Investor Relations

Casa Systems Announces Third Quarter 2018 Financial Results

Casa Systems Announces Third Quarter 2018 Financial Results

November 7, 2018 at 4:15 PM EST
  • Revenue of $71.5 million increased 4.1% from Q2:18
  • Gross margin of 79.6% increased 7.7 percentage points from Q2:18
  • Added seven new cable and fixed telco customers during Q3:18
  • $94.1 million of net cash provided by operating activities and $87.9 million in free cash flow for the nine months ending September 30, 2018
  • Reaffirmed Fiscal 2018 guidance of revenue in the range of $330 million to $350 million and non-GAAP diluted EPS of $0.80 to $0.88

ANDOVER, Mass., Nov. 07, 2018 (GLOBE NEWSWIRE) -- Casa Systems, Inc. (NASDAQ:CASA), a leading provider of converged broadband infrastructure technology solutions for mobile, cable and fixed networks, today announced its financial results for its third quarter ended September 30,2018.

Third Quarter 2018 Financial Highlights

  • Revenue of $71.5 million
  • Gross margin of 79.6%
  • GAAP net income of $18.9 million
  • Non-GAAP net income of $20.6 million
  • Adjusted EBITDA of $27.2 million
  • GAAP net income per fully diluted share of $0.21
  • Non-GAAP net income per fully diluted share of $0.22

“Our third quarter results were directly in-line with our revised expectations as customers finalized decisions on DAA deployment and digested the hardware capacity they had purchased earlier in the year.  In line with this, during the quarter we continued to see a shift in our revenue mix to software capacity expansions across the globe in support of customer demand for gigabit services with DOCSIS 3.0 and 3.1,” said Jerry Guo, Casa’s President and CEO.  “Business traction remains strong as we converted two trials into orders, including one for DAA and one for fixed telco, and expanded our overall trials from 49 to 56 across all products.  Given the number of trials we are in and the deployment of new products we are starting to see, I remain as optimistic as I have ever been about the outlook for the company.” said Guo.

Commenting on the Company’s financial results, Shaun McCarthy, Casa’s Interim CFO, added, “During the third quarter, we saw continued momentum in software-based capacity expansions, which accounted for 60.4% of product revenue compared to 42.0% in the second quarter of 2018.  This led to a substantial increase in our GAAP gross margin to 79.6%, an increase of 7.7 percentage points over the second quarter of 2018.  In addition, we continued to diversify our revenue base with the addition of seven new cable and fixed telco customers in the quarter.”

To supplement our financial results presented in accordance with Generally Accepted Accounting Principles (GAAP), we are presenting non-GAAP financial measures in this press release. A reconciliation of GAAP to non-GAAP measures has been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures”.

Financial Outlook

For the fiscal year 2018, we expect:

  • Revenue between $330.0 million and $350.0 million
  • Gross Margin in a range of high 60s % to low 70s %
  • Non-GAAP net income between $76.0 million and $83.0 million
  • Non-GAAP diluted net income per share between $0.80 and $0.88

Guidance for non-GAAP financial measures excludes the follow-on public offering expenses, which are a one-time non-recurring charge, stock-based compensation, which is a non-cash charge, and the resulting tax effect of these excluded items. We have not reconciled the non-GAAP metrics as to which we provide guidance to their most directly comparable GAAP metrics because certain items that impact these excluded measures are uncertain, out of our control and/or cannot be reasonably calculated or predicted at this time. Accordingly, a reconciliation of the non-GAAP financial metrics included in our guidance to the corresponding GAAP measures is not available without unreasonable effort.

Conference Call Information

Casa Systems is hosting a conference call for analysts and investors to discuss the financial results for its third quarter ended September 30, 2018, and its business outlook at 5:00 p.m. Eastern Standard Time today, November 7,2018. The conference call can be heard via webcast in the investor relations section of our website at http://investors.casa-systems.com, or by dialing 866-421-1165 in the United States or 409-217-8243 from international locations using conference ID 7696836. Callers should ask to be joined to the Casa Systems call. Shortly after the conclusion of the conference call, a replay of the audio webcast will be available in the investor relations section of our website at http://investors.casa-systems.com for 90 days after the event.

Safe Harbor Statement

This press release contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this press release, including statements regarding the projected results of operations and financial position of Casa Systems, Inc. (“Casa” or the “Company”), including financial targets, business strategy, and plans and objectives for future operations, are forward-looking statements. The words “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “potential”, “predict”, “project”, “target”, “should”, “would”, and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We have based these forward-looking statements on our estimates and assumptions of our financial results and our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs as of the date of this press release.  A number of important risk factors could cause actual results to differ materially from the results described, implied or projected in these forward-looking statements. These factors include, without limitation:  (1) any failure by us to successfully anticipate technological shifts, market needs and opportunities, and develop new products and product enhancements that meet those technological shifts, needs and opportunities; (2) the concentration of a substantial portion of our revenue in our CCAP solutions and in certain customers; (3) fluctuations in our revenue due to timing of large orders and seasonality; (4) the length and lack of predictability of our sales cycle; (5) any difficulties we may face in expanding our platform into the wireless market; and (6) other factors discussed in the “Risk Factors” section of our public reports filed with the SEC, including our most recent Quarterly Report on Form 10-Q, which is on file with the SEC and available in the investor relations section of our website at http://investors.casa-systems.com and on the SEC’s website at www.sec.gov.  In addition, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements that we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this press release are inherently uncertain and may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Accordingly, you should not rely upon forward-looking statements as predictions of future events. We disclaim any obligation to update publicly or revise any forward-looking statements for any reason after the date of this press release. Any reference to our website address in this press release is intended to be an inactive textual reference only and not an active hyperlink.

Non-GAAP Financial Measures

To supplement our financial results presented in accordance with Generally Accepted Accounting Principles (GAAP), we are presenting the following non-GAAP financial measures in this press release and the related earnings conference call:  non-GAAP net income, non-GAAP diluted net income per share, adjusted EBITDA and free cash flow. These non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly titled measures presented by other companies.

Non-GAAP net income and non-GAAP diluted net income per share. We define non-GAAP net income as net income as reported in our condensed consolidated statements of operations, excluding the impact of stock-based compensation expense, which is a non-cash charge, the follow-on public offering expenses, which is a one-time non-recurring charge, and the tax effect on these excluded items. The tax effect of the excluded items is calculated using our effective income tax rate for the period, excluding the discrete tax benefits generated from the exercise of non-qualified stock options and the disqualifying disposition of incentive stock options. We believe that excluding these discrete tax benefits from our effective income tax rate results in more useful disclosure to investors and others regarding income tax effects of the excluded items as these amounts may vary from period to period independent of the operating performance of our business. We define non-GAAP diluted net income per share as diluted net income per share attributable to common stockholders reported in our condensed consolidated statements of operations, excluding the impact of cumulative dividends on convertible preferred stock, which are no longer applicable following the conversion to common stock of all of our outstanding preferred stock in December 2017 in connection with our initial public offering, excluding the impact of dividends declared on convertible preferred stock, as we do not intend to declare any dividends for the foreseeable future, and excluding the impact of items that we exclude in calculating non-GAAP net income. For periods in which convertible preferred stock was excluded from GAAP diluted net income per share attributable to common stockholders, we calculate non-GAAP diluted net income per share using a non-GAAP weighted-average share count in which the impact of dilutive convertible preferred stock are added to the GAAP weighted-average share count. We have presented non-GAAP net income and non-GAAP diluted net income per share because they are key measures used by our management and board of directors to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business. The presentation of non-GAAP net income and non-GAAP diluted net income per share also allows our management and board of directors to make additional comparisons of our results of operations to other companies in our industry.

Adjusted EBITDA. We define adjusted EBITDA as our net income, excluding the impact of stock-based compensation expense; the follow-on public offering expenses; other income (expense), net; depreciation and amortization expense; and our provision for (benefit from) income taxes. We have presented adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business. In particular, we believe that excluding the impact of these expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core operating performance.

Free cash flow. We define free cash flow as net cash provided by operating activities minus capital expenditures. We believe free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by our business that, after purchases of property and equipment, can be used for strategic opportunities, including investing in our business, making strategic acquisitions and strengthening our balance sheet.

We use these non-GAAP financial measures to evaluate our operating performance and trends and make planning decisions. We believe that each of these non-GAAP financial measures helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in the calculations of each non-GAAP financial measure. Accordingly, we believe that these financial measures provide useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects.

Our non-GAAP financial measures are not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures rather than the most directly comparable financial measures calculated and presented in accordance with GAAP.  Some of these limitations are:

  • we exclude stock-based compensation expense from each of non-GAAP net income, non-GAAP diluted net income per share and adjusted EBITDA as it has recently been, and will continue to be for the foreseeable future, a significant recurring non-cash expense for our business and an important part of our compensation strategy;
     
  • we exclude the discrete tax benefits generated from the exercise of non-qualified stock options and the disqualifying disposition of incentive stock options, which are not related to the operating performance of our business, in calculating the effective tax rate used to determine the tax effect of the items excluded from our non-GAAP net income and non-GAAP diluted net income per share; these discrete tax benefits will result in a reduction in our income taxes and cash paid for income taxes;
     
  • we exclude the follow-on public offering expenses from non-GAAP net income, non-GAAP diluted net income per share and adjusted EBITDA because it is a one-time non-recurring charge, although this is a use of our cash and included in our operating expenses;
     
  • adjusted EBITDA excludes depreciation and amortization expense and, although this is a non-cash expense, the assets being depreciated and amortized may have to be replaced in the future;
     
  • adjusted EBITDA does not reflect the cash requirements necessary to service interest on our debt or the cash received from our interest-bearing financial assets, both of which impact the cash available to us, and does not reflect foreign currency transaction gains and losses, all of which are reflected in other income (expense), net;
     
  • adjusted EBITDA does not reflect income tax payments that reduce cash available to us;
     
  • free cash flow may not represent our residual cash flow available for discretionary expenditures, since we may have other non-discretionary expenditures that are not deducted from this measure;
     
  • free cash flow may not represent the total increase or decrease in the cash and cash equivalents for any given period because it excludes cash provided by or used for other investing and financing activities; and
     
  • other companies, including companies in our industry, may not use non-GAAP net income, non-GAAP diluted net income per share, adjusted EBITDA or free cash flow, or may calculate such non-GAAP financial measures in a different manner than we do, or may use other non-GAAP financial measures to evaluate their performance, all of which could reduce the usefulness of these non-GAAP financial measures as comparative measures.

For the reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section of the accompanying tables titled, “Reconciliation of Selected GAAP and Non-GAAP Financial Measures”.

About Casa Systems, Inc.

Casa Systems, Inc. (NASDAQ: CASA) delivers converged broadband technology solutions that enable mobile, cable and fixed network service providers to meet the growing demand for gigabit bandwidth and services. Our suite of distributed and virtualized solutions for fixed and mobile 5G ultra-broadband networks are engineered for performance, flexibility and scale. Commercially deployed in over 70 countries, Casa serves more than 450 Tier 1 and regional service providers worldwide.

For more information, visit our website at http://www.casa-systems.com.

Source: Casa Systems, Inc.

IR Contact
Monica Gould
212-871-3927
investorrelations@casa-systems.com

Lindsay Savarese
212-331-8417
investorrelations@casa-systems.com

             
CASA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
             
    Three Months Ended
September
 30,
    Nine Months Ended
September
 30,
 
    2018     2017     2018     2017  
                                 
Revenue   $ 71,506     $ 94,259     $ 229,302     $ 233,613  
Cost of revenue     14,575       25,266       61,015       66,502  
Gross profit     56,931       68,993       168,287       167,111  
Operating expenses:                                
Research and development     16,403       15,217       53,629       43,912  
Sales and marketing     10,234       8,747       31,123       26,983  
General and administrative     7,671       4,866       21,401       14,387  
Total operating expenses     34,308       28,830       106,153       85,282  
Income from operations     22,623       40,163       62,134       81,829  
Other income (expense):                                
Interest income     1,821       600       4,596       1,674  
Interest expense     (5,032 )     (4,483 )     (14,579 )     (12,937 )
Gain (loss) on foreign currency, net     69       138       (445 )     773  
Other income, net     411       193       978       632  
Total other income (expense), net     (2,731 )     (3,552 )     (9,450 )     (9,858 )
Income before provision for (benefit from) income taxes     19,892       36,611       52,684       71,971  
Provision for (benefit from) income taxes     995       12,288       (5,406 )     12,334  
Net income     18,897       24,323       58,090       59,637  
Cumulative dividends on convertible preferred stock           (1,483 )           (4,401 )
Dividends declared on convertible preferred stock                       (47,547 )
Undistributed earnings allocated to participating securities           (12,450 )            
Net income attributable to common stockholders, basic     18,897       10,390       58,090       7,689  
Undistributed earnings reallocated to dilutive potential common shares           1,405              
Net income attributable to common stockholders, diluted   $ 18,897     $ 11,795     $ 58,090     $ 7,689  
                                 
Net income per share:                                
Basic   $ 0.22     $ 0.31     $ 0.69     $ 0.23  
Diluted   $ 0.21     $ 0.27     $ 0.62     $ 0.18  
                                 
Weighted-average shares used to compute net income per share:                                
Basic     86,167       33,701       83,701       33,657  
Diluted     92,032       43,123       93,180       43,198  
                                 



             
CASA SYSTEMS, INC.
RECONCILIATION OF SELECTED GAAP AND NON-GAAP FINANCIAL MEASURES
(unaudited)
 (in thousands, except percentages and per share amounts)
             
    Three Months Ended
September
 30,
    Nine Months Ended
September
 30,
 
    2018     2017     2018     2017  
                                 
Reconciliation of Net Income to Non-GAAP Net Income:                                
Net income   $ 18,897     $ 24,323     $ 58,090     $ 59,637  
Stock-based compensation     2,218       2,079       6,542       5,893  
Follow-on public offering expenses                 815        
Tax effect of excluded items     (499 )     (698 )     (1,156 )     (1,010 )
Non-GAAP net income   $ 20,616     $ 25,704     $ 64,291     $ 64,520  
Non-GAAP net income margin     28.8 %     27.3 %     28.0 %     27.6 %
                                 
Reconciliation of Diluted Net Income Per Share Attributable to Common Stockholders to Non-GAAP Diluted Net Income Per Share:                                
Diluted net income per share attributable to common stockholders   $ 0.21     $ 0.27     $ 0.62     $ 0.18  
Cumulative dividends on convertible preferred stock           0.02             0.05  
Dividends declared on convertible preferred stock                       0.57  
Undistributed earnings allocated to participating securities           0.15              
Undistributed earnings reallocated to dilutive potential common shares           (0.02 )            
Non-GAAP adjustments to net income     0.01       0.02       0.07       0.06  
Dilutive convertible preferred stock           (0.13 )           (0.09 )
Non-GAAP diluted net income per share   $ 0.22     $ 0.31     $ 0.69     $ 0.77  
                                 
Weighted-average shares used in computing diluted net income per share     92,032       43,123       93,180       43,198  
Dilutive effect of convertible preferred stock           40,382             40,382  
Weighted-average shares used in computing non-GAAP diluted net income per share     92,032       83,505       93,180       83,580  
                                 
Reconciliation of Net Income to Adjusted EBITDA:                                
Net income   $ 18,897     $ 24,323     $ 58,090     $ 59,637  
Stock-based compensation     2,218       2,079       6,542       5,893  
Follow-on public offering expenses                 815        
Depreciation and amortization     2,369       2,007       7,037       5,576  
Other income, net     2,731       3,552       9,450       9,858  
Provision for (benefit from) income taxes     995       12,288       (5,406 )     12,334  
Adjusted EBITDA   $ 27,210     $ 44,249     $ 76,528     $ 93,298  
Adjusted EBITDA margin     38.1 %     46.9 %     33.4 %     39.9 %
                                 


             
CASA SYSTEMS, INC.
RECONCILIATION OF SELECTED GAAP AND NON-GAAP FINANCIAL MEASURES (Continued)
(unaudited)
 (in thousands, except percentages and per share amounts)
             
    Three Months Ended
September
 30,
    Nine Months Ended
September
 30,
 
    2018     2017     2018     2017  
Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow:                                
Net cash provided by operating activities   $ 11,735     $ 28,033     $ 94,102     $ 49,054  
Purchases of property and equipment     (1,723 )     (1,053 )     (6,224 )     (4,703 )
Free cash flow   $ 10,012     $ 26,980     $ 87,878     $ 44,351  
                                 
Summary of Stock-Based Compensation Expense:                                
Cost of revenue   $ 51     $ 66     $ 188     $ 202  
Research and development     415       557       1,417       1,535  
Sales and marketing     278       266       888       801  
General and administrative     1,474       1,190       4,049       3,355  
Total   $ 2,218     $ 2,079     $ 6,542     $ 5,893  
                                 
Summary of Revenue:                                
Sales of broadband products   $ 24,073     $ 36,549     $ 108,761     $ 141,799  
Capacity expansions     36,744       47,647       90,783       63,356  
Product     60,817       84,196       199,544       205,155  
Service     10,689       10,063       29,758       28,458  
Total revenue   $ 71,506     $ 94,259     $ 229,302     $ 233,613  
                                 


             
CASA SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
 (in thousands)
             
    September 30,     December 31,  
    2018     2017  
                 
Assets                
Current assets:                
Cash and cash equivalents   $ 308,350     $ 260,820  
Accounts receivable, net     79,750       122,634  
Inventory     41,233       36,148  
Prepaid expenses and other current assets     3,627       5,151  
Prepaid income taxes     299       538  
Total current assets     433,259       425,291  
Property and equipment, net     29,641       29,363  
Accounts receivable, net of current portion     3,062       4,710  
Deferred tax assets     18,791       9,718  
Other assets     3,091       615  
Total assets   $ 487,844     $ 469,697  
Liabilities and Stockholders Equity                
Current liabilities:                
Accounts payable   $ 17,796     $ 15,833  
Accrued expenses and other current liabilities     34,864       48,250  
Accrued income taxes     172       118  
Deferred revenue     30,085       34,224  
Current portion of long-term debt, net of unamortized debt issuance costs     2,173       2,156  
Total current liabilities     85,090       100,581  
Accrued income taxes, net of current portion     9,120       8,810  
Deferred revenue, net of current portion     14,094       14,691  
Long-term debt, net of current portion and unamortized debt issuance costs     293,824       295,459  
Total liabilities     402,128       419,541  
                 
Stockholders’ equity:                
Common stock     85       81  
Additional paid-in capital     153,580       128,798  
Accumulated other comprehensive income (loss)     (1,426 )     194  
Accumulated deficit     (66,523 )     (78,917 )
Total stockholders’ equity     85,716       50,156  
Total liabilities and stockholders’ equity   $ 487,844     $ 469,697  
                 


       
CASA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
(in thousands)
       
    Nine Months Ended September 30,  
    2018     2017  
Cash flows from operating activities:                
Net income   $ 58,090     $ 59,637  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization     7,037       5,576  
Stock-based compensation     6,542       5,893  
Deferred income taxes     (9,130 )     1,347  
Decrease in provision for doubtful accounts     (6 )      
Excess and obsolete inventory valuation adjustment     (3,185 )     673  
Changes in operating assets and liabilities:                
Accounts receivable     38,062       14  
Inventory     (3,344 )     13,074  
Prepaid expenses and other assets     (849 )     1,651  
Prepaid income taxes     238       52  
Accounts payable     4,309       (16,694 )
Accrued expenses and other current liabilities     549       (2,331 )
Accrued income taxes     383       (4,558 )
Deferred revenue     (4,594 )     (15,280 )
Net cash provided by operating activities     94,102       49,054  
Cash flows (used in) provided by investing activities:                
Purchases of property and equipment     (6,224 )     (4,703 )
Proceeds from maturities of marketable securities           14,589  
Net cash (used in) provided by investing activities     (6,224 )     9,886  
Cash flows used in financing activities:                
Principal repayments of debt     (2,476 )     (2,468 )
Proceeds from exercise of stock options Repurchases of common stock     14,035       204  
Payments of dividends and equitable adjustments     (6,472 )     (198,187 )
Follow-on offering selling shareholders profit disgorgement     3,811        
Repurchases of common stock     (45,699 )      
Payments of initial public offering costs     (1,148 )     (1,511 )
Employee taxes paid related to net share settlement of equity awards     (13 )     (3,788 )
Net cash used in financing activities     (37,962 )     (205,750 )
Effect of exchange rate changes on cash and cash equivalents     (1,374 )     775  
Net increase (decrease) in cash, cash equivalents and restricted cash     48,542       (146,035 )
Cash, cash equivalents and restricted cash at beginning of period     260,820       329,554  
Cash, cash equivalents and restricted cash at end of period   $ 309,362     $ 183,519  
Supplemental disclosures of cash flow information:                
Cash paid for interest   $ 13,441     $ 12,197  
Cash paid for income taxes   $ 4,252     $ 15,204  
Supplemental disclosures of non-cash operating, investing and financing activities:                
Purchases of property and equipment included in accounts payable   $ 963     $ 901  
Prepaid expenses and other current assets included in accounts payable   $ 515     $  
Deferred public offering costs included in accounts payable and accrued expenses and other current liabilities   $     $ 85  
Unpaid equitable adjustments included in accrued expenses and other current liabilities   $ 4,189     $ 9,178  
Release of customer incentives included in accounts receivable and accrued expenses and other current liabilities   $ 6,314     $ 13,930  

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Source: Casa Systems, Inc.