Casa Methods, Inc. (NASDAQ:CASA) This autumn 2022 Earnings Convention Name March 14, 2023 5:00 PM ET
Firm Representatives
Jerry Guo – Chief Govt Officer
Ed Durkin – Chief Monetary Officer
Dennis Dailey – Director of Investor Relations
Convention Name Contributors
Simon Leopold – Raymond James
Tim Savageaux – Northland Capital Markets
Operator
Hi there! And welcome to Casa Methods This autumn 2022 Earnings Convention Name and Webcast. [Operator Instructions]. A matter-and-answer session will comply with the formal presentation. As a reminder, this convention is being recorded.
It’s now my pleasure to show the decision over to Dennis Dailey, Director of Investor Relations. Please go forward Dennis.
Dennis Dailey
Thanks, operator, and good afternoon everybody. Casa Methods launched outcomes for the fourth quarter of fiscal yr 2022 ended December 31, 2022 this afternoon after the market closed. In the event you didn’t obtain a replica of our earnings press launch, you could get hold of it from the Investor Relations part of our web site at traders.casa-systems.com.
With me on right this moment’s name are Jerry Guo, our Chief Govt Officer; and Ed Durkin, our Chief Monetary Officer. This name is being webcast and will likely be archived on the Investor Relations part of our web site.
Earlier than I flip the decision over to Jerry, I’d like to notice that right this moment’s dialogue will include forward-looking statements based mostly on the enterprise surroundings as we presently see it, and as such, it does embrace sure dangers and uncertainties. Please check with our press launch and our SEC filings for extra info on the particular threat elements that might trigger our precise outcomes to vary materially from the projections described in right this moment’s dialogue.
Any forward-looking statements that we make on this name or within the earnings launch are based mostly upon info we imagine as of right this moment and undertake no obligation to replace these statements as a results of new info or future occasions.
Along with U.S. GAAP reporting, we report sure monetary measures that don’t conform to typically accepted accounting rules. Through the name we might use non-GAAP measures if we imagine it’s helpful to traders or imagine it will likely be useful to traders to higher perceive our efficiency or enterprise traits.
And with that, I’d like to show the decision over to Jerry. Jerry.
Jerry Guo
Thanks, Dennis, and good afternoon everybody. Thanks for becoming a member of us right this moment on our name. As Dennis talked about, we issued a press launch asserting our fourth quarter and year-end 2022 monetary outcomes, which Ed will cowl in additional element later. It was a very good quarter for Casa with substantial sequential development and a return to a GAAP internet revenue and a optimistic internet adjusted EBITDA outcomes as Ed will cowl in additional element, and I’m very happy with these outcomes and our renewed momentum.
With the 2022 now behind us, there’s a lot work to be completed to speed up our development and return to profitability and we imagine 2023 will likely be a important yr for Casa as we deliver our modern options to the market in a money and a capital environment friendly method. We’re persevering with to make super progress on our transformation in the direction of software program and the cloud.
Our backlog coming into the yr is powerful. Our stability sheet deferred income is up, and we have now a stable gross sales pipeline throughout our Cable, CAD, Cloud and our RAN product strains with the numerous new Tier 1 CSP late stage gross sales discussions and negotiations.
We’re additionally seeing rising demand for our fastened wi-fi entry and the fiber extension deployment throughout a number of geographies. Moreover, we anticipate to ship shipments of our newest Apex 4G/5G enterprise small cell later this yr as a part of a multiyear contract with a Tier 1 CSP.
With respect to our cloud native 5G Core and Edge portfolio, Casa’s know-how powered YTL’s win of the Ookla Pace Check Award for sure, 5G community in Malaysia, representing a major validation of our capabilities. Casa was additionally a part of a number of latest buyer bulletins, together with Telenor’s latest 5G deployments and Orange’s unveiling of Europe’s first experimental end-to-end 5G SA community PKO.
Including to this information, our multiyear $140 million TCV partnership with Verizon, that was introduced in April 2022 to supply our 5G Cloud native software program to energy Verizon’s public Cell Edge computing and repair providing stays on monitor, with Casa assembly all the important thing 2022 core deliveries and milestones referred to as for in our contract with Verizon.
Our crew was delighted to spend time with our prospects and showcase our know-how on the latest Cell World Congress in Barcelona a couple of weeks in the past, the place our modern 5G Core know-how was on full show. A number of of our key companions made important bulletins concerning their work with Casa, together with Google’s simplified cloud native community capabilities deployment with a local [inaudible] networking and community perform optimizer. And IBM’s work with Casa & Enea to construct a whole non-public 5G resolution that is extra scalable, dynamically adjustable, dependable and safe.
I additionally like to spotlight Intel’s digital BNG, 1 terabyte per second two processors, which was additionally introduced at Cell World Congress. This exceptional achievement demonstrates Casa’s skill to ship 1 terabyte per second on one server ensuing higher efficiency that requires much less energy and fewer house. With this know-how suppliers we’ll be capable to supply companies at Edge that meet their efficiency requirements and to extra affordably broaden into markets with a brand new fiber to the house companies.
Including to our momentum, our know-how was featured in a number of demonstrations from our key companions, together with AWS with Totogi’s Monetizable NPEN resolution. Orange’s PKO 5G Core that I discussed earlier, and the rep has continued to work on NPEN options. This was an unimaginable displaying for Casa and we honor to work with such essential companions around the globe to drive the following stage of innovation.
Lastly, we additionally introduced right this moment that Scott Bruckner, Casa’s former Chief Monetary Officer, will likely be becoming a member of the Board of Administrators to assist information the corporate by means of its subsequent chapter, Scott has made essential contributions to Casa up to now as the previous CFO, and he brings a deep understanding of the corporate’s enterprise, technique and main prospects. We look ahead to the expertise and experience that Scott will deliver to the Board.
With that, I might now like to show the decision over to Casa’s Chief Monetary Officer, Ed Durkin, for his feedback on the corporate’s efficiency within the fourth quarter and full yr, and our 2023 outlook. Ed.
Ed Durkin
Sure. Thanks, Jerry, and good afternoon everybody. As you realize, we shared our preliminary income outcomes publicly in late January, and we’re very happy that we have modestly exceeded the excessive finish of our income steering based mostly on a powerful quarter for cable revenues, and the persevering with enchancment within the provide chain and demand for our fastened wi-fi and fiber extension merchandise. And the headlines for the quarter, that our fourth quarter revenues got here in at $84.Four million. We’ve optimistic GAAP internet revenue of $1.2 million for the quarter, and we had optimistic internet adjusted EBITDA of $5.2 million throughout This autumn.
Earlier than I cowl our This autumn monetary outcomes and our December 22 profitable decision of a buyer guarantee dispute and supply an replace on the standing of our Time period Mortgage B efforts in additional element.
I first wished to deal with the challenges we confronted over the previous few quarters and deal with 2023 excessive stage steering. And as most of you realize, we suspended our full yr steering early in 2022, as there have been too many uncertainties round provide chain and enterprise dynamics on the whole.
I’m happy to say that in our press launch right this moment, we reinstated full yr steering for 2023, and it requires high line development and a return to optimistic internet adjusted EBITDA outcomes. We have set our annual 2023 income steering at a variety of $300 million to $325 million in optimistic internet adjusted EBITDA for the complete yr.
We do imagine income for the yr will likely be considerably again finish weighted resulting from a number of elements, together with the timing of our backlog shipments, provide chain consideration, anticipated timing of closing of offers in our gross sales pipeline, income recognition associated to deferred income on the stability sheet, in addition to the cargo of our 4G, 5G enterprise small cell radios within the second half of 2023 pursuant to closed provide contracts we now have.
As additionally talked about in our earnings launch, we have now just lately been made conscious of the choice by a serious North American cable buyer, that they won’t be continuing with Casa of their preliminary rollouts for the cable infrastructure improve undertaking. Though we are going to proceed to obtain upkeep income related to that buyer for 2023, we assume no future product revenues from their cable, broadband infrastructure improve undertaking in our 2023 steering, which I simply lined.
And though we’re stunned and disenchanted by this information, this was not attributable to any Casa cable product points. As disclosed in our January 31 launch, we have now a number of profitable digital CCAP RPD options in manufacturing deployments right this moment, and through This autumn we’re additionally awarded a big digital CCAP take care of a serious European cable MSO, with the preliminary supply anticipated later in 2023, and we’re targeted on offering – persevering with to supply greatest in school options to cable MSO globally, identical to we have completed for the previous 20 years.
So with these preferences and feedback, let’s now flip our fourth quarter monetary efficiency in additional element. And given the depth of discussions we offered on prior calls in 2022 concerning the 2021 end-of-life choice, for one entry machine product by one North American CSP tied to an E-91 regulatory change, not a Casa product challenge, which was the foremost cause for the income decline in 2022 versus 2021.
I am going to primarily be evaluating our This autumn, 2022 outcomes to these of Q3 2022. So entering into the quarter and as famous earlier, income got here in at $84.Four million, which is above the excessive finish of our preliminary vary $83 million to $84 million that we offered on January 31. We additionally achieved optimistic quarterly GAAP internet revenue and internet adjusted EBITDA outcomes of $5.2 million.
Breaking down revenues throughout product strains, This autumn wi-fi income was $24.three million, which was up roughly 14% from 21.4% in Q3. This autumn cable revenues had been $43.9 million, up 45% from $30.2 million in Q3 resulting from sturdy finish of yr enlargement purchases from our present buyer base in Europe and APAC. And This autumn telco income, which incorporates our digital BNG routing and stuck wi-fi entry merchandise had been $16.2 million up 6% from $15.three million in Q3.
Lastly, we entered 2023 with roughly $153 million in backlog product and repair orders, together with 2023 scheduled Verizon 5G MEC contract billings, bringing our complete backlog, on stability sheet deferred income and the remaining $96 million of future billings below the Verizon contract in 2024 and past to roughly $286 million.
Additional, we have now roughly $55 million of closed contracted enterprise for our 4G, 5G enterprise small cell radios with a serious North American cellular community operator, the place we get POs on an annual as ordered foundation, which isn’t included within the backlog and deferred income numbers I simply talked about.
And eventually and as Jerry talked about, our horizon partnerships continues to progress very properly. We have achieved all milestones within the fourth quarter that we’re required to realize, and this essential partnership goes very properly. Given the enhancements we’re seeing within the provide chain, we imagine a major majority of our backlog coming into 2023 will ship in 2023, assuming there is no unanticipated, deteriorations in provide chain commitments sooner or later.
Transferring to gross revenue, GAAP gross revenue within the quarter got here in at $36 million or 42.6% of income. This consists of a further stock obsolescent cost of $10.Four million within the quarter, associated to older cable stock and a few entry machine stock with these This autumn further reserves based mostly on a prudent consideration of all elements associated to stock at yr finish. And excluding the This autumn stock obsolescence expenses, gross revenue would have been roughly $46.Four million or 55% of income.
Turning now to working bills, GAAP working bills for the quarter got here in at $37.9 million, down 15% from the prior quarter. The financial savings are associated to numerous year-end changes, together with changes to our price construction carried out throughout 2022, and reductions within the firm’s variable compensation program given 2022 annual efficiency internet of another This autumn expenses which impacted working expense.
Our GAAP working loss for the quarter was $1.9 million. That is clearly influenced and impacted by the $10.Four million stock obsolescence expenses within the quarter. Lastly, associated to our This autumn P&L, our internet revenue of the quarter was $1.2 million or $0.01 per diluted share versus a internet lack of $31.2 million in Q3 2022. On a non-GAAP foundation we earned $5.three million in internet revenue or $0.05 per share in reported internet adjusted EBITDA of $5.2 million. All was mirrored within the schedules to the press launch.
Switching now to the client guarantee settlement matter, as you could recall from Q3, our internet loss for Q3 elevated resulting from a $12.eight million cost associated to a guaranty matter – associated to a failed alternative items from considered one of our merchandise. This failure was attributed to an unauthorized half substitution by a provider.
We’re very completely satisfied to announce that this buyer dispute has been amicably resolved and settled with the client in December 2022 with no materials modifications to the guarantee settlement cost of $12.eight million recorded in Q3. We made our first money fee below the settlement simply previous to yr finish, and the remaining $9.5 million due will likely be paid in equal installments over the following three years.
Given the preliminary potential publicity was roughly $56 million as disclosed in our Q2 2022 10-Q, we’re very happy with this ultimate amicable consequence with this essential buyer, and associated to this we additionally implement a brand new QA management procedures with the provider and we’ll be receiving elevated future product reductions from the provider based mostly on the settlement we consummated with the provider in March 2023, which can additional enhance the online economics to Casa for this now resolved matter.
Turning briefly to our stability sheet, we ended the yr with money, money equivalents and a small quantity of restricted money of $129.Four million. I might additionally like to notice that not one of the money was held on deposit with SVB Signature Financial institution or any of the smaller regional banks, as we fused the Financial institution of America as a major financial institution for years.
Our money stability at December 31 was down $67 million in comparison with September 30, however this was primarily resulting from a $50 million discount in our Time period Mortgage B debt, which we retired in This autumn at a reduction, giving rise to a $2.eight million achieve on debt extinguishment within the quarter. And this money stage additionally included the money fee below the guarantee matter I simply talked about and working money burn for the quarter given we had comparatively low ranges of the receivables coming into This autumn of roughly $49 million, which isn’t the case as we completed 2022.
And we ended 2022 on the receivable facet with a powerful accounts receivable stability of roughly $75 million, which is up greater than 50% from the prior quarter and which bodes properly for Q1 money movement as we entered 2023.
Wanting down the stability sheet, you will see our Time period Mortgage B debt, which is due in December of 2023 has moved from long run on our stability sheet to lined as we had but to finish an extension of this maturity yr finish. And turning to this subject of Time period Mortgage B, I’m very happy to say we engaged JP Morgan as our banker, and we’re actively working with the proficient JPM crew to discover choices to deal with and prolong the Time period Mortgage B properly earlier than the late December 2023 maturity date.
I additionally need to acknowledge that given this present maturity is about 9 months away, it does deliver into query going concern issues, however once more we’re working arduous on this with JP Morgan and plan to shortly deal with it properly earlier than This autumn, 2023.
And as additionally talked about within the press launch, we’re prioritizing return to development and profitability in 2023 and past, and we’re actively reviewing our price construction like all well-run firm targeted on profitability, money and capital environment friendly working outcomes to make sure that we meet or exceed our 2023 monetary targets and full the transformation the Jerry has began over the previous many quarters.
So with that, I’ll now flip the decision again over to Jerry for some closing remarks earlier than questions. Jerry.
Jerry Guo
Thanks, Ed. As you learn in our earnings launch right this moment, I introduced my retirement as Casa Methods Chairman, President and the CEO efficient March 17. I am very enthusiastic about the way forward for Casa, however I have been working for over 20 years and now is an effective time to make a transition and for me to step away from my every day operational function. I will likely be concerned as a Board Member and a serious shareholder going ahead.
I want to thank my co-founders, present and previous co-workers, prospects and companions and all different Casa stakeholders for a really superb 20 years. I am very happy with what we have now completed over the previous 20 years. The seek for my successor is below means. Within the meantime, I’ll help Ed Durkin, our Interim CEO and unbelievable CFO to drive the transformation of Casa and obtain our 2023 targets.
I might now like to show the decision again to Ed for his ultimate ideas.
Ed Durkin
Thanks, Jerry. Earlier than we conclude, I want to profoundly thank Jerry for his actually, tireless 20 years of devoted service to Casa. He based the corporate over 20 years in the past, grew it from a small startup to a public firm with 1,000 international workers and put in base of marquee prospects and it’s actually spectacular what he is been capable of construct.
It has been an honor and pleasure working with him for the previous yr. I do hope he will get some genuinely-earned downtime with Lucy, his household and delightful granddaughters. And in my function as new Interim CEO, I am trying ahead to working intently with Jerry and the Board as we execute on our 2023 enterprise plans and ship on renewed development and profitability. And we additionally admire the continued assist of and curiosity in Casa by all on this name, and we look ahead to sharing further progress on our transformation in 2023.
With that fast notice of honest thanks and properly needs to my good friend Jerry, I’ll now flip it over to the operator to open the road for questions. Operator.
Query-and-Reply Session
Operator
Proper. [Operator Instructions]. Our first query right this moment is coming from the Simon Leopold from Raymond James. Your line is now reside.
Simon Leopold
Thanks for taking the query. Couple of issues I wished to test on. The working bills had been fairly a bit decrease within the fourth quarter, and I do know you talked about the ready remarks, the adjustment of variable comp. However I simply wished to substantiate whether or not or not there have been any headcount cuts and actually what I am getting at is, how ought to we take into consideration working bills as we undergo 2023?
Ed Durkin
Good query Simon. Look, throughout Q3 and This autumn we did make some modest price reductions to the enterprise. We additionally had some This autumn expenses that elevated working bills. I feel the vast majority of the financial savings had been pushed by modifications to the variable bonus program, which is an annual occasion based mostly on annual efficiency. In order that was the primary driver, however we will definitely present extra steering on this on our subsequent name as to normalized working bills going ahead after we get by means of some planning that Jerry and I and the board are doing now.
Simon Leopold
And then you definately type of gave us plenty of qualitative feedback round among the enterprise traits, and it sounds to me you are most constructive on the wi-fi enterprise nonetheless. And on the lookout for some sense of the way you envision the enterprise combine inside that full yr income forecast, what’s type of strongest and what’s possibly that the weakest a part of the enterprise? I am getting cable is the weakest, and wi-fi is the strongest, however I simply need to get a greater understanding of the way you see it.
Ed Durkin
Sure, so one other good query Simon, thanks. The enterprise is admittedly good fundamentals throughout all of our product strains to incorporate cable, CAD, cloud and RAM with every contributing to high line outcomes into 2023 cloud, which incorporates our 5G core and cellular edge computing software program, our digital BNG routing software program and our safety gateway software program. We’ll have the quickest development fee over 2022 as in comparison with the others. However you realize Cable, CAD and 4G/5G small cell radios additionally will ship in 2023 as properly, so the cloud would be the quickest rising section.
Simon Leopold
Okay. After which regarding the cable buyer you referred to as out, is that this the client that had up to now reached significance of being a 10% reportable buyer? Simply attempting to get sense of the importance of that remark concerning the North American cable buyer.
A – Ed Durkin
Sure, it is a important cable buyer from the previous, and you realize we acquired information we’re not being deployed of their preliminary rollout in 2023, however we’ll proceed to work this main account and we’ll see what transpires. We did get a digital CCAP award from a serious European MSO, as a result of considered one of our rivals did not ship, so you realize we’ll see what occurs, however this was a bigger cable – North American cable buyer to your query.
Simon Leopold
Thanks. And simply to make clear, the fourth quarter energy in cable, was that in any means associated to this buyer. I do know you talked about Europe and Asia Pacific contributing to cable, however I additionally know typically when a buyer is winding down a relationship, they might do type of final time buys. Questioning if that contributed to that energy of cable within the fourth quarter?
A – Ed Durkin
That didn’t contribute Simon to the energy in This autumn. This was you realize balanced sturdy development throughout all of the geos and this North American buyer had nothing to do with these sturdy outcomes.
Simon Leopold
Thanks very a lot. I admire you taking all these questions.
A – Ed Durkin
My pleasure.
Operator
Thanks. The following query is coming from Tim Savageaux from Northland Capital Markets. Your line is now reside.
Tim Savageaux
Hello! Good afternoon. Are you able to hear me?
A – Ed Durkin
Sure.
Tim Savageaux
Okay, having some issues right here. Are you able to guys hear me?
Ed Durkin
Sure, yeah.
Tim Savageaux
Okay, nice, sorry about that. Following on the cable dialogue, I imply it appears to be like like I’ve chartered 13% of revenues year-to-date. I imply assuming they’re you realize someplace within the mid-teens for the yr, you realize given your steering for subsequent yr. Do you anticipate the cable section to have the ability to develop based mostly on different run fee enterprise, or are you making any specific assumption about declines at that main North American buyer that possibly, properly restrained development in cable? I’ve a few follow-ups.
Ed Durkin
Yeah, so once more, we have now a worldwide put in base of high cable MSOs. All of them are glad prospects with excessive CSAT. Because it pertains to this North American buyer we talked about, we’re contracted for a set quantity of annual upkeep assist income which is in our plan. It is contracted and assured. We didn’t embrace any product revenues from this main North American buyer in our 2023 plan. So to the extent we have now success there later within the yr, that will be upside.
I feel our cable enterprise in 2023 versus 2022 can develop modestly on the energy of the numerous different cable MSO prospects we have now globally, in addition to our new and expanded digital CCAP, RPD cable subsequent gen class providing. So I feel cable will likely be a modest development line of enterprise for us with no dependency on this main North American buyer.
Tim Savageaux
Okay, nice. And I simply missed a backlog. I’m wondering in case you would possibly thoughts repeating that exiting yr deferred income numbers.
A – Ed Durkin
Certain factor. So we entered 2023 with $153 million in backlog product and repair orders, together with the contracted 2023 billings below the Verizon 5G Cell Edge computing contract, and that brings our complete backlog deferred income and the remaining $96 million of future billings below the Verizon MEC contract for 2024 and past to roughly $286 million.
As well as, we have now roughly $55 million of our closed contracted enterprise for our 4G, 5G enterprise small cell radios with a serious North America community operator which we closed in Q3, and below that new contract would get POs on an annual, as ordered foundation. In order such we do not embrace it within the backlog and deferred income numbers I simply talked about, so that’s incremental.
So coming into 2023 I feel the punch line is we’re in significantly better form as in comparison with 2022 relative to a backlog that may ship and provide chain and contracted offers with main Tier 1 CSPs and we’re going to proceed to deal with that and once more drive renewed development and internet adjusted EBITDA optimistic ends in 2023.
Tim Savageaux
Obtained it. And again on the cable facet, I imply I assume you realize what you are referring to when it comes to the attainable or second half expectations is form of the following gen form of virtualized, distant PHY oriented side of that operator’s improve plan. Simply questioning in case you can affirm that. And you realize I do know it is a powerful one to reply, however I am going to ask it anyway. I imply is there – you realize had that come by means of as anticipated, you realize what would your steering appear to be for this yr?
Ed Durkin
So, we initially had anticipated second half core and RPD, REMOTE PHY enterprise from this. We had been stunned after we discovered they’d determined to go in a unique course. Clearly our steering would have been meaningfully increased. We’re not giving up on the client or the client relationship, however that is the standing of it as we stand right this moment and we wished to be clear and clear on the matter.
Jerry, I do not know when you’ve got another – anything you’ll add, however you realize I feel that is the place we stand right this moment.
Jerry Guo
Sure, Eddie lined it properly. we did have a a lot increased steering in our unique plan. We revised it to principally mirror a conservative strategy at this level.
Tim Savageaux
Understood. And final query for me, you realize fairly spectacular gross margin efficiency, even with the cost, however I assume that’s closely influenced by the cable energy and capability licenses and whatnot when it comes to driving that and so and that will be a excessive level for the yr given your feedback on cable. I imply, do you proceed to anticipate type of an upward course in gross margins as we head into ’23 and given you’ve got been in a reasonably wide selection in ‘22.
A – Ed Durkin
Yeah – [Crosstalk] Oh, I’m sorry. Go forward Jerry.
Jerry Guo
Sorry. While you have a look at the expansion drivers for Casa in 2023, the wi-fi core, the packet core is among the important development drivers, and that is pure software program, and naturally it will assist with the margin and we even have small cell radio as one other development driver in 2023. So it is a mid-margin enterprise and our cable goes to be a mix of digital CCAP core and chassis and the license gross sales, in addition to RPD gross sales, and so they have a tendency to return in at an excellent margin, traditionally superb, and we do see a major distinction within the gross margin of cable this yr.
Tim Savageaux
Okay, nice. Thanks very a lot.
Operator
Thanks. [Operator Instructions] We have reached the top of our question-and-answer session. I might like to show the ground again over for any additional or closing feedback.
Jerry Guo
Effectively, once more I might wish to thank all people for attending this name, and we look ahead to reporting to you the transformations of the corporate and the administration crew below Ed – the efficiency of the administration crew below Ed going ahead for you.
Operator
Thanks. That does conclude right this moment’s teleconference and webcast. You might disconnect your line at the moment and have an exquisite day! We thanks on your participation right this moment.