Casa Systems, Inc.
Q4 2020 Earnings Call Transcript

Published: 18 Feb 2021

[Operator:]

Greetings, and welcome to the Casa Systems 4Q 2020 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jackie Marcus. Thank you, Jackie. You may begin.

[Jackie Marcus:]

Thank you, operator, and good afternoon, everyone. Casa Systems released results for the fourth quarter of 2020 ended December 31, 2020 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.casasystems.com.

[Jerry Guo:]

Good afternoon everyone. Thank you for joining us today as we discuss our fourth quarter and fiscal year 2020 results. We ended the fourth quarter and fiscal year 2020 with excellent results. Here are some of the highlights. We successfully delivered on our commitment in 2020 to grow profitably and to transform our business. Our fiscal year 2020 revenue and profitability exceeded our previously provided and the revised guidance range with a double-digit growth. 55% of our revenue in fiscal 2020 came from our growth drivers, wireless and fixed telco products. And wireless became the largest part of our business in Q4, contributing 42% of our revenue. We made significant customer advances with our growth products, demonstrating that major carriers continue to validate our technology over our competitors. Here are the numbers for fiscal year 2020. 26 new purchase orders for our 4G and a 5G wireless products including packet cores, radio access network products, and the CBRS and a 5G fixed wireless access devices. A major new customer for our recently launched 5G millimeter wave fixed wireless access device, six new purchase orders for our virtual BNG router and a multiservice router products. And four new customers for our fiber to the distribution point products. And a 14 purchase orders for a cable distributor access and a virtual CCAP core. We achieve all of this despite the significant ongoing headwinds stemming from COVID-19. Once again, I have the highly talented and dedicated people of Casa Systems to thank for this. Their hard work and commitment are truly inspiring.

[Scott Bruckner:]

Thank you, Jerry and good afternoon everyone. As Jerry mentioned we had another exceptionally strong quarter in a spectacular year for CASA and I'm really very pleased with our results. During the quarter in the year we saw significant full-year growth in our top line. A continuation of the revenue mix shift that we've been targeting so a majority of our revenue now comes from our wireless and fixed telco products. Higher gross profit dollars bode for the full-year and the fourth quarter. Increased operating leverage that drove double digit growth in operating profit and adjusted EBITDA and increase liquidity quarter-after-quarter during the year. Okay. Let me now turn to our full-year 2020 results. Revenue for the year came in at $393.2 million which is up 39% compared to 2019 and as Jerry mentioned exceeded the top end of our revised guidance range for the year. And if we look at 2020 second half revenue compared to the second half of 2019 when we first consolidated NetComm, our total revenue grew by over 16%. Looking at our product lines wireless revenue for the year was a $118.6 million or 30% of revenue. This was up 98% compared to full year 2019 and up 38% on a second half comparison. Fixed telco revenue came in at $98.8 million or 25% of revenue. And this was up a 150% compared to the prior year. And on a second half comparison basis fixed telco was up 43%. Cable revenue for the year was relatively stable at a $175.8 million or 45% of revenue.

[Operator:]

Thank you. We will now be conducting a question-and-answer session. Thank you. Our first question comes from Rich Valera with Needham & Company. Please proceed with your question.

[Rich Valera:]

Thank you. Just a question on the three business segments and the relative growth outlook of those for the -- for 2021. Do you expect growth in all of them or maybe still expecting flattish in cable? And just any color on sort of the magnitude or relative growth you expect in the different segments? Thank you.

[Jerry Guo:]

Hi, Rich. Jerry here. Let me answer that question. We -- in our business model, we are not counting on the growth in the cable product line. So we’ll continue to expect that growth in the telco side, the fixed telco and the wireless.

[Rich Valera:]

Got it. And any -- between the two of them, any color on which one might see stronger growth or just both?

[Jerry Guo:]

Yeah. We do see clearly wireless is the strongest growth on product line.

[Rich Valera:]

Got it. And then I saw you -- actually had very strong wireless shipments and used some backlog. How does the order outlook look for wireless? Do you expect to be building backlog net over the next couple of quarters or any color on that at all?

[Jerry Guo:]

In the prepared comments, we already mentioned that we received significant order to replenish what was shipped in Q4. And we do see that wireless orders will continue throughout the year.

[Rich Valera:]

Got it. And then just on the supply chain side, there's been a lot of talk about component shortages generally speaking in tech, wondering are you guys seeing any of that? Has that affected you at all at this point?

[Jerry Guo:]

Scott, do you want to take that?

[Scott Bruckner:]

Yeah. Absolutely. Sorry, I was just coming off mute. So Rich, as we said in our previous calls throughout the year that Casa has absolutely not been immune to disruptions that COVID brought to the supply chain. But we were able to manage these extremely well in 2020 with no material delays in product deliveries to our customers. So in 2021, we will continue to take steps to try to mitigate any impact from supply shortages. But we do acknowledge that this is a risk for the coming year. And with respect to the 2021 guidance that we've given, we've used the best information about this currently available to develop the budget and guidance.

[Rich Valera:]

Got it. Appreciate it. And just one final one for me on the model, the tax rate for 2021, you said it's going to be higher. Can you give us some kind of range there, Scott?

[Scott Bruckner:]

Yeah. So what I would do -- our tax, as I've said previously, is a little bit funky. So what I -- what I'm going to do is guide for the absolute tax dollars that we will pay for 2021. And so we expect to be paying in a range of $10 million to $12 million for the year.

[Rich Valera:]

Perfect. Okay. Thanks, gentlemen. And congratulations on a strong finish to the year.

[Scott Bruckner:]

Thank you, Rich.

[Operator:]

Our next question comes from Meta Marshall with Morgan Stanley. Please proceed with your question.

[Meta Marshall:]

Great. Thanks. Maybe a question on the wireless business and just -- you mentioned quite a number of products that you're seeing traction with. But should we assume that the vast majority of that revenue is still -- or I guess the majority of the revenue is still small-cell-based? And then maybe just as a second question, you mentioned having kind of a customer on the 5G millimeter-wave product, just if you could speak a little bit more to the trials that are being done or when you think that that product could scale either with your main customer or kind of with other customers. Thanks.

[Jerry Guo:]

Hi, Meta. Let me answer that question. We actually had appeals revenue from all three types of wireless products from the small cells, the radio, and to fixed wireless access products, both 4G and 5G, and packet course. And we did have more hardware than software in 2020. As to millimeter-wave trials and rent, we do expect millimeter-wave to ramp in 2021. And the trials we conducted or with a couple of operators to basically to break the records on the distances a millimeter-wave can travel with line of sight, and we believe -- well, we continue to hold that record at this point. And we do believe that we're going to have multiple customers to shift the millimeter-wave wireless products this year, even though the 2020 revenue did not include a millimeter-wave shipment.

[Meta Marshall:]

Got it. And maybe just on -- as you've cleared out some of the wireless pipeline and added additional kind of new pipeline, how is the visibility of revenue recognition for that pipeline? And do you guys feel that you’ve kind of have a better sense of when that pipeline could get recognize or was it largely from new customers where you still need to get qualified? Thanks.

[Jerry Guo:]

We actually have a much better visibility this time around than last year with the outdoor radio. We -- there are risks like we discussed and that Scott discussed earlier like supply chain. But other than that we do expect customer acceptance but the risks are very manageable in our view.

[Meta Marshall:]

Great. Thanks.

[Jerry Guo:]

Meta, the only thing I would add to that question is as we said in the previous quarter we do expect that the bulk of this backlog will get shipped in the next couple of quarters.

[Meta Marshall:]

Great. Thanks.

[Operator:]

Thank you. There are no further questions at this time. I would like to turn the floor back over to Jerry for any closing comments.

[Jerry Guo:]

Well thank you for joining this conference. I'm looking forward to see you guys at the next conference call.

[Operator:]

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful evening.