Casa Systems, Inc.

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 star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Michael Piccarello, Director of Investor Relations. Thank you. You may begin your presentation.

Thank you, operator, and good afternoon, everyone. Casa Systems released results for the second quarter of fiscal year 2022 and the June 30th, 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 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 now turn the call over to Jerry. Jerry?

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 updates our new cloud software and 4G, 5G redo offerings. building 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 are 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 had some sequential revenue improvement in the second quarter relative to the first quarter of this year, results for the second quarter and the six months ended June 30, 2022 were below results from the same periods in the prior year and with an operating loss incurred again in Q2 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. 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 18th. 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 users. mobile edge computing deployment. Importantly, this comes after Verizon evaluated all other alternatives on the market today for this solution. This very strategic Verizon transaction is an important milestone for our 5G core and security gateway 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 5G public MAC 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 US-based CSP customer for one of our access device products. We also had strong billings for the quarter of $91 million. This includes the $20 million bill 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 the 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, the Q2 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 newer product lines, cloud software and 4G, 5G radios, and our more mature product lines, cable and CAD. I am 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 one CSP. We'll be providing sub-6 small cell 4G5 radios to the CSP with expected orders of approximately $7.5 million in Q3 for delivery in 2023. This is a good validation of our RAN technology and product excellence. We are also pursuing other major opportunities with other tier one CSPs and I hope to be able to share even more RAN success in the coming quarters. Turning to our cloud software offerings. In addition to all the progress we are 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 CAS entered a memorandum of understanding or MOU with the Vietnam Posts and Telecommunications Group, VNPT. VNPT is the leading provider of digital and telecommunications 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 Malaysian service provider, YTL Communications, has deployed CASA's industry-leading cloud-native Axiom 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 edge routers for BNG applications to provide the same benefits to wireless 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 hyperscalers, and large system integrators, including coordinated joint sales initiatives with these partners. We expect to announce new cloud-native software wins with the Tier 1 CSPs later this year for both 5G Core and Mac 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 one operators. In addition, we are also in customer trials for our end-to-end remote MAC PHY solutions. We are seeing more interest from our leading cable customers to go to remote PHY and remote MAC PHY in the last few months. We are hopeful that with the support of both remote PHY and remote MAC PHY, 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 fixed wireless access devices product line. We are expanding our fiber extension deployment in the United States and Europe beyond the original customer base in Australia. We received notification earlier this week that we will be receiving a $10 million P.O. for fiber extension products from a major customer in Europe. We are also working on next generation offerings in this area with enhanced management, higher port counts, and XGS PON support. which should provide us with the growth opportunities in 2023 and beyond. In our fixed wireless business, we are also making progress with both new products and new prospects, and we believe that we will see renewed momentum in fixed wireless in 2023 and beyond. Lastly, I want to address the continued supply chain issues. Our results for the quarter were again impacted by COVID-related supply chain challenges, particularly with respect to products and components that we source from some of our Asia-based suppliers. It is hard to predict precisely when the supply chain issues will be resolved. Based on visibility today, we believe supply chain issues will continue through Q3. We are hopeful that we will begin to see some release in late 2022 or early 2023. We also recognize we are now in an inflationary environment and we are working with our suppliers to control costs. In summary, we are working hard to navigate and adjust the economic uncertainties and COVID related supply chain issues we face today while we transform our business into cloud software focused connected cloud business. I would like to thank all of these stakeholders for their hard work, commitment, and support of CASA as we work through these near-term challenges. CASA has thrived throughout many economic cycles in the past, and I'm confident we will similarly get through this period. We're undoubtedly building a solid foundation through our strategic transformation. We are on a growth trajectory next year and beyond. As we capitalize on large, strategic, rapidly growing market segments such as cloud-native 5G core and cloud-native BNG router software for major CSPs, I am pleased with our pipeline growth and pending new partnerships, and I believe we are setting the stage for delivering sustainable, profitable, long-term growth. I will now turn the call over to Ed. Ed?