Casa : Q2’22 Earnings Call Transcript

Casa Systems Q2'22 Earnings Call Transcript

August 4, 2022, 5pm ET

Operator

Greetings and welcome to Casa Systems Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press "*", "0" on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Michael Picariello, Director of Investor Relations. Thank you. You may begin your presentation.

Michael Picariello, Investor Relations

Thank you, Operator, and good afternoon, everyone. Casa Systems released results for the second quarter of fiscal year 2022 ended June 30, 2022, this afternoon, after the market closed. If you did not receive a copy of our earnings press release, you may obtain it from the IR section of our website.

With me on today's call are Jerry Guo, our CEO, and Ed Durkin, our CFO. This call is being webcast and will be archived on the IR 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

Casa Systems Q2'22 Earnings Call Transcript

August 4, 2022, 5pm ET

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.

I'd like to turn the call over to Jerry. Jerry.

Jerry Guo, Chief Executive Officer of Casa Systems

Thanks, Michael. Good afternoon and thank you to all for joining Casa's Second Quarter Fiscal Year 2022 Earnings Call.

On today's call, in addition to covering our second quarter results, I'll provide some insights into our progress on our mature product lines, cable and Casa access devices, or CAD, as well as update our new cloud software and 4G, 5G redo offerings, dealing on some comments made on the last earnings call in May. I will also provide some updates on new customer wins and major opportunities ahead for us in the second half of 2022, and beyond.

As you saw in our press release, we were able to, successfully, continue our positive trajectory for Casa's cloud native software solutions, during the quarter.

However, as expected, supply chain constraints continue to weigh on our second quarter financial performance. While we have some sequential revenue improvement in the second quarter, relative to the first quarter of this year, results for the second quarter and six months ended June 30, 2022, were below results from the same period in the prior year and with an operating loss incurred again in Q2, 2022.

While Ed will cover the financial results and drivers in more detail in his financial comments, suffice it to say, we are working hard to address all matters, within our control, that impacted operating results for Q2 and the first half of 2022. We also remain steadfast in our conviction that our revamped strategy for accelerating profitable growth in 2023 and beyond is the right path. And our early actions have us on course to achieving our long-term objectives.

Casa Systems Q2'22 Earnings Call Transcript

August 4, 2022, 5pm ET

Despite the near-term financial results, there were many positive developments in the quarter. First, Q2 was a very eventful quarter for Casa, strategically, highlighted by the Verizon deal announcement on April 18. For those who may not have been on earlier calls, the Verizon announcement encompassed two things. First, it results in a $40 million minority equity investment for Verizon for a 9.9% stake in Casa shares. In addition, it includes a major license deal for up to $140 million of total contract value for Casa's cloud native 5G core software for public or consumer mobile edge computing deployment. Importantly, this comes after Verizon evaluated all other alternatives in the market today for this solution.

This very strategic Verizon transaction is an important milestone for our 5G core and security data technology, as well as great validation of our go forward strategy and leadership position in cloud native 5G core and mobile edge computing solutions. We are now several months into our strategic partnership with Verizon, and I am pleased to say that everything is going well and on track. I'm very excited about this transformative Verizon partnership and its impact on our business in 2023, and beyond.

Second, there was some very encouraging progress on several important underlying business metrics, during the quarter, specifically, strong bookings of nearly $93 million for the quarter. These bookings reflect $20 million from Verizon's 5G public MEC purchase orders in Q2, as well as many other booking awards, across all geos, during the quarter, including a quarter end order for $11.5 million from an increasingly active U.S.-based CSP customer for one of our access device products. We also have strong billings for the quarter of $91 million. This includes the $20 million billed to Verizon in Q2 for which we have already been paid $10 million, as of late July, and expect the remaining $10 million to be paid, later in Q3.

Finally, total GAAP revenue for Q2 was $70.8 million, up 10% sequentially, over Q1, 2022, despite continuous supply chain challenges. It is important to note that, while we did bill $20 million in Q2 for 5G core software already delivered to Verizon, that Q2

Casa Systems Q2'22 Earnings Call Transcript

August 4, 2022, 5pm ET

results only include $5 million of 606 recognized revenue from the new Verizon 5G core contract in Q2. Again, Ed will cover this in greater detail, shortly.

Now, I'd like to add some additional color and highlights on both our new product lines, cloud software and 4G, 5G radios and our more mature product lines, cable and CAD. I'm pleased to report the following.

Starting with the 4G, 5G small cell radios, further to my comments during the May earnings call, when I mentioned we would have news on our radio access networks business, we can now share that we signed and closed a contract with a large Tier 1 CSP. We'll be providing Sub-6 small cell 4G-5 radios to this CSP with expected orders of approximately $7.5 million in Q3 for delivery in 2023. This is a good validation our RAN technology and product excellence. We are also pursuing other major opportunities with other Tier 1 CSPs and hope to be able to share even more RAN success in the coming quarters.

Turning to our cloud software offerings. In addition to order progress we're making with Verizon, I also wanted to highlight other customer engagements that demonstrate our growing success for our cloud native software solutions. In May, we announced that Casa entered a memorandum of understanding, or MOU, with a Vietnam posts and telecommunications group, VNPT. VNPT is a leading provider of digital and telecommunication services in Vietnam. The MOU was signed to memorialize the planned next-generation network services in Vietnam with VNPT selecting Casa as their strategic software provider. We also announced in June, Malaysia service provider, YTO Communications, has deployed Casa's industry leading native Axyom 5G core to power its 5G network accelerating its digital transformation, across Malaysia.

Our sales pipeline for cloud native 5G core and MEC opportunities, as well as our cloud BNG router product line is promising. We are currently working on many other cloud native 5G core deals, as well as other deals that include our cloud BNG router product. Like our cloud native 5G core, our cloud BNG can replace traditional chassis-based

Casa Systems Q2'22 Earnings Call Transcript

August 4, 2022, 5pm ET

edge routers for BNG applications to provide the same benefits to wire land networks, as our cloud native 5G core to wireless networks.

As a reminder, our cloud BNG router offers separation of control and data plans and is designed for network edge deployment, geographic redundancy and multidimensional scaling, so that service providers have low latency, high throughput, service assurance and agility and a faster time to market. These deals are with the Tier 1 CSPs on a global basis, and some are in partnership with some of the leading public cloud hyper-scalers in the large system integrators.

Including coordinated joint sales act initiatives with these partners, we expect to announce new cloud native software wins with Tier 1 CSPs, later this year for both, 5G core and MEC and cloud BNG solutions. And we also expect to be able to announce a new go to market partnership with a new distribution partner, later in Q3, 2022, as well.

Now, turning to our more mature cable product line, as noted in May, we are continuing our deployment of our cloud native CCAP core, together with our remote PHY nodes with multiple Tier 1 operators. In addition, we are also in customer trials for our end-to- end remote MACPHY solutions. We are seeing more interest from our leading cable customers to go to remote PHY and remote MACPHY, in the last few months. We're hopeful that, with the support of both remote PHY and remote MACPHY, coupled with increased competitive dynamics that cable providers need to react to, we will be in a good position to return our cable broadband business to growth in 2023, and beyond.

Finally, regarding fiber extension and our fixed wireless access devices product line, we are expanding our fiber extension deployment in the United States and Europe, beyond our original customer base in Australia. We received notification, earlier this week, that we will be receiving a $10 million PO for fiber extension products from a major customer in Europe. We're also working on next generation offerings in this area with enhanced management, higher port counts and XGS-PON support, which should provide us with growth opportunities in 2023, and beyond.