Q2 2023 Casa Systems Inc Earnings Call
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This call is being webcast and will be archived on the Investor Relations section of our website.
Before I turn the call over to Bruce 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 in 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 gap reporting we report certain financial measures that do not conform to generally accepted accounting principles.
During the call we may use non-GAAP measures. If we believe it is useful to investors or believe it it'll be helpful to investors to better understand our performance or business trends.
And with that I'd like to turn the call over to Bruce <unk> Chairman of the board of Directors Bruce.
Thank you Dennis and thank you all for joining US today I'm excited to begin today's call by introducing our new President and Chief Executive Officer, Michael Glickman.
As previously announced we started a comprehensive search process earlier this year with the objective of finding the very best executive.
To lead castle forward as our new President and C E O.
Castro has developed a terrific range of cutting edge communications technologies and solutions.
Our search was designed to find a strategic stinker with.
With strong domain expertise and a successful track record of driving revenue growth globally. Its scale and I believe we found the perfect leader and Michael.
Michael brings over 35 years of experience in the networking and telecom space and it has an impressive record and driving top line growth and cultivating major new industry partnerships as.
As experienced as strongly aligned with cast and strategic priorities as we embark on the next phase of the company's growth.
What has proven track record of leading multibillion dollar businesses and spearheading global sales organizations focused on service providers, including telcos and cable Msos at Cisco and elsewhere, Michael brings a unique set of qualifications and relationships a physician him for great success in his new role in castle.
The full Kassa board and I are also enthusiastic about Michael's inspirational leadership style and his plan to leverage cassis cutting edge technology and solutions to optimize our go to market strategy. So we can scale the business on a cash in capital efficient basis and continue to.
Deliver innovative solutions that create sustainable value for our customers and shareholders.
With that brief introduction I'll now turn the call over to our new President and CEO for his thoughts Michael.
Thank you Bruce and thank everyone for joining us on our call today suffice it to say I'm very excited to be joining passes systems as the new President and Chief Executive Officer.
I first became aware of past so when I was at Cisco and always viewed cost of that is a very tough competitor given they're great technology Corps and their ability to move fast and disrupt incumbents.
Fast forwarding to today as I start my new role I believe the opportunities that lie ahead for <unk> are significant for many reasons. They are principally rooted in the global demand for cloud based Virtualized network functions, including virtual C. N T. S. C Cat five G Corps and Mac.
<unk> solutions and I believe <unk> is uniquely well position to capitalize on this global market opportunity given their differentiated and proven product portfolio. I'm also excited honored and energize to lead. This next chapter of growth for <unk> and I would like to thank Bruce and the entire board for their cause.
Confidence in selecting me I truly appreciate what this talented cossid team is built over the past 20 years and I'm committed to our collected vision of transforming <unk> systems into a market leading.
Industry disruptor for the benefit of our customers with a return to capital efficient top line growth over the coming years.
And that's going to take questions at the end of the call in with these brief introductory comments I would now like to turn the call over to our CFO at Durkin, who will cover our operational and financial highlights for the quarter Ed.
Okay. Thank you Michael welcome to <unk> I know all it costs and I'm very excited to have you join the family and good afternoon to everyone on the call. Thank you for joining US today I'd first like to start by touching on some of the headlines qualitative highlights accomplished during the quarter as he made a lot of great progress in pursuit.
Positioning ourselves going forward, you know after which I'll get into the financial quantitative details.
Perhaps the biggest highlight was indeed completed comprehensive search process Bruce mentioned in his opening remarks.
Which led to the boards like Microsleep carpet for the coming years as part of that process I actually spend time with Michael work closely with him since he started last Tuesday.
And I do believe like Bruce he is uniquely well qualified and indeed, the best possible person to lead Casa forward I'm also very confident he will help deliver big dividends to costs in the quarters and years ahead.
In the form of accelerating top line growth in return the EBIT profitability in cash flow positive operating results.
In addition to closing on Michael there in two to the team at Casa J P. M. In Sydney was also able to amendment extend substantially all of our turn won't be that would have been originally maturity. Later this year of December 2023.
This transaction, which was announced on June 15th extended maturity date of substantially all of our senior secured debt to Wade out into December 2027.
It should also be understood that the lending syndicate under critical very comprehensive due diligence process as part of their underwriting and this successful refinancing was a great photo confidence in concert by the lender group and validates the bright future. We have been discussing with you on our path calls.
Further as part of this transaction, we've leveraged our strong cash position and balance sheet and pay down an additional $40 million of our existing debt principal at the closing date of the turn it won't be refinancing on.
June 15th 2023, I'm very very proud to say in the last Ah.
Several months, we've paid down approximately $90 million of our debt and we remain committed to further delevering.
Moving off the refinancing that over to Verizon our strategic partnership with Verizon continues to remain strong and on track during the quarter.
And we have now achieved I'll require delivery milestones at this point in time.
Verizon confidence in are offering is an important validation of the unique capabilities of are truly cloud need a five G chord mirc software and to this point during the quarter. We were also able to billing collect approximately $20 million from Verizon mostly related to our five G software deal last April .
Further in early July right up the quarter and we also received an important acceptance from Verizon and software we have delivered to date based.
Based on the timing of this July acceptance and pleased to share that we expect to record approximately 10 million software revenue.
In the third quarter of 2023, which was deferred out of Q2, which sets up our cloud business for a strong second half of the year.
In terms of other contextual highlights I think it's also important to recognize that notwithstanding the get GAAP net loss you've seen the press release, which includes our typical high levels of non-cash depreciation amortization stock-based comp. These.
These cute too results also include approximately 29 million of non-cash charges.
Related to our debt refinancing complete in June primarily related to the warrants provided the lender syndicate.
And we're actually operating cash flow positive for the quarter, primarily as a result of strong billing and collections during Q too.
Further during the quarter, we close many new deals with major customers such as Clairaut Columbia, the virtual C camera or P. D deal announced in early May and the deal with L. G U plus announced in April and many of the deals that got delayed during Q2 for various reasons, including competitor spread fear uncertainty and doubt.
And refinancing concerns.
Now in very good shape and expected to close in the coming months now that this refinancing matter isn't a rear view mirror and our new.
Permanent CEO has been named.
And finally, there are many other positive qualitative accomplishments in queue to such as the hiring of a great new head of global business development, Rod Gilbert who joined US from Vmware, where he helped build their billion dollar telco and cloud global partner program and even the announced.
Announcement in early April of our new FPGA based DOCSIS for already R. P D node.
All of these quality of accomplished accomplishments during Q2 individually and collectively do position as well for future success as we turn the page and start the second half of 2023, I mean now moved to the quantitative details of financial results for the second quarter.
Revenue for the corner came in at $58 million, which was down 18% from a year ago, but up 28% from the prior quarter.
As noted these cute too results exclude the $10 million a software revenues from Verizon mentioned earlier due to the timing of early July acceptance and this revenue will be recognized in July 2023.
Breaking down the revenue across product lines cloud revenue was $2.3 million, which is down from $8.8 million in the prior year again. This decline is related to the timing of revenue recognition from our Verizon.
Which slipped till July .
Cable revenue was 27.5 million up 9% from the prior year and up 79% from the prior quarter. This increase in cable revenues largely due to increased software licensing revenue during the quarter from our global MSL installed base.
Access revenue, which includes our access device products from our 2019 Netcomm acquisition, plus our four G. Five G small cell radio products totaled $28.2 million, which was down from the prior year, but up 10% from the prior quarter.
Moving below revenue to gross profit gap gross profit for the quarter came in at 23.8 million or 41% of revenue.
Gross margins during the quarter were impacted by a $3.8 million non-cash inventory obsolescence charge and pro forma excluding this charge or gross margin would have been approximately 48% of revenue.
An operating expenses GAAP operating expenses to record it came in at $41 million. This is down 44.3 million or 10% from the prior quarter. As a quick reminder of the first quarter included 2.2 million of severance expense related to Jerry's retirement, this second quarter <unk>.
Also includes 2.2 million of severance related to our second quarter reduction in force that was completed in mid April .
I got GAAP operating loss for the quarter was $17.2 million. This is driven by the second quarter revenues results, which again exclude the $10 million of high margin software revenue from Verizon, which got deferred to July includes the non-cash 3.8 million dollar inventory obsolescence charge and include.
All of the other items I, just covered including the $2.2 million severance charge in April .
Finally related to a second quarter P&L or GAAP net loss of the quarter was $51 $1 million versus a net loss of 16 points.
$7 million in the second quarter of 2022 again this cute to net loss includes $29 million of non-cash charges related to the terminal b debt refinancing and extinguishment principally related to the warrants provided to the lender syndicate and.
On a non-GAAP basis, we had a net loss of $24.5 million and reported net adjusted EBITDA loss of $9 $8 million. All is reflected in the schedules shown in the press release.
Turning from the piano to the balance sheet, we ended the quarter with cash in good shape with cash cash equivalents and restricted cash of $65.9 million, we only have approximately 1.6 million and restricted cash very small amount.
Our cash balance at June 30th 2023 was down approximately 50 million compared to March 31, 2023. This is due primarily to the 40 million dollar paydown of our terminal B.
At closing on June 15th plus another $2 million of principal payments prior to the June 15, closing and approximately $13 million in turn won't be transaction expenses paid during the quarter.
Finally on the balance sheet and I'm very pleased to say we ended the quarter also with high quality receivables of approximately $47.4 million with most of the balance sheet accounts <unk>.
Largely consistent with prior quarters and you can as you can clearly see we.
We now have substantially improved are working capital position with the longterm that classification on our balance sheet as a result of the successful terminal b refinancing in mid June .
Moving to brief commentary on our cash flow during the quarter. If you look back to our queue. One 10-Q you would've.
We had used or consumed 835 million in cash from operations for the three months ending 331 23.
If you look at the cash flow statement today in the press release for queue to.
You will see cast used in operations for the six months ended June 30th is now down to approximately 4 million, meaning we generated positive cash flow from operations in queue to approximately $4.4 million, which is very good and reflected a good billings and great collections and a lower cost structure during Q too.
And that's the other major activity in the cash flow statement. This essentially depicts the deck refinance matters and major delevering covered in my earlier comments.
As noted in our earnings release were adjusting our full your revenue guidance to a range of $265 million or 290 million and we expect our net adjusted EBITDA to still be positive for the year.
Some of the items considered in this <unk>.
Modest outlook adjustment include.
The potential for some access device customers too.
Defer some of their product delivery from Q4 to Q1, if they work through issues and their business.
The actual good demand for a cable products, which is supported by our existing backlog.
As well as expansion opportunities, where our existing customer base similar to the past few years expect cable revenue to be back and waited in the fourth quarter due to positive seasonality.
Our four G. Five G small cell radios, which are expected to see growth in the second half.
Of 2023 compared to the first half of the year. This is driven by the shipments of our small cell radios to a tier one customer in the U S and.
Potentially others.
Previously noted there there will be more meaningful contribution from our cloud product line in the second half of the year.
Including the 10 million a Verizon software revenue that was deferred out of Q2, which we recognize in the third quarter, along with other revenue opportunities from Verizon and other cloud customers during the second half of the year.
Regarding our backlog inferred revenue recurrent we have approximately $170 million in backlog in total deferred revenue and we have another 96 million remaining of future building billings and the the Verizon five G contract, which are available in 2024 and beyond.
Which brings our total backlog deferred revenue in future Verizon five G billings to approximately $266 million. In addition, we also have approximately $55 million of clothes contracted business for our small cell radios with a major north American mobile network, operator, <unk> on an annual <unk> basis, so backlog in close contract visibility.
Remains good.
As we noted on previous calls were continuing to see positive improvements in the supply chain.
And we are really very excited as we entered the second half of 2023 with a dynamic new leader and CEO complete product portfolio growing sales pipeline and expanding partner ecosystem.
And then finally I would I would be very Miss if I not take a moment to profoundly. Thank the entire cost of global team for their amazing dedication to the company and our customers during the second half and first half of second quarter and first half of 2023 as we encountered some headwinds.
I believe with this talented team.
Our business momentum are growing sales pipeline and our new leader, we will indeed see brighter days ahead as we continue to focus on our northstar's of.
Exceeding the expectations are a global customers and substantially improving enterprise value for the benefit of all cost of stakeholders.
I will now turn the call back over to the operator to open the line for any questions operator.
At this time, if you would like to ask a question. Please press the star and one on your telephone keypad.
[noise] withdraw yourself from the queue at any time by pressing star too.
And once again for your questions that is star added one will pass a moment you allow any questions to Q.
And I think our first question from <unk> with Northland capital market your.
Your line is open.
Hi, good afternoon.
Congratulations Michael.
I had a question about kind of your second half outlook and you mentioned that guidance is reduced debate I think you kind of focused on access devices is and maybe inventories there is a primary driver but.
I wanted to check on that but as we looked sort of second half over first.
And are you still looking for a pretty significant increase I think we have a little visibility that with your Verizon commentary, but.
If you were to look at that have over half gross I don't know about 65 million Bucks in the middle of your range.
Any way you could take a chance on.
Kind of segmenting that by <unk>.
Growth, you're expecting cable clearly I think you're looking for a stronger second half there.
Cloud, we've got totally I'm from your Verizon that may be more five G. Small cells, if there's any way to kind of.
Get an order of magnitude around was various growth drivers into the into the second half that would be great.
Follow up from there.
Yeah sure thing Tim Good question actually we see you know all of the four product lines growing in the second half.
You know I think on cable you know these good.
Market dynamics around the move to virtual C. Camping, RPT notes, which were well positioned to exploit I think we also had some deals that got moved out of Ah Q2 for some of the refinancing and and competitor fund that are well positioned close in this in the second half of the year, obviously with Cisco exiting the cable market that's beneficial for <unk>.
You know moving over to the four G. Five G small cell radios, we do have closed contracts with the major tier one.
Operator that we've talked about and those will be shipping in the second half of the year.
You know in our access device.
<unk> from the Netcomm acquisition, we did kind of.
[noise] pair back the Reforecast for that you know obviously, we're not immune to the telecom can page and if you will you've seen ericsson and Nokia and others see a little bit of slowdown. So again, it's not a matter of losing business, but there's a potential.
For some of the orders scheduled for delivery in queue for to slip to Q1, so that was part of the.
Reason for the.
Modest reduction the outlook and then on the cloud side, obviously, we had $10 million slip out of Q2 that goes into Q3, we have you know.
More opportunities at Verizon and other cloud customers that we've been working hard to close and we're hopeful a close some of those in the second half of the year. So that that's kind of the context around the the top line outlook.
Okay, well, if you had to pick one [laughter] I guess is the primary driver for the second half.
What what might be I mean, it looks like the growth is coming in higher margin areas given your reiterating guidance for EBITDA positive for the year.
So that that would guide me toward you know five G cloud and cable will be.
You know primary growth drivers just given the margins and.
With Verizon in Q3, I mean or should we be looking forward EBITDA positive Q3, it looks like we should.
Yeah, I mean, we don't comment on quarterly projections, but I I think you are captured well I think we are looking for a cable to improve substantially in the second half.
Cloud as well and even our 45 to a small cell radios will contribute.
Meaningfully in the second half and those are you know have higher gross margin attributes and then.
And then some of the access to waste products from our Netcomm acquisition from 2019, because I think you captured well.
Okay, Great and last question for me if you look at the cable networking performance in the quarter.
You know I I wonder if there are any notable growth drivers there are <unk>.
Soon most of that growth is international.
It's a pretty broad based or a couple of big customers or how would how would you characterize our rebounding cable and Q2.
I guess I would say at a high level without getting into too. Many details that Q2 was a good quarter for cable. After you know somewhat soft Q1, which was related to a large you know deal that got pulled into.
Q4, 2022, and we see the cable business has a strong growth business for us going forward for some of the reasons I mentioned earlier, you know both the move to a virtual sea captain or a P D nodes and cisco's exit from the market.
And and even that some of the deals that we have been working that could temporarily delayed.
Hopefully we get them you know.
Close in the second half of the year so.
We've always been a leader in the cable space have a great cable product portfolio, we think that will serve as well as the year goes along here.
Okay. Thanks very much.
Yeah. It does appear that there are no further questions at this time.
Okay, well, thank you again for joining us today.
Made a lot of progress over the past many months.
We do believe we have great momentum going into the second half of the year and Michael and I look forward to keeping all you updated on our progress.
As warranted over the balance of the year. Thank you.
Thank you that does conclude today's teleconference and web cast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.
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