Casa Systems, Inc. (CASA) on Q2 2021 Results - Earnings Call Transcript
Operator: Greetings and welcome to the Casa Systems Q2 2021 Earnings Call. At this time, all participants are in 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's systems released results for the second quarter of 2021 ended June 30, 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.
Jerry Guo: Good afternoon, everyone. Thank you for joining us today as we discuss our second quarter results. I am pleased to report that Q2 was a another growth quarter for Casa Systems. Here are some of the highlights, 11% top line growth year-over-year, 111% year-over-year wireless revenue growth with continued strong momentum in all our wireless products, a 63% year-over-year increase in our wireless backlog, which now stands at over $139 million, 56% of total revenue in the quarter from our wireless and fixed telco products. This makes four consecutive quarters of our new product offerings comprising over half of our revenue and numerous customer advances with our strategic growth products that show growing demand for our products. Here are the numbers for quarter. 11 new purchase orders for DAA and the virtual CCAP, 15 purchase orders for our wireless cores, radios and the fixed wireless product and an increase in our widest customer count to 41 from 32 in the previous quarter and nine new purchase orders for our virtual router and a fiber expansion products. Before I review our second quarter performance, I would like to comment on the ongoing supply chain situation. As you know, our business relies on sales of both software and hardware products. While our software products remain unaffected, we are seeing component shortages for our hardware products. During the first half of the year, we were able to take measures that minimize the impact of these shortages on our business. You can see this in our strong results for the two quarters.
Scott Bruckner: Thank you, Jerry and good afternoon, everyone. Just to build on Jerry's remarks, I'm really very pleased with our second quarter results. In addition to the business achievements that Jerry noted in all our product areas, we delivered year over year growth in revenue, EBITDA and operating profit and we ended the quarter with a strong balance sheet, enhanced liquidity and lower leverage. These are great results.
Operator: Thank you. We will now be conducting a question and answer session. Thank you. Our first question comes from Meta Marshall with Morgan Stanley. Please proceed with your question.
Unidentified Analyst: Hi, this is Dave Wakako on for Meta Marshall. So I was wondering, so Crown Castle mentioned a slowdown in small cell deployments to make room for macro deployments. Are you seeing any pause in small cell deployments due to allocate labor and are there any changes to expectations on the cable side of the business? Thanks.
Jerry Guo: Let me answer that question. We're continuing to see demand for small cells. Of course the deployment feed could be impacted by component situation and were watching it basically closely and as to cable we, will continue to be cautious about the short term, but we do see positive signs. It may improve.
Scott Bruckner: I would just add one very quick thing to that on the small cell side, just to amplify Jerry's point. So while, we think the deployments could potentially be impacted by the supply chain situation, what we are not seeing is a slowdown in demand. And in fact that's evident in the growth that we've seen in our wireless business and in particular in the quarterly growth in our bookings in wireless. So our customers continue to order, our customers continue to plan for deployment and everyone's just grappling with what the supply side is throwing at us.
Operator: Thank you. Our next question comes from Tim Savageaux with Northland Capital Markets. Please proceed with your question.
Tim Savageaux: Hi, good afternoon. Pardon me? Couple of questions on the wireless side as well, you mentioned strong kind of order dynamics, so it looks like the backlog did come down a bit. Wonder if you could talk about the dynamics there. You'd also mentioned maybe some pull-ins of some wireless CPE products and backing up to a higher level with Ericsson and Nokia over the last couple of weeks and pretty significantly increasing their estimate of radio access network growth this year, principally driven by 5G, what sort of impact do those more optimistic views of the market have on cash flow?
Jerry Guo: We delivered $92.7 million in products last quarter and you see that -- a significant part is wireless. We replenished the backlog with the new orders. So we still have a very strong backlog after the delivering the wireless, due to the new demand. And at the same time we have three categories of wireless products, the core, the CPE, and the small cells. And we don't necessarily overlap with Nokia in all of their categories. So I wouldn't take a data, say positive and negative from one vendor's view.
Tim Savageaux: Okay, great. And if I could follow up on the cable side, you had mentioned, pretty good number of POs in the virtualized CCAP and remote five space. Wondering if you can characterize those. You've got any significant deployments or the rows, relatively kind of initial deployments that are small and is that -- how does that compare to what you've seen in the past in terms of activity? I know you had one big order a while back, but is it more broad based at this point, would you say in terms of the operator movement toward virtualized CCAP and remote five, do you expect that to be an important factor in your second half?
Jerry Guo: I would characterize it as more broad-based. We have POs from both the tier one operators, as well as smaller operators. So it is more broad-based and the deployment pace is still relatively slow. Both impacted by of course the gradual ramp of DAA architecture as well as partly by supply chain.
Operator: Thank you. Our next question comes from Simon Leopold with Raymond James. Please proceed with your question.
Simon Leopold: Thank you for taking the question. I wanted to see if you could talk a little bit about your expectations for mix and I'm looking for insight in two dimensions. One is just your sense of how mix will end up for the full year in your reported segments. But the other one is given what you've talked about in terms of supply chain constraints versus software, it feels like maybe you should see a little bit of a gross margin tailwind in the second half of the year, software is a bigger part of the mix than your original expectations and then I have got a follow-up
Jerry Guo: On the mix we continue to see wireless to be a big component to our second half and as to the gross margins, our gross margins as you actually noted that's very much impacted by the product mix. We continue to ship both the software and the hardware. We still cannot be certain that the mix at this point yet.
Simon Leopold: And in terms of the supply chain constraint in general, we hear a lot about semiconductors, so that feels sort of known, but just wondering whether there are other constraints that you think are worthy of highlighting or that's really the primary issue for you.
Jerry Guo: Mostly the semiconductors.
Simon Leopold: And then just finally if you could give us an update on your thoughts regarding government stimulus programs, both art off here, as well as other opportunities abroad, how are you thinking about that layering into the business and at what point, thanks.
Jerry Guo: Yeah, we continue to be encouraged by that government programs. I know we are engaged with quite a few customers, which are in that program, but we still cannot quantify that yet.
Simon Leopold: Thank you for taking the questions.
Jerry Guo: Welcome Simon.
Operator: Our next question comes from John with Stifel. Please proceed with your question.
UnidentifiedAnalyst: Hey guys, thanks for taking the question. This is Jim Baron on for John. I wanted to go back to the wireless backlog comment. You sell a little bit sequentially you guys had some pretty good customer ads net on the quarter. Is that indicative that maybe some of these newer customers are still earlier or say more trial size orders aren't really ramped yet. And kind of along that, what these customer additions, just, if you could give us sort of a breakdown by geography where you saw the most interest. Thanks.
Jerry Guo: Yeah, our wireless backlog consists of both volume products like a production -- ongoing production delivery orders as well as early phases of new customers. So, because you saw the numbers. So it's a pretty large number of customers. So there's a spectrum of those things and we do expect -- the order continuous to grow.
Scott Bruckner: Yeah, I would, I would just add one more comment to that. Look, as Jerry said, the size of the backlog moves around, the order volume fluctuates from quarter to quarter. I do want to point out that we saw a very significant jump from the fourth quarter to the first quarter of last year. And if you remember, that's when the news about supply chain disruptions really started resonating through our industry. And so a lot of our customers jumped up to start ordering and in particular, on the CPE side of the business products to ensure that they could meet their product rollout schedules. So we saw that very first bump from Q4 to Q1. We also saw some very nice bookings between the first quarter and the second quarter and we do expect that backlog to grow through the year.
UnidentifiedAnalyst: And then could you talk to, sorry about the geographic mix of your wireless -- your wireless customers in the quarter?
Jerry Guo: Yeah, so it was global. What we see is North America moving more aggressively but other regions also, we're also seeing traction in other regions as well. So North America was the largest in the quarter for wireless.
Operator: Thank you. There are no further questions at this time. I would like to turn the floor back over to Jerry Guo for any closing comments.
Jerry Guo: Thank you, everyone for joining us today. Before I end the call, I want to remind everyone that Casa System will be hosting an Investor Day later this fall. We have changed the timing of the event from September to November because of what is turning out to be a very busy period for investors in September with our other scheduled events. Please look for our press release with the more details on the event in the coming months. We appreciate you joining us today and look forward to sharing our progress next quarter. Thank you.
Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful evening.
