Casa Systems Inc (CASA) 2021 Q1 法說會逐字稿

Greetings, and welcome to Casa Systems Q1 2021 Earnings Conference Call. (Operator Instructions) I would now like to turn the call over to your conference host, Jackie Marcus, Investor Relations.

Thank you, operator, and good afternoon, everyone. Casa Systems released results for the first quarter of 2021 ended March 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.casasystems.com. With me on today's call are Jerry Guo, Chief Executive Officer; and Scott Bruckner, Chief Financial Officer. This call is being webcasted and will be archived on the Investor Relations section of our website.

Before I turn the call over to Jerry, I'd like to note that today's discussion will contain forward-looking statements based on the business environment as we currently see it and as such, does include certain risks and uncertainties. Please refer to our press release and our SEC filings for more information on the specific risk factors that could cause our actual results to differ materially from the projections described in today's discussion. Any forward-looking statements that we make on this call or in the earnings release are based upon information that we believe as of today, and we undertake no obligation to update these statements as a result of new information or future events.

In addition to U.S. GAAP reporting, we report certain financial measures that do not conform to generally accepted accounting principles. During the call, we may use non-GAAP measures if we believe it is useful to investors or we believe it will help investors better understand our performance or business trends. And with that, I'd like to turn the call over to Jerry. Jerry?

Good afternoon, everyone. Thank you for joining us today as we discuss the results of our first quarter of 2021. We have continued to execute according to plan and had another great quarter. I'd like to share some of the highlights from it with you. We delivered on our commitment to grow the business with a 25% year-over-year revenue growth, while delivering significant profitability. This is one of the strongest growth increases we have experienced as a public company. 54% of the revenue in Q1 came from our wireless and fixed telco products. With the 3 consecutive quarters of wireless and fixed telco making up over half of our revenue, I'd like to emphasize that we are a truly diversified company, uniquely able to serve the needs of any broadband customer. Whether it be wireless, fixed, cable or enterprise.

Among the market segments, wireless showed the strongest growth in Q1 with 80% year-over-year growth. The strength and resilience of our cable business are demonstrated by the steady revenue and a growing number of MSLS adopting our virtual CCAP core and DAA solutions.

We again made numerous customer advances with our strategic growth products. Here are the numbers for the quarter. 17 new purchase orders for our 4G and 5G wireless products, including Packet cores, radio access network products, and CBRS and 5G fixed wireless access devices. 5 new purchase orders for our virtual router and fiber expansion products; and 6 purchase orders for our cable distributed access and virtual CCAP core products.

And finally, something that I'm very excited about. We have integrated our cloud-native 5G stand-alone core functions with 2 of the largest global hyperscale public cloud platforms -- Amazon Elastic Kubernetes service and Google Cloud Anthos. This significantly expands the way we can deploy our 5G stand-alone core to service provider customers and now to enterprise customers as well, and enables our customers the additional capability to provision and deploy services and applications in the public cloud or a combination of public and private cloud.

Now, on to our first quarter performance. During Q1, we had one of the strongest quarters ever as a public company in terms of growth and profitability. We delivered record wireless revenue growth, and we ended the quarter with a healthy backlog to support our growth for the remainder of the year.

Total revenue for the first quarter was $104.3 million, a 25% year-over-year increase. And with our continued focus on our operating model and cost structure, we again delivered excellent profitability. $20.2 million in adjusted EBITDA. This is a 452% increase from the first quarter of 2020. Turning to our product areas. Wireless revenue was $40.3 million, up 80% from the first quarter of 2020. Wireless bookings during the quarter were also up strongly. So our wireless backlog now stands at $156 million. That's up by 427% year-over-year and 63% sequentially after we shipped record number of wireless products.

Finally, we added several new significant wireless customers during the quarter and now we have 32 wireless customers globally across all our wireless product areas. That's an increase from the 28 wireless customers we had at the end of 2020.

Turning now to our fixed telco segment. Fixed Telco revenue in the first quarter was $16.5 million. We are seeing some quarter-to-quarter lumpiness in our fixed telco revenue and this is largely due to both customer and product concentration. But we have addressed this in 2 ways. First, we have added new customers for our fiber extension products; and second, we've been increasingly successful in securing purchase orders for our virtual router products. In fact, in the past 2 quarters, we have seen 8 purchase orders for our virtual BNG and multiservice routers. The results of this are evident in the increased fixed telco bookings and backlog that we saw in Q1.

And finally, on to cable. Cable revenue in the first quarter was $47.5 million. That's up 10.5% year-over-year. This increase was driven by cable customers reinvesting in their existing network infrastructure, particularly software capacity licenses to address the network hotspots from continued increases in bandwidth demand and usage.

Before turning the call over to Scott to discuss our financial results in detail, I would like to touch on a question that we are frequently asked. What's the impact on our business from RDOF and the Biden Administration's proposed infrastructure plan. While it's still early for us to quantify as a broadband infrastructure company, we believe the 2 programs will provide tailwinds for our business across all of our product lines, that could be incremental to the traction we are currently forecasting in our business. We will have more to say about this as the year progresses.

With that, I would like to ask Scott to discuss our financial performance in more detail. Scott?

Thanks, Jerry, and good afternoon, everyone. Just to reiterate Jerry's remarks, we had a very strong first quarter, and it was marked by year-over-year revenue growth of 25%; year-over-year wireless revenue growth of 80%; and an almost 11% increase in our cable revenue year-over-year, and this was as our cable customers increase their investments in existing infrastructure to meet bandwidth demand.

Improved profitability due to higher revenue and an efficient cost structure, and this was evident in the significant improvements we saw in both our GAAP and non-GAAP operating margins. And as Jerry noted, the 452% increase in our EBITDA relative to the first quarter of 2020.

And then finally, we saw year-over-year growth in our working capital, improvement in our liquidity position, and continued deleveraging. So all in all, this was a really great quarter.

Okay. Now, turning to our performance. Revenue for the first quarter came in at $104.3 million. Breaking this down across our product lines, first quarter wireless revenue was $40.3 million, or 39% of revenue. Cable revenue was $47.5 million or 46% of total revenue in the quarter, and our fixed telco revenue came in at $16.5 million or 16% of revenue.

Looking further at the income statement, GAAP gross profit for the quarter came in at $56 million. That's up 31.4% year-over-year with a GAAP gross margin of 53.7%. Total GAAP operating expenses for the quarter were $43.5 million, and that's a decline of 6% relative to the first quarter of 2020.

And as a percentage of revenue, GAAP operating expenses were 42% in this year's first quarter, which is down from 55% in Q1 of 2020. Adjusted EBITDA for the quarter was $20.2 million or 19.4% of revenue. GAAP operating profit was $12.6 million in Q1 as compared to an operating loss of $3.5 million in the first quarter of 2020. And on a non-GAAP basis, operating profit was $17.4 million. That's a significant increase from a non-GAAP operating profit of $314,000 in the prior comparable quarter.

GAAP net income was $5.7 million or $0.06 a per share on a fully diluted basis, and this is up from GAAP net income of $1.2 million or $0.01 per fully diluted share that we booked in the first quarter of 2020. And non-GAAP net income came in at $9.4 million or $0.11 per fully diluted share, and this is up significantly from the non-GAAP net loss of $5.3 million or negative $0.07 per fully diluted share that we booked in Q1 of 2020.

Let me now turn to our balance sheet. We ended the first quarter, as I mentioned, in a very strong liquidity position, with an 18.9% year-over-year increase in our working capital. Looking at working capital at quarter end, we had $146 million in cash, net receivables of $92.3 million, inventory of $96.5 million, and payables of $25.5 million.

Now, the 8% sequential decline in our cash balance was driven by 2 things: first, the timing of payments for component purchases, but this was related to our large backlog. And second, by payments that are normally higher in the first quarter, like annual bonuses and prepaid corporate insurance premiums. And much of this is reflected in the 38% reduction in our payables balance during the quarter. But despite this fluctuation in our cash balance, we do remain on track to continue to grow our cash balance for the remainder of the fiscal year.

And finally, our receivables agings once again remained quite strong with less than 1% at greater than 90 days. Total debt at the end of the quarter was $290.8 million, and that includes $6.5 million from our revolver and with our higher adjusted EBITDA in the quarter, our net debt was down to 2x trailing 12-month EBITDA. So to conclude, we're very proud of our first quarter.

But before opening the call to questions, I do want to comment briefly on our outlook for Q2. As many of you know, the second quarter is usually our lowest quarter in terms of revenue, and this is just normal seasonality. And while we had an exceptional Q1, Q1 revenue came in ahead of our expectations, in part because a few of the orders that we were expecting in Q2 actually materialized in Q1.

So we do expect to see a strong Q2 with year-over-year growth. But from what we know today, and this includes expected shipping schedules from our large backlog, growth in the second quarter will most likely be in the mid-single digits versus the double-digit growth that we saw in Q1. And then, of course, for the full year, we are on track to at least meet our guidance numbers.

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

Operator?

(Operator Instructions) And our first question is from Meta Marshall with Morgan Stanley.

This is Karan Juvekar on for Meta. I just have 2 questions. First being, how do you feel like your visibility is for your overall business a year ago? And I guess, how does that differ between wireless, fixed wireless and cable?

Karan, this is Jerry here. Let me answer that question. We feel so much better about visibility for the whole business. Mostly because the composition of the business is much different than what we had a year ago. We have now more than 50% of our business are from wireless and big telco instead of cable alone.

And also, we have a very large backlog compared to a year ago. We just -- wireless alone is $156 million. So that helps with the visibility as well. Cable space, we have a better visibility now, and we also have backlog and to help with that, but compared to wireless, the book to ship time is shorter.

Got it. And I guess just a follow-up on the wireless side. Where are you seeing the most incremental interest in the wireless portfolio? Is it more on the software side or on the small cell side? Any color there would be helpful.

We -- as we discussed in the past that -- among the 3 product areas, the packet core, the radio and fixed wireless access devices. We see a lot of activities on the core side. In terms of number activities, that's the #1.

And our next question is from Tim Savageaux with Northland Capital Markets.

And I'm hopping on a little late, so apologies if I'm repeating anything. And I just want to focus back in on the wireless backlog, which -- and Jerry, I think you said $156 million. I also heard 400-something percent growth. We'll figure out which number that is. But obviously, that's a substantial increase.

And I guess my question is, my sense is that your customer traction, especially among Tier 1 carriers globally has been broadening out a bit. Is this kind of a reflection of that? How would you sort of characterize this order input and increase in backlog with regard to breadth of customers geographically, in addition to product type? I don't know if your last comment was about where kind of broader interest is or specifically regarding the backlog versus core radio access and CPE. So any color along one of those lines would be great.

Okay, Tim, (inaudible) mostly about the broader interest in terms of number of trials and deals we have going on. In terms of the backlog increase, we -- the contribution -- we have 2 contributions. One is the broadening of that portfolio, and we continue to build backlogs in fixed wireless access, packet core and the radios, small cells as well. And we do have both the new customers adding to the backlog as well as existing customers placing long-term purchase orders as well.

I guess, let me come back at that another way. I mean, as you look across your base of wireless customers, it looked like you -- in Q4 came up with at least one new one in terms of a Tier 1 wireless player on the 10% customer list and one -- another one that was pretty close. As you look across your business right now in your backlog on the wireless side, in particular, how many Tier 1 carriers would you say there are potential very significant customers for CASA kind of capable of approaching the 10% range?

I'm not ready to give a number yet, but we do have quite a few very significant deals going on at this time.

And our next question is from [Sumeet Chatterjee].

This is [Vigni]. Congratulations on the strong results. I was just wondering why did you guys not raise the full year guidance? I know you mentioned some of the orders from Q2 materialize in Q1, that partly explains Q1 strength. But are there any concerns about any slippage in the timing of the projects?

Why don't I take that? It's Scott. Look, it's a good question. Let me just remind you that our guidance is based on the visibility that we currently have into our business. So we had a great first quarter. In my comments, I noted, I think we are on track to have a very strong second quarter and that means that we believe that we're still on track for double-digit growth in 2021.

So we're extremely confident about our opportunities this year. And as Jerry mentioned, the backlog grew significantly. So at this point, we don't perceive that there's any slippage that gives us concern. But as we get more visibility into the second half, we'll update our guidance as appropriate.

But I do want to be very, very clear. We are having a very strong year. We started the year very strongly. And as I said, we are, in my comments, we are on track, and this is an important 2 words, to at least meet our guidance range.

Okay. And then I had another question. So how do you see the opportunity around the CBRS small sales for this year?

We think that CBRS is going to be a really good tailwind to our business in general. And you know that we have the 3 types of wireless products from the core, to the video, to the fixed wireless access. We have CBRS capabilities in both our radio and access devices.

Of course, the core is not spectrum specific, but we do see that the core will be part of the solution to serve the CBRS customers.

And our next question is from Scott Fessler with Stifel.

Given the step-up we saw there in cable, what do you see is the right quarterly run rate for the segment going forward? And then what's your outlook like there for the back half of the year?

Scott, it's a good question. And in fact, we thought that given the step-up that we saw in the first quarter, somebody would ask this question. And I'll remind you that we also saw a step-up in the fourth quarter. In fact, we had about $48 million of revenue.

For the last 8 consecutive quarters, we have seen cable be in a very steady range of $40 million to $50 million. And that is -- that continues to be our view on cable for the remainder of the year. Remember that the step-up that we saw, Jerry mentioned it and I mentioned it in my remarks, is as a result of our customers investing in existing infrastructure to meet bandwidth demands and increased usage demands.

And then on top of that, we did see new orders come in already. This is like 3 or 4 quarters in a row where we're seeing strong orders coming in for DAA and virtual CCAP. And it's our view that, that will be a slower ramp. We probably will start seeing the benefit of that toward the end of this year, but it doesn't pick up significantly until next year and the year after.

Great. And then on the millimeter wave side, the trials you're doing there, is it still only for the line of sight lengths? Or are there more edge-focused deployments in the works?

The -- are you referring to our fixed wireless access and deployment with the millimeter wave?

Yes. Yes. You had mentioned a millimeter wave trial for last quarter. So I was just wondering on the progress of that.

Yes. We did. And so that is going extremely well. And in fact, part of what we announced in our wireless backlog is, in fact, takes into consideration that acceleration deployment. That is still the line of sight product that we announced. But we also do want to say that it's just not about 1 customer for the 5G millimeter wave.

And our next question is from Tim Long with Barclays.

Two questions, if I could. First, on the gross margin. If you could talk a little bit about that. It seemed pretty strong in the quarter. Talk a little bit about kind of sustainability now that the mix is stabilizing a little bit? And then I think you guys mentioned the rural broadband and government initiatives. It seems it's happening here and in other parts of the world as well. So understanding it's a tailwind. Any color you can give us on how you think you guys will participate from a product standpoint? Do you think it will be across product categories? And any color you could give on what you think kind of a timing or magnitude would be for some of these as drivers for CASA?

Sure. It's Scott. Let me start with the gross margin, and then I'll hand over to Jerry to talk about where we see the opportunities in rural broadband and then also in the recently announced Biden infrastructure program.

So the gross margin did trend up this quarter. That was largely related to more software, obviously, but in the cable mix. Remember, we noted over the last several quarters that the tailwinds that we saw from COVID with our cable business drove a significant number of chassis sales. And that was largely related to meet congestion on upstream channels in cable networks. So we saw a lot of node splitting.

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

In terms of the trend that we see for the year, just remember that we are not guiding on gross margin this year. We are focused on delivering profitability further down on the P&L and also free cash flow.

So let me answer that question on the other side. The operators who got the funding from the government, the RDOF funding, usually are 2 types. One is that the traditional fixed telco and the other one is the cable companies. And we have products for both operators.

And on the cable, of course, we have the integrated CCAP plus the distributed architecture that can provide a gig or multi-gig services. And on the fixed telco side, we are providing fiber extension products as well as the virtual routers for BNG applications or service provider edge routing applications. So those will also benefit from a rural broadband extension.

(Operator Instructions) And our next question is from Timothy Savageaux with Northern Capital Markets.

Sorry about that. A little sideways with the phone last time. I wanted to follow-up with a couple of questions, which is had you discussed 10% customers in the quarter in terms of number aggregate concentration, type of operator, et cetera.

And then you kind of addressed the second one a little bit already, but I want to get maybe a little more color on what you're seeing in terms of access across distributed access, Remote-PHY and cable. It sounds like the activity level is picking up, but maybe the deployments are a little bit further out. Is that a fair way to characterize it?

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

Tim, in terms of distributed architecture, and we are seeing more and more activities. We do see deployments, but the scale of the deployments are not at the level we think is significant. And also, there's a new industry trend of Remote MAC-PHY as well. And that's probably going to also delay things a bit. So a lot of things going on. We are engaged with all types of solutions, not just one single type at this point.

Ladies and gentlemen, we have reached the end of the question-and-answer session. Now, I'd like to turn the call back over to CEO, Jerry Guo, for closing remarks.

Thank you, everyone, for joining us today. Before ending the call, I want to announce that Casa Systems will be hosting an Investor Day in September 2021. Please look out for our press release with more specific details on the event. We look forward to seeing you all there. Thank you again.

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