
What the customer.
It's just if you could give us a sort of a breakdown by geography, where you saw the most interest thanks.
Yeah, Oh wireless backlog of Casa Softballs.
Volume.
Products like of production.
Ongoing production and delivery as well as.
All of our orders as well as our early phases of a of.
The new customers. So because you saw the numbers. So that you know is a pretty large number of customers. So the.
The there's a spectrum of those things and we do expect the.
The order of continuous to grow.
Additionally, I would just add 1 more comment to that look as Jerry said the the <unk>.
Of the backlog moves around the order volume fluctuates from quarter to quarter I do want to point out that we saw a very significant jump from the fourth quarter to the first quarter of last year and if you remember that's when the news about supply chain disruptions really.
The resonating.
Through our industry and so a lot of our customers of jumped up to start ordering and in particular on the CPE side of the business.
The products to ensure that they could meet their a product rollout schedules. So we saw that very first bump from.
From Q4 to Q1.
1 we also saw some very nice bookings.
Between the first quarter in the second quarter, and we do expect that backlog to grow through the year.
Great.
And then.
Could you talk sorry about the.
Sort of the geographic mix of your of your wireless your wireless customers in the quarter.
Yeah.
Yes, so it was.
It was global what we see is North America, moving more aggressively but other regions also we're also seeing traction in other regions as well.
<unk> of America was the largest in the quarter for wireless.
Great.
Thank you.
Thank you there are no further questions at this time I would like to turn the floor back over to Gerry Gould for any closing comments.
Thank you Ed.
And everyone for joining us today before I mean, therefore, I want to remind everyone that Casa systems.
Well be hosting an investor day later this fall we have changed the timing of the event from September to November because of what is turning out to be a very busy period for the investors in September with August.
So net jewelry events.
Look for a press release with the more details on the event in the coming months. We appreciate you joining us today and look forward to of sharing our progress next quarter. Thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Patient of a wonderful evening.
Okay.