Q1 2022 Casa Systems Inc Earnings Call
[music].
Greetings and welcome to Casa systems first quarter 2022 earnings call.
At this time all participants are in a listen only mode.
A 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.
It is now my pleasure to introduce your host Jackie Marcus with Alpha IR group. Thank you you may begin. Thank you operator, and good afternoon, everyone cockpit systems released results for the first quarter of fiscal year 2022.
Ended March 31, 2022 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 Cockler Flash system Dotcom.
With me on today's call are Jerry Guo, our Chief Executive Officer, and Ed Jordan, 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 principles.
During the call we may use non-GAAP financial 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 first quarter 2022 results and our progress along our connected cloud strategy.
We spoke to your Formula is just over two weeks ago. There are a few things I'd like to cover with you today.
First we'll talk through some important customer wins, including our multiyear partnership with Verizon through wage cost that will provide our five G. Wireless core network functions to help enable Verizon is public mobile edge computing service offering.
In addition, we will touch on our recent partnership with Rogers Communications in the suburb of integration partners as was some key customer off dates.
Second we continued to make significant progress in the marketplace.
Our more mature businesses cable fixed wireless and fiber extension.
In addition to our cloud software and our radio products.
I'll touch more on this in greater detail later in my remarks, but we are excited about sharing important updates on this in the very near term.
Third.
We remain squarely on the path to achieving our transformation goals laid out at the Investor Day in November this multiyear transformation from a hardware heavy to a software and cloud centric company is already come into fruition with some important successes in the early stages.
Lastly, we will address the current operating environment, which as expected remains challenged by the ongoing supply chain situation and it has been further exacerbated by Covid related capacity reduction you know some of our Asia based production ecosystem.
Diving, a little deeper into these points starting with our recent Verizon deal. This announcement is an important milestone for all five core and the security Gateway technology as well as the growth potential of our business.
We believe this agreement validates our leadership in cloud native <unk> and mobile edge computing and position Casa systems is a key champions for cloud native software based fiber infrastructure in the United States.
While our relationship with Verizon will accelerate our transformation into a leading cloud software company I want to reiterate that 'twenty 'twenty. Two is a building year for Casa along this path and this is just the beginning.
Reaching this agreement and our ongoing discussions with the Verizon and other key partners Casa systems will remain at the forefront of the ongoing shift to a cloud native software based networks in the telecommunications industry.
Yeah.
In addition to the Verizon news since the beginning of the year, we announced that Rogers Communications is deploying Casa systems cloud native axiom virtual C cap core and distributed access architecture knows that well deliver multi gigabit broadband services with fast scalable capacity.
And the superior subscriber experience.
We are also excited to attend mobile World Congress in Barcelona. After a two year hiatus due to Covid, where we announced expanded partnerships with industry technology leaders showcasing our cloud native <unk> and end to end private five G solutions.
To meet the growing demand, we are deploying capital into our business to meet the current needs of our customers, but more importantly, we are investing in the future of our business from our own R&D to our people and our processes, we're expanding our footprint in wireless and in software.
Across all segments, and we'll look forward to sharing our progress doing these interim updates.
What is very clear is that these investments are prudent given the strength of our pipeline, our growing backlog and the prospects for significant growth we see on the horizon.
Okay.
In addition to these announced customer wins were also getting significant customer traction in all our product lines, including existing and the new world product lines.
We're making significant progress in advancing our five G and afford you enterprises more south and open ran products not only from a technical point of view, but also with customer wins and attractions.
Well have some additional updates for the market on these two products are very soon.
Within our more mature businesses, we are beginning to see our investment in new technology pay off with the addition of new customers this quarter.
We are continuing.
The deployment of our virtual C cap core together with our remote phy nodes with multiple tier one cable operators worldwide.
In addition.
We are also in customer trials for all end to end remote Mac Phy solution.
We're confident that with the support of both our remote phy and remote Mac Phy, we are in a position to grow our cable broadband business in 'twenty to 'twenty three and beyond.
We are also expanding our fiber extension deployment in the United States and Europe beyond our original customer base in Australia, when we acquired Netcom.
With that you enhance that network management higher port counts and X G. S. Pong support we're targeting growth in the second half next year.
You know our fixed wireless business the investment in our high power five G millimeter wave products is paying off with customer wins, which we'll announce in the near future.
We believe that we will continue to see this momentum in fixed wireless continue into 'twenty or 'twenty three and beyond.
All of these early successes along with our long term connected cloud strategy are the result of many years of product development that is now in the early stages of deployment.
We are excited to be recognized as an industry leader as such an important time in network transformation.
The recent customer wins, a validation that we are on the right path with our connected cloud strategy, which includes cloud native software running on off the shelf hardware.
Well as a cloud centric.
Applying space products.
Importantly, the new customer wins and strategic partnerships combined with the significant progress, we're making all of our product development aligns with our long term strategy and efforts to reposition the company for the future as we outlined at our November Investor Day.
We designed our strategy to disrupt the legacy chassis based or even older generation virtual network function architectures to speed network transformation with a future proof cloud native software solutions for cable mobile and fixed networks.
This strategy has significant potential to revolutionize the telecommunications industry and we are encouraged by the early validation of this path and the strategy.
Customers such as Verizon as reflect as reflected in our recent partnerships.
Now, let's turn to the first quarter.
Okay.
I want to reiterate that 2022 remains a building year for Casa well, we are clearly experiencing significant demand for our products as our strong backlog. We're also continuing to be impacted by the ongoing supply chain and logistical challenges.
For example, some of our factories and those of our suppliers had been shut down or forced to operate at a reduced capacity.
Recently, we are working to navigate these significant headwinds in the supply chain, which have caused disruptions in our ability to a ship completed products to customers.
That's it and as you saw in our press release today, we chose to remove our existing fiscal year guidance. This decision is not a negative reflection of all the business. All the demand we are seeing however, it does reflect a reduced visibility we currently have regarding.
The ongoing supply chain constraints and the current level of uncertainty.
The persistent COVID-19 implications overseas, namely in our Asia facilities and those of our suppliers.
Revenue recognition matter ourselves some of our new large partnerships and the impact they may have on cash revenue and demand.
And as Ed will address shortly pending tax law changes that could impact our financials.
Well, what do you see a path to achieving the revenue guidance likely at the low end of our previously stated range. There are simply too many uncertainties at this time as I have just outlined that we felt it was prudent to remove the formal guidance. We will however, commit to providing your qualitative.
Days over the interim basis until such time that we have the visibility to reinstate our guidance for the fiscal year.
In the meantime, we are working with our customers to fulfill as many orders as we can and I would also like to note that we have a large backlog across all of our products. During the first quarter, our backlog and deferred revenue increased significantly that Ed will give you the details as such we're focused on.
Building, our book of future business, and we are seeing strong interest in our sales pipeline.
We are looking beyond the current supply chain situation and I focus on setting the stage for a strong growth in 'twenty or 'twenty three and beyond.
Adam will provide a more detailed discussion in his remarks regarding our recent performance and the expected future impact of these constraints and our effort to mitigate them.
Let's review our momentum across all product lines.
Starting with the wireless we had $22 5 million of wireless revenue booked during the first quarter. This accounted for 35% of our total revenue compared to the first quarter of 'twenty or 'twenty. One we increased our wireless customers by 17 and now have a total of 49 wireless customers.
And we expect that this number right only continuing to grow.
Moving to cable cable revenue for the first quarter was $28.6 million and represented a 44% about total company revenue in the first quarter.
Compared to 46% in the first quarter of 'twenty or 'twenty, one our cable segment continued to be impacted by chip shortages and global manufacturing issue, which led to delayed shipments and.
As stated during our previous earnings call. We continue to see supply chain shortages I know, we expect that cable growth will be relatively flat during 2022 as a result.
Finally, fixed telco posted first quarter revenue of $13.3 million, which is down on a dollar basis, but up five percentage points compared to this time last year as a percentage of total revenue.
In summary, our connected cloud strategy has been validated by the early was.
And the large number of engagements we have with the carriers and partners. We believe that this is just the beginning of a new caster and we are the leader in the significant cloud transformation off the telecommunications industry.
And while our short term financial performance is being negatively impacted by a certain uncontrollable macro elements.
I feel most optimistic today that Casa will enter into a multiyear accelerated growth period now that we have multiple large addressable markets with the proven leadership in technologies.
Finally in case, you weren't able to join US our Verizon core on April 18th I would like to introduce our new Chief Financial Officer, Ed Durkin. He brings over 30 years of financial and executive experience is in the software industry Ed has already being a strong contributor in his first few weeks with US I know we will.
Him to the company.
With that said I'd like to turn the call over to Ed Ed.
Yeah. Good afternoon. Thank you Jerry and good afternoon to everyone joining us today and now before I launch into my presentation I would like to first say I'm very excited to be here for my first.
Earnings calls this pivotal time in our company's transformation.
And I actually look forward to meeting many of you on this call over the coming weeks, so with that said, let's discuss the details of the quarter.
So first as Jerry mentioned, we are seeing significant demand for our products as evidenced by our strong backlog and a growing sales pipeline.
Including a large number of prospects or a cloud native software solution similar to the Verizon solution.
And we're also seeing growing interest from new and very large go to market distribution partners. As a result of that recent major win at Verizon.
Hey, Al I'll tell you think we'll see many benefits in future quarters from Verizon and from continued product and go to market execution on the strategy Jerry and team have.
Had been conveying since last November .
With that without fed during Q to Q1 2022 were significantly impacted by broader macro challenges that were beyond our control principally supply chain related.
Further on a companion kept comparative basis Q1, 2022 with a difficult comp to Q1 2021 due to the timing of a few large orders in the first quarter of 2021 and due to some of the headwinds we experienced in Q1 2022.
Specifically as you may recall, we recognize the large netcom order in Q1 of last year and you know we also have a large cable software order in Q1 of last year and while we knew these items would not repeat in the first quarter of this year. It's just an important reminder, for comparison sake, and a contributing factor to the year over year revenue.
A decline.
Our Q2 revenues. Our Q1 2022 revenues were also impacted by shipment delays due to component shortages and to a lesser extent the timing of the Verizon deal.
As we originally anticipated this deal to close in mid March 2022 with the modest software.
Revenue in Q1 2022, so as a result total revenue for the first quarter came in at $64 4 million, which.
Which is a 38% year over year decrease in regard to the component shortages during the quarter.
Some of our apex suppliers were shut down are forced to operate at reduced capacity.
We were left unable to builder ship some of the hardware products.
Needed to complete the backlog orders and record revenues during the quarter.
At this time classrooms hardware appliance business continued continues to contribute a significant portion of our revenue.
And we're making great progress in our connected cloud software strategy that will provide long term growth.
And finally competitively. This is important we also continue doing very well with a few deals that slipped outside of Q1, either closing or expected to close.
And certainly the Verizon deal announcement of April 18, validates, our competitive strength and differentiation in the quality of our offerings.
Going into the details and breaking down Q1 revenue across product lines first quarter wireless revenue was $22 5 million, which is down 44% from Q1 2021.
With wireless accounting for 35% of total revenue.
All related to wireless we do expect the Verizon multiyear purchase contract for five G solutions will help improve the wireless segment over time as we continue to make our transition from hardware to higher margin software and I'll discuss this in greater detail in a little bit.
Turning next to cable cable revenues came in at $28 6 million at $39 seven per cent decline for Q1 two.
2021, while cable revenue did decrease during the quarter, it's not due to lack of demand, but more to again there was some Q1 2021 shipments where we had a.
A few large orders in contrast, with Q1 2022 there were some increasing our backlog in 'twenty two and to this point, we recently announced that our Rogers communication disciplined Catherine Recapped software solution.
Distributed access architecture, and this gives us great confidence.
That these investments in our software offerings.
Bear dividend within a more mature business off mature businesses in the future.
And finally being the telco a fixed telco revenue came in at $13 3 million declined 19, 7% from Q1 2021.
And finally during Q1 2022, we had about $19 million in backlog orders that we were unable to ship due to supply chain.
Ladies and shortages.
Yeah.
Moving off of revenues down to gross margins GAAP gross margins for the quarter came in at $26 7 million down 62% compared to Q1 2021.
Our GAAP gross margin percentage.
As a percent of sales in the first quarter came at 41, 4% of revenue with this decline primarily due to the revenue mix issue with lower software revenues in Q1 2022 as compared to 21.
Turning now to operating expenses.
Q1, operating expenses were as expected and relatively flat year over year at $45 million.
We had a GAAP operating loss of $18 3 million again. This is largely due to the supply chain impact, which impacted shipments and revenue as we discussed in the delay in.
Some expected Q1 software revenues, which adversely affected top line revenues and gross margins all flowing down to the operating loss line.
And finally, we had a really unusual anomalous tax provision as seen in our income statement in Q1 2022.
To make a long story short you know the back story of this tax matter is rooted in a change in U S tax law that took place on January one 2022 related to the current deductibility of R&D expenses.
As a result of this change in tax law, we at all Tech companies now for capitalize and amortize R&D expenses over several years for tax purposes.
Certainly you're right we're not the only tech company impacted by this nor is the magnitude of the impact of cost of anywhere near those major other U S. Tech companies, who are strongly advocating this tax law change be repeal the deferred adult subject matter experts on tax expected, indeed will be repealed or deferred later in 2022.
However, it was not repealed by $3 31, and as such during the first quarter. We recorded an income tax provision expense of.
$10 4 million on a pre tax loss of 20 to $22 2 million.
With $9 5 million of this tax provision tied to this anomalous tax law change.
And how we were required to accomplish this including specifics of our deferred tax assets and deferred tax valuation allowances.
That kind of covers the income statement turning to the balance sheet. We continue to have strong liquidity with a working capital balance of 237 million.
At quarter end, we had net receivables of $48 1 million inventory of just over $85 million.
168 points.
6 million in unrestricted cash and cash equivalents, which is up sequentially over 12, 31, 21, and also up 15% year over year with a strong cash increase.
Increased primarily driven by excellent cash receipts on receivables and tax refunds received in Q1 2022.
And the strong cash balance provides us the ability to invest in our tech platform and go to market program. It also gives us the ability to repurchase shares if needed or pay down debt. If we saw that.
I would first like to highlight that our current cash balances we just covered.
Exclude it excludes the $40 million.
We received from Verizon for the nine 9% equity stake on April 18th and also excludes another 20 million.
Which we will receive from Verizon for license payments in the next three to six months.
And to wrap up the balance sheet, our gross debt was $277 5 million down slightly from $278 2 million in Q4 of last year.
Turning to the Verizon announcement.
Mentioned on a call a few weeks ago that announcement really marks an important milestone in our transformation and demonstrate validates the incredible potential of constantly innovative tech.
You know with the validation from an industry leader like horizon, we have the opportunity to pioneer critical shifts and unique shift as compare to where our legacy competitors.
Our cloud based strategy and in terms of financial implications.
The deal comes with a multiyear potential under 40 million T. C V commercial agreement, which includes $20 million of committed cash payments in 2022 for purchase orders we received last week.
We will be building in Q2 2022.
And we expected with continued industry shift to cloud based strategy and verizon's endorsement of our <unk> enterprise small cell and security Gateway Tech through this partnership will not only create additional revenue revenue streams from new and existing customers, but will also accelerate.
Cousins multiyear transformation strategy outlined during Investor Day last November .
Further under the terms of that.
There is an agreement Verizon invested approximately $40 million in the company in exchange for $9 3 million.
Shares of cockpit systems common stock at a price per share of $4.24.
We're extremely excited about this Verizon win another contract wins as Jerry discussed, but we have decided to temporarily re temporarily removed financial guidance for the year.
While we do believe there is an opportunity to achieve our earlier annual revenue guidance likely at the low end low end of our previously guided range. There are simply too many uncertainties and elevated risks at this time.
We've just outlined for you today supply chain and tax anomalous tax provision timing of revenue recognition on other future cloud native software deals in our pipeline. Given these are these have increased complexity within these deals.
With that said, we do expect that with our recent contract win and considering that all other circumstances 2023 will be a growth year for Casa.
We begin to experience a tailwind from the Verizon deal and the other five gene next upward prospect.
And its supply chain issues moderate.
And finally, we will endeavor to provide updated annual guidance later this year once we assess all uncertainties impacting our future financial projections.
And finally before I turn the call over to.
Jerry and then questions I did want to reiterate how excited I am about the future of Casa and in this regard I actually believe there's a much bigger story here and a significant and successful transformation taking place at Casa and while this transformation will take time I believe we will succeed.
Our transformation.
And with my belief that we will succeed its rooted in things like look beyond Verizon and there are many new tier one high pedigree prospects, reaching out to US now on a cloud native software capabilities.
This phenomenon clearly aided by the Verizon announcement.
And the deal sizes for these new cloud native software opportunities in our forward looking sales pipe is large and very heartening.
Further and this is important we are seeing a new class of global ecosystem partners, reaching out to us about working together or we were actually doing.
Working with them on major sales opportunities today. This is not a set of legacy partners, we work with in the past.
These are market, leading cloud hyperscale or these are large cap globally focused leading tech firms.
Expanding a new partner ecosystem interest is driven by the fact that look software cloud and <unk> is a huge market opportunity expansion for them and Costa actually uniquely help them unlock this opportunity for them.
These are just a couple of the leading indicators I am seem to be seeing and hope. This right. Some good context to all and clothing jewelry has assembled a tremendous team we have a great tech platform and products suite, we are setting the stage for future sustainable profitable growth, where that Tam expanding our backlog strong our sales pipe.
Klein and partner ecosystem growing.
And our cloud native software capabilities have been validated by the best in the industry with the Verizon announcement of April 18th we are resolute that this differentiated strategy is working and we are on the right path to drive accelerated growth and enterprise value in 2023 and.
So with that I'd like to turn the call back over to the operator to open the line for questions.
Thank you, ladies and gentlemen, we will now be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
You May press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of.
Tim long with Barclays. Please proceed with your question.
Thank you yeah to two questions if I could here first.
<unk>.
Yeah.
You talked a lot about.
Are there other opportunities in the in the.
Loud cloud it is a mec area can you talk a little bit you just give a little color on the complexion of those customers were or the geography geographically.
And is there any common thread, which you'd think would position cost are accustomed to to win at those customers are and you know relative to the competition or any reason that they might want to go a different way since you know Verizon has gone this way and.
And then the second question is on the backlog if you could just give us a little color on you know kind of how much orders grew.
You know we're in the business they grew more and related to that it seems like you know the component.
Miss on product side that you guys have seems a little bit more severe than most others in the industry. So could you talk about the defensibility of that backlog the potential risk to.
Some of that going to potentially larger customers that might be in front of costs are in line. When it comes to getting components to fulfill these orders. Thank you.
Tim Let me answer the first part of the question about the customers.
Specially AR five G.
Of course, I and and Ed can you know.
Ah yes.
And so it's true to their backlogs and.
And on the supply chain challenges and.
Now we will.
We really have a several different type stuff right.
<unk> been.
In the core space.
And you know the.
There are large was just like a Verizon.
We're engaged with multiple.
Those type of customers too.
Tool basically test and to and to validate our cloud native core and we're also we also have the medium sized companies.
Which you know.
Are already.
Deploy or testing our own cloud native.
Hello.
Also have smaller ones and we tend to be very.
Selective in that category, given that Ah Ah Ah the effort it takes to help them deploy cloud Native course, and you know what.
The final category. We are we have are actually.
Mobile private networks, and we are working with.
And multiple partners and carriers.
But two two.
To provide.
The end solution not only our core but all of our Oh rat and enterprises must house for.
For that kind of a end to end mobile private network solutions and.
And in this category we.
Do have some more than we can.
We want to engage we have been very selective.
In the partner space as well and we.
I had also mentioned that we have done.
So many large partners and why are you interested in working with US and we are engaged with are mainly but.
We need to limit.
How many we can handle it at a single time.
And Terry or any of the company.
And I'm sorry, Gerry just on the timing of these things are I mean, you obviously have a lot of development that you see still need to do with Verizon So.
This timing you know more uncertain or some of these that could you know it could be hitting in this year, possibly.
We do expect a close and more cloud software deals in 2022.
Okay. Thanks.
And then Ed on the supply chain and backlog please.
Yeah sure thing, Tim and looking forward to meeting them in kind of reverse order the backlog the full picture is.
You know if you look at our balance sheet total deferred revenue of $3 31, 22 was $25 6 million.
At 12 31, it was 21 4 million so deferred revenue was up.
You know firm backlog, excluding deferred revenue and excluding any components of that new Verizon deal on that we announced.
At $331 22 is about $185 million and at 12, 31, 21, that's about $170 million.
And again if you.
Allow us to pro forma Verizon given that it is now closed.
So who's got committed cash payments coming in Q2, Q3 from horizon for $20 million this year and and.
And you know future contract value of $120 million. So in total it's kind of comparison of deferred revenue firm backlog and Verizon dollars of 350 million or $3 31 22.
Versus a deferred.
Deferred revenue and backlog of around 193, or so at 12 31, 'twenty one so pretty you know size.
Sizable increase obviously requires us to execute on that Verizon contract.
Ask your second question, Tim on the supply chain.
Look the challenge is to continue we're working hard nights weekends in weekend nights to mitigate the impact on revenues, we do have suppliers and subcontractors in APAC and that's probably where we saw the.
The biggest impact on cost of this business.
But again, we are working hard to drive component deliveries. So that we can optimize you know.
Revenue shipments this year and it's a very.
Dynamic in an ongoing process that we're doing the best to manage.
Okay. Thank you.
Yep.
Yeah.
Our next question comes from the line of Simon Leopold with Raymond James. Please proceed with your question.
Great. Thank you very much so I I I appreciate and understand why you're not guiding for the full year given sort of the all the moving parts, but wondering if you could offer some thoughts on how you're thinking about the second quarter given that it looks like that the lockdowns in China at least the ones that.
It started or are starting to open up again, and you've got some visibility into the Verizon business.
I guess, what I'm just thinking about is that the the June quarter revenue should be up by at least $10 million sequentially just to account for the Verizon.
And if there are other factors in terms of the supply chain opening up just wanted to see if you could offer some thoughts on how to think about Q2 at least.
Find out we are I think we do have a a bit of a visibility issue on Q2 on Q2, the that Rev. Rec is actually that the that the major factor.
Even though we do we will still have the supply chain.
Ah things issue to contend with but we you know we really havent figured out we are working with our.
Accounting firms, but we haven't really nailed down that Rev Rec or you know.
For the delivery of the software.
We have no problem delivery.
The software we committed to we have.
Our customer is is basically a.
We are willing to accept what what do we have but Ah Ah.
But we will get the cash revenue, but the question is really that the Rev. Rec at this point.
Sure no that makes sense to me I guess the other related question. Though then is with this Verizon revenue with what Youre doing in 2022 how do we think about the gross margin impact of that activity.
We are still working on the <unk>.
Mix of products and the.
The supply chain actually impacts.
That's fairly broad spectrum of <unk>.
From.
From cable to two radio too.
Some of our CPE products, so really depends on what you know what you know what what the mix is going to be October shift Oh, what a bunch of a ship that was gonna have determined.
And the margin and how much of the software revenue, we are going to be able to recognize this year.
Okay, and then I just wanted to make sure I've got a understanding of the use case for the Verizon.
Core award, it's my impression that the the five G core application for cost that is related to private.
Enterprise wireless networks.
But I'm not 100% sure. So I just wanted to see if you can provide a little bit more color on the use case for Verizon.
Yeah. So.
So.
We are we did have that deal.
A while ago mobile private network.
Contract, we just announced.
With the Verizon is for public finance vehicle.
And it's for a basically a cloud native core in that mobile edge computing kind of a study.
So as for public network.
Great. Thank you for that and just last one is I know this is more of a philosophical debate.
Question, but you opted not to pre announce and I know you didn't guide for the quarter explicitly but for the year.
But I guess, there's some argument that if you're going to Miss consensus expectations, you should pre announce could you just talk about your philosophy of why you opted not to make a pre announcement on this quarter.
We couldn't figure out are some of the issues.
You've got events and.
Everything is happening fairly quickly.
And we are are we.
We.
Normally do not provide quarterly guidance as you are aware and.
If we.
If we feel like we haven't missed a year would definitely with the Korean house.
Right now we are we have such a reduced visibility are weaker than its prudent to let the market now.
Thank you very much for taking my questions.
Yeah.
As a reminder, it is star one to ask your question. Our next question comes from the line of their hands with Macquarie. Please proceed with your question.
Hi, Thank you so much for taking my question just a couple of housekeeping ones. It seems like service held in well and actually grew just be good to understand that dynamic sort of disconnected from the product revenue.
And then also just.
Just for the share count do you guys have any color how should we think about the fully diluted share count.
And I want to take that question.
Sure the service revenue I mean, it's relatively small but.
It's you know maintenance support services and other services, it's not a huge component of the <unk>.
Share count what Youre seeing there.
Is the.
84 million.
That does not have any of the shares provided to Verizon on on April 18th.
There were $9 three.
3 million shares sold to Verizon on on April 18th and those will be included in outstanding shares going forward.
And you know obviously in the you know.
Basic and diluted EPS, given where were in a loss position for Q1. We don't include the effect of common stock equivalents in the in the diluted EPS because it would have the effect of diluting the loss per share so.
84 was what was outstanding at the end of March there'll be another $9 three or so as a result of the horizon.
Hum.
Equity infusion on April 18th and that'll kind of form the basis of outstanding shares going forward.
Okay. Thanks that winds up and then just curious what use cases are you most excited about enabling with your broad five G portfolio. Thank you very much.
For the five D a web vary.
Yeah.
Excited about things, which are real time.
And you know all the control related applications.
All the things.
That require low latency video.
I mean numbers, everything which requires load I didn't see and a real tie and HiseQ280 <unk>.
And and also.
The second thing is really energy related and.
Traditionally mobile operator, I was backhaul that traffic back to that data centers to process before they dispatch it out again and a weight that.
With with with our software we are going to enable the mobile edge computing and to process the traffic right at the edge. So that's another you know.
Very exciting opportunity for us.
Thank you so much.
There are no further questions in the queue I'd like to hand, the call back over to Jerry Guo for closing remarks.
Well. Thank you everyone for joining us today, we are confident that we are on the right track to accomplish all multiyear transformation into a leading supplier a provider of cloud native software and physical infrastructure and technology solutions, while mobile cable and fixed networks.
Our pipeline is strong our product development remains on track and our growing backlog.
Indicative of the strong revenue growth and we believe we can deliver.
Staying well into the future I look forward to updating you on our progress with these initiatives and the next phase of our Verizon partnership.
Thank you.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
Yeah.
Yeah.
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