Q4 2021 Casa Systems Inc Earnings Call
Greetings and welcome to the Casa systems Q4, 2021 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation if.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I'll now turn the conference over to your host Jackie Marcus you may begin.
Thank you operator, and good afternoon, everyone.
The system released results for the fourth quarter and full year ended December 31, 2021. This afternoon after the market closed.
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 <unk> Cassa Flash system Dotcom.
With me on today's call are Jerry Guo, our Chief Executive Officer, and Scott Bruckner, Our 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 it 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 events.
In addition to U S. GAAP reporting we report certain financial measures that do not conform to generally accepted accounting principle.
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 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 to discuss our fourth quarter on a fiscal year 2021 results as I noted on our last earnings call. Our full year results will likely be impacted by global supply changes.
Despite this I'm happy to report that 2021 was another growth year for our company.
All four year revenue came in above the midpoint of our updated guidance range. I am also extremely pleased with our material advances we made in the whole wireless business during the fourth quarter end of four years.
Wireless is now the largest source of our revenue on an absolute and relative basis.
Before diving into our results I want to update you on the ongoing supply chain situation.
As I noted on our last earnings call, we saw approximately $11 million of impact from supply chain shows in the third quarter of last year.
I know, we noted that would likely see continued impact in Q4, including the fourth quarter.
The net impact of supply chain delays for the full year was approximately $29 million.
What's important to notice that absent this impact our full year revenue would happy in line with our initial guidance.
We do expect to see that $29 million impact recognized as revenue in the current fiscal year.
However, I want to caution that that they are very likely won't be additional supply chain delays affecting our hardware products in 2022.
Well this is reflected in our full year guidance. That's got a I'll give you I'll continue to update you on where we stand on supply chain as the year progresses.
Okay, now turning to our product lines and starting with the wireless as I mentioned, we saw extremely strong performance in our wireless business. This year, we made a commitment to grow our wireless business and we delivered.
With the $56.3 million of wireless revenue in Q4.
$175 $8 million in fiscal year 2021 .
Yeah.
With this result wireless became not only the largest source of revenue for the company contributing 53, 5% in the fourth quarter and up 43, 8% in fiscal 'twenty to 'twenty, one, but also our most critical growth driver.
Increasing on a year over year basis by 11, 7% in Q4 and by 48, 2% for fiscal 2020 one.
Additionally, we grew our largest customers in the fourth quarter to 47, that's up from 28 at the end of 2020.
We achieved these results despite the supply chain issues that we faced in the second half of the year that caused us to push out shipments of certain of our wireless hardware products into 'twenty to 'twenty two.
Yeah.
Turning to cable we continue to make progress with our next Gen products. As an example, we announced last week that Rogers has selected <unk> to power. Its next generation of broadband services with all virtual C cap core and the distributed access architecture and no solutions.
We are extremely excited to be a partner in with Rogers on this important network upgrade.
However, even with these advances our fourth quarter on a full year cable revenue was impacted by chip shortages, which led to delayed shipments of southern new cable products, including remote phy that'd be the F. Two products.
Currently we are seeing supply chain shortages related to our cable products of up to 12 months. So we do not expect to see growth in our cable revenue during 2022.
Yeah.
Our fixed telco products was similarly impacted by supply chain.
Which led to a decline year over year revenue for the fourth quarter and full year.
However, we did see continued advances with our virtual <unk> router software product with the five new purchase orders as a result, I feel much better about it what do we can achieve this year without fixed households software products.
Before turning the call over to Scott I want to say a few words about our outlook for the current fiscal year.
As we noted during our Investor day meeting 2022 will be a significant transition year for Casa.
What this means is that our focus going forward is on Tuesdays.
Growing our cloud software revenue and scaling back our lower margin hardware products.
Toppled with continuing supply chain. He shows this may mean, lower hardware revenue during our transition year, but it won't be a significantly higher margins and a greatly improved profitability of our company beginning of this fiscal year.
The benefits of this strategic pivot are already evident in the success, we're seeing with our wireless and fixed telco software products.
Todd will provide details on 2020 two guidance in just a moment.
As many of you know Scott will be leaving Casa before our next earnings call I regret to see him leave but I'm very grateful to him for the contributions he has made to our business during his more than four years at cost assistance.
I want to thank Scott for his hard work and for his commitment to assist us during the transition to his successor.
I speak for the entire cost of the team in wishing him. The best in his future endeavors, we have already initiated a search for his replacement and well keep you posted as the search progresses.
With that said I'd like to turn the call over to Scott Scott.
Thank you Jerry and good afternoon, everyone cause Jerry mentioned, even though we face supply chain headwinds and component shortages in the fourth quarter and full year.
We're still able to deliver another year of profitable growth and with strong free cash flow.
Okay, So turning to our 2021 results and starting with revenue.
For the full year revenue came in at $401.3 million, that's up two 1% compared to 2020 and he is in the upper end of our revised guidance range.
For the fourth quarter revenue was $105 $1 million and well that's down 12, 8% year over year.
Negative growth is due exclusively to push outs from component shortages and resulting shipping delays.
To put this in perspective as you just heard from Jerry.
$29 million impact to our full year revenue from supply chain delays across all of our hardware products and if it weren't for these delays we would have seen year over year growth in the fourth quarter and our full year revenue would have been in line with our initial guidance.
Alright, looking at our revenue across our product line. So let me start with wireless.
Full year wireless was $175 $8 million, that's up 48, 2% year over year.
And it accounted for 43, 8% of total revenue.
Wireless revenue in the fourth quarter was $56 $3 million and that's up 11, 7% year over year and accounted for 53, 5% of total revenue. So as you can see we had an exceptionally strong fourth quarter and full year with our wireless products and these results are net of push outs from shipment.
Delays due to component shortages.
Yeah.
And I'm sure you did highlight the progress that we made during 2021 in our Nextgen cable and fixed telco products, but.
He also noted the significant impact that supply chain had on our revenues in these product areas. So now let me give you the numbers fixed telco revenue for the full year was $71 $1 million and this represents a decline of 28, 1% from the prior year.
For the fourth quarter fixed telco revenue came in at $16 $4 million and that's a 25, 9% decline from Q4 and 2020.
And cable full year revenue was $154 $5 million, that's down 12, 1% from the prior year and for the fourth quarter cable revenue was $32 $5 million and that's down 32, 5% from Q4 and 2020 once again the decline in revenue in both of these product areas.
Is due primarily to supply chain delays.
Moving down the income statement Q4, GAAP gross profit was $46 million with GAAP gross margin coming in at 43, 8%.
Looking at the full year GAAP gross profit was $188 $2 million with a gross margin of 46, 9% I do want to note that our gross margins were affected by $2 million, even though inventory reserve increase that we took in the fourth quarter and that was related to a discontinued product line. So.
If we adjust for this our GAAP gross margin for the fourth quarter and the full year would have been closer to 46% and 47% respectively.
Alright, looking at our operating expenses.
GAAP Opex for the quarter came in at $42 million, that's down six 6% from the fourth quarter of 2020.
And full year, GAAP, Opex was $169 $9 million and that's down three 7% compared to full year 2020.
GAAP operating income for the quarter was $4 million, while GAAP operating income for the year was $18 $3 million.
non-GAAP operating income was $9 million for the quarter and $38 $8 million for the year.
Adjusted EBITDA for the quarter was $11 $3 million and for the full year it was $48 $8 million.
We generated fully diluted GAAP EPS of two cents in the fourth quarter and four cents for the full year and if we look at EPS on a non-GAAP basis Q4 fully diluted EPS was seven cents, while fiscal 2021 EPS was <unk> 14 cents.
Okay, turning to our balance sheet.
Once again, we ended the year in a strong liquidity position with year over year, working capital growth of 5% and a cash balance of approximately $158 million and that includes about $3 $1 million of restricted cash.
And we did use $8 8 million of our cash for share buybacks in the fourth quarter.
We used some of our cash respond inventory purchases and if we adjust for these our yearend cash balance would have been in line with our forecasted year end cash balance of $170 million to $180 million.
At the end of the quarter, our gross debt was $278 $2 million, that's down from $285 $5 million in the third quarter.
Okay before moving on to Q&A I would like to comment on our guidance for fiscal 2022.
Cause Jerry noted our outlook for 2022 takes into consideration two key factors.
First we.
We expect a material increase in software revenue during the year in both absolute in revenue terms and this will have a favorable impact on our expected margins.
Second we do continue to expect to see shipment delays due to supply chain issues and component shortages in our revenue guidance takes this into account with.
With the upper end of the range, reflecting some mitigation and recovery from supply chain issues, while the lower than the midpoint of the range reflect continued shipment delays.
Also because of the uncertain supply chain situation, you'll see that our guidance range is wider than usual and then finally, given the timing of certain contracts and shipment schedules.
We do expect revenue in the first quarter to be lighter than usual.
Okay with that said, let me outline our expectations for three key performance metrics in fiscal year 2022.
First revenue of 380 million to $430 million.
Second software as a percent of total revenue in a range of 25% to 30%.
This is an increase over what we've estimated on an unaudited basis to be around 19% of total revenue in 2021 and as a reminder, we're targeting a minimum of 50% of total revenue to be from software by 2025.
And third adjusted EBITDA, a $58 million to $78 million.
Regarding other financial metrics for 2022, we expect GAAP operating income of $28 million to $48 million.
GAAP EPS of 10 cents to.
28 cents.
And there's one other thing that I wanted to note on our 2022 outlook.
Our EPS guidance does not take into consideration a provision in the 2017 tax cuts and jobs Act it.
We will require us to capitalize and amortize R&D expenses over five years for research activities.
If this provision is maintained and there are many who believe it won't be.
And it would materially increase our U S income tax liability for the year and reduce our forecasted EPS range.
Okay with that said I would like to leave you with the following.
This will be my last earnings call as CFO of Casa and I want to thank Jerry and the entire team for what has been an amazing four and a half years with the company.
Sincerely I could not be proud of what we've accomplished and I'm confident that the road ahead for Casa will be filled with great success. So with that let me turn the call back over to the operator for Q&A.
Operator.
Thank you and at this time, we will be conducting a question and answer session.
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One moment, please while we poll for questions.
And our first question comes.
Yeah.
So far there are no questions at the moment.
Again as a reminder, if you have any questions you May press star one on your telephone keypad.
And we have reached the end of the question and answer session due to no questions and I'll turn the call back over to Jerry Guo for closing remarks.
Hello, Jerry are you on the line.
Thank you everyone for joining us today, we look forward to updating you on our progress in 2022. Thank you.
Thank you and this concludes today's conference and you may disconnect your lines at this time.
Thank you for your participation.
Yeah.
Hi.
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