Casa Systems, Inc.

Greetings and welcome to CASA Systems' first quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jackie Marcus, with Alpha IR Group. Thank you. You may begin.

Thank you, Operator, and good afternoon, everyone. Casa Systems released results for the first quarter of fiscal year 2022 and did March 31, 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 investor relations section of our website at investors.casa.com. With me on today's call are Jerry Guo, our Chief Executive Officer, and Ed Durkin, our Chief Financial Officer. This call is being webcast 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, 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 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. And with that, I'd like to turn the call over to Jerry.

Jerry? Good afternoon, everyone. Thank you for joining us today to discuss our first quarter 2022 results and our progress along our Connected Cloud strategy. Well, we spoke to you formally just over two weeks ago. There are a few things I'd like to cover with you today. First, we'll talk through some important customer wins, including our multi-year partnership with Verizon through which CASA will provide our 5G wireless core networks to help enable Verizon's public mobile edge computing service offering. In addition, We'll touch on our recent partnership with Rogers Communications and several integration partners, as well as some key customer updates. Second, we continue to make significant progress in the marketplace in our more mature businesses, cable, fixed wireless, and fiber extension, in addition to our cloud software and radio products. I'll touch more on this in greater detail later in my remarks, but we are excited about sharing important updates on this in the very near term. Third, we remain squarely on the path to achieving our transformation goals laid out at the Investor Day in November. This multi-year transformation from a hardware-heavy to a software and cloud-centric company is already coming to fruition with some important successes in the early stages. Lastly, we will address the current operating environment, which, as expected, remains challenged by the ongoing supply chain situation and has been further exacerbated by COVID-related capacity reduction in some of our Asia-based production ecosystem. Diving a little deeper into these points, starting with the recent Verizon deal, this announcement is an important milestone for our 5G core and security gateway technology, as well as the growth potential of our business. We believe this agreement validates our leadership in cloud-native 5G core and mobile edge computing and position Casa Systems as a key champion for cloud-native software-based 5G infrastructure in the United States. While our relationship with Verizon will accelerate our transformation into a leading cloud software company, I want to reiterate that 2022 is a building year for Casa along this path, and this is just the beginning. Between this agreement and our ongoing discussions with Verizon and other key partners, Casa Systems will remain at the forefront of the ongoing shift to cloud-native software-based networks in the telecommunications industry. In addition to the Verizon news, since the beginning of the year, we announced that Rogers Communications is deploying Casa Systems' cloud-native Axiom Virtual CCAP Core and distributed access architecture nodes that will deliver multi-gigabit broadband services with fast, scalable capacity and a superior subscriber experience. We are also excited to attend Mobile World Congress in Barcelona after a two-year hiatus due to COVID, where we announced expanded partnerships with industry technology leaders, showcasing our cloud-native 5G core and end-to-end private 5G solutions. To meet the growing demand, we are deploying capital into our business to meet the current needs of our customers But more importantly, we are investing in the future of our business, from our R&D to our people and our processes. We are expanding our footprint in wireless and in software across all segments, and we look forward to sharing our progress during these interim updates. What is very clear is that these investments are prudent given the strength of our pipeline. our growing backlog, and the prospects for significant growth we see on the horizon. In addition to these announced customer wins, we are also getting significant customer attractions in all our product lines, including existing and newer product lines. We are making significant progress in advancing our 5G and 4G enterprise small sales and open RAN products. not only from a technical point of view, but also with customer wins and attractions. We'll have some additional updates for the market on these two products very soon. Within our more mature businesses, we are beginning to see our investment in new technology pay off with the addition of new customers this quarter. We are continuing the deployment of our virtual CCAP core together with our remote PHY nodes with multiple Tier 1 cable operators worldwide. In addition, we are also in customer trials for our end-to-end remote MAC PHY solution. We are confident that with the support of both our remote PHY and remote MAC PHY, we are in a position to grow our cable broadband business in 2023 and beyond. We are also expanding our fiber extension deployment in the United States and Europe beyond the original customer base in Australia when we acquired NetCon. With the enhanced network management, higher port counts, and XGS PON support, we are targeting growth in the segment next year. In our fixed wireless business, the investment in our high-power 5G millimeter wave products is paying off with customer wins which we will announce in the near future. We believe that we will continue to see this momentum in fixed wireless continue into 2023 and beyond. All of these early successes, along with our long-term connected cloud strategy, are the result of many years of product development that is now in the early stages of deployment. We are excited to be recognized as an industry leader at such an important time in network transformation. The recent customer wins are validations that we are on the right path with our connected cloud strategy, which includes cloud-native software running on off-the-shelf hardware, as well as our cloud-centric appliance-based products. Importantly, the new customer wins and strategic partnerships combined with the significant progress we are making on our product development aligns with our long-term strategy and efforts to reposition the company for the future, as we outlined at our November investor day. We designed our strategy to disrupt the legacy chassis-based or even older generation virtual network function architectures to speed network transformation with a future-proof cloud-native software solutions for cable, mobile, and fixed networks. This strategy has significant potential to revolutionize the telecommunications industry, and we are encouraged by the early validation of this path and the strategy by customers such as Verizon as reflected in our recent partnerships. Now let's turn to the first quarter. I want to reiterate that 2022 remains a building year for CASA. While we are clearly experiencing significant demand for our products, as seen in our strong backlog, we are also continuing to be impacted by the ongoing supply chain and logistical challenges. For example, some of our factories and those of our suppliers have been shut down or forced to operate at a reduced capacity recently. We are working to navigate these significant headwinds in the supply chain, which have caused disruptions in our ability to ship completed products to customers. That's it. And as you saw in our press release today, we chose to remove our existing fiscal year guidance. This decision is not a negative reflection of our business or the demand we are seeing. However, it does reflect the reduced visibility we currently have regarding the ongoing supply chain constraints and the current level of uncertainty. The persistent COVID-19 implications overseas, namely in our Asia facilities and those of our suppliers. Revenue recognition matters on some of our new large partnerships and the impact they may have on cash revenue and demand. And as Edward addressed shortly, pending tax law changes that could impact our financials. While we do see a path to achieving the revenue guidance likely at the low end of our previously stated range, there are simply too many uncertainties at this time, as I have just outlined. Thus, we felt it was prudent to remove the formal guidance. We will, however, commit to providing you qualitative updates over the interim basis until such time that we have the visibility to reinstate our guidance for the fiscal year. In the meantime, we are working with our customers to fulfill as many orders as we can. And I would also like to note that we have a large backlog across all of our products. During the first quarter, our backlog and deferred revenue increased significantly that Ed will give you the details. As such, we are focused on building our book of future business, and we are seeing strong interest in our sales pipeline. We are looking beyond the current supply chain situation and are focused on setting the stage for strong growth in 2023 and beyond. Ed will provide a more detailed discussion in his remarks regarding recent performance and the expected future impact of these constraints and our effort to mitigate them. Let's review our momentum across our product lines. Starting with wireless, we had $22.5 million of wireless revenue booked during the first quarter. This accounted for 35% of our total revenue. Compared to the first quarter of 2021, We increased our wireless customers by 17 and now have a total of 49 wireless customers. And we expect that this number will only continue to grow. Moving to cable, cable revenue for the first quarter was $28.6 million and represented 44% of our total company revenue in the first quarter, compared to 46% in the first quarter of 2021. our cable segment continues to be impacted by chip shortages and global manufacturing issues, which led to delayed shipments. As stated during our previous earnings score, we continue to see supply chain shortages, and we expect that cable growth will be relatively flat during 2022 as a result. Finally, Fixed Telco posted first quarter revenue of $13.3 million. which is done on a dollar basis but up five percentage points compared to this time last year as a percentage of total revenue. In summary, our connected cloud strategy has been validated by the early wins and the large number of engagements we have with the carriers and partners. We believe that this is just the beginning of a new CASA and that we are the leader in the significant cloud transformation of the telecommunications industry. And while our short-term financial performance is being negatively impacted by certain uncontrollable macro elements, I feel most optimistic today that CASA will enter into a multi-year accelerated growth period now that we have multiple large addressable markets with proven leadership in technologies. Finally, in case you weren't able to join us at our Verizon call on April 18th, I would like to introduce our new Chief Financial Officer, Ed Durkin. He brings over 30 years of financial and executive experiences in the software industry. Ed has already been a strong contributor in his first few weeks with us, and we welcome him to the company. With that said, I'd like to turn the call over to Ed. Ed?