Feb 18, 2021
Operator
Greetings, and welcome to the Casa Systems 4Q 2020 Earnings Call. At this time, all participants are in a listen-only mode.
A brief question-and-answer session will follow the formal presentation. [Operator Instructions] 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 Systems released results for the fourth quarter of 2020 ended December 31, 2020 this afternoon after the market close.
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. With me on today’s call are Jerry Guo, Chief Executive Officer; and Scott Bruckner, 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, does include certain risks and uncertainty.
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 we undertake no obligation to update these statements as a result of new information or future events.
In addition to US 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 we believe it will help investors better understand our performance or business strengths.
And with that, I’d like to turn the call over to Jerry. Jerry?
Jerry Guo
Good afternoon everyone. Thank you for joining us today as we discuss our fourth quarter and fiscal year 2020 results.
We ended the fourth quarter and fiscal year 2020 with excellent results. Here are some of the highlights.
We successfully delivered on our commitment in 2020 to grow profitably and to transform our business. Our fiscal year 2020 revenue and profitability exceeded our previously provided and the revised guidance range with a double-digit growth.
55% of our revenue in fiscal 2020 came from our growth drivers, wireless and fixed telco products. And wireless became the largest part of our business in Q4, contributing 42% of our revenue.
We made significant customer advances with our growth products, demonstrating that major carriers continue to validate our technology over our competitors. Here are the numbers for fiscal year 2020.
26 new purchase orders for our 4G and a 5G wireless products including packet cores, radio access network products, and the CBRS and a 5G fixed wireless access devices. A major new customer for our recently launched 5G millimeter wave fixed wireless access device, six new purchase orders for our virtual BNG router and a multiservice router products.
And four new customers for our fiber to the distribution point products. And a 14 purchase orders for a cable distributor access and a virtual CCAP core.
We achieve all of this despite the significant ongoing headwinds stemming from COVID-19. Once again, I have the highly talented and dedicated people of Casa Systems to thank for this.
Their hard work and commitment are truly inspiring. Now, onto our performance, starting with Q4, we had one of our strongest quarters.
We delivered record wireless revenue and we ended the quarter with a healthy backlog to support our top-line growth in 2021. Total revenue for the fourth quarter was $120.5 million, a 7% increase year-over-year and a 14% increase sequentially.
Wireless and fixed telco continued to represent the bulk of our business, delivering 50% of revenue during the quarter. For the full year, total revenue was $393.2 million, an increase of over 39% compared to fiscal year 2019.
And if we compare the second half of 2020 to the same period in 2019, with our 2019 revenue included our NetComm acquisition, we grew our revenue by over 16%. And in 2020, our focus on our operating model and cost structure paid off.
We generated $55.3 million in adjusted EBITDA. This is a 131% increase relative to fiscal year 2019.
Turning now to our product areas, in Q4, wireless revenue was $50.4 million. This is a 37% increase relative to the fourth quarter of 2019.
Wireless revenue in fiscal year 2020 was $118.6 million. This is an increase of 98% relative to fiscal year 2019.
Not only did we grow our wireless revenue, but we also increased the number of our largest customers. We now have 28 wireless customers globally across all of our largest product areas, 4G, Virtual EPC, 5G cloud native packet core, CMOS core and videos, and 4G and 5G fixed wireless access devices.
I want to call out the particular success we had in our fixed wireless access business. We now have customers globally for all of our fixed wireless access products.
Our 4G devices, our CBRS devices, our 5G Sub-6 devices and our industry-leading 5G millimeter wave outdoor device that has been featured in several record-breaking 5G fixed wireless access distance trials globally. Finally, our wireless backlog remains quite robust.
During Q4, we were successful in shipping a high volume of our Q3 wireless backlog. So net of all these shipments and with the buildup of new orders, our wireless backlog stands at just under $96 million.
I see wireless as our most important growth driver in 2021 with the sales growth across our four wireless product portfolio. Turning now to a fixed telco.
Fixed telco revenue in Q4 was $22.1 million. In fiscal year 2020, fixed telco revenue was $98.8 million.
This is an increase of 150% compared to fiscal year 2019. We saw growth in fixed telco across our entire portfolio, and we now have customers globally for all of our products; our virtual BNG router, which has been deployed by Izzi, the largest MSO in Mexico; our multiservice router, and our G.fast products.
I want to highlight the progress we had in capturing new customers for our virtual router products. In 2021, we are focused on building on the success with the new and existing Casa customers.
And finally on cable, cable continues to be a very profitable and was again steady and consistent for the seventh consecutive quarter. Q4 cable revenue was $48.1 million.
Fiscal year 2020 revenue were $175.8 million. During 2020, we did see a large volume of hardware purchases by our MSO customers.
We believe that this sets the foundation for our future software expansion revenue. While we have not changed our outlook for the pace of virtual CCAP and DAA deployments, I'm very pleased with the number of engagements and purchase orders we saw in 2020 for these products.
In summary, we are proud of our performance in 2020. The past year threw highly volatile market conditions at us.
But for fiscal 2020, we exceeded the high end of our revised guidance range. We diversified our revenue base, we grew our top line, and we drove profitability.
Going forward I remain committed to delivering long term profitable growth with an expanded customer base. Our strong execution in 2020 sets the stage for continual growth in 2021.
We begin the new fiscal year with a robust backlog. And we have approximately 80 active customer engagements in the form of trials and RFPs for all of our growth products.
We believe that we are in a strong position to capture many of these opportunities. With that I would like to ask Scott to discuss our financial performance in more detail and to outline our guidance for fiscal year 2021.
Scott?
Scott Bruckner
Thank you, Jerry and good afternoon everyone. As Jerry mentioned we had another exceptionally strong quarter in a spectacular year for CASA and I'm really very pleased with our results.
During the quarter in the year we saw significant full-year growth in our top line. A continuation of the revenue mix shift that we've been targeting so a majority of our revenue now comes from our wireless and fixed telco products.
Higher gross profit dollars bode for the full-year and the fourth quarter. Increased operating leverage that drove double digit growth in operating profit and adjusted EBITDA and increase liquidity quarter-after-quarter during the year.
Okay. Let me now turn to our full-year 2020 results.
Revenue for the year came in at $393.2 million which is up 39% compared to 2019 and as Jerry mentioned exceeded the top end of our revised guidance range for the year. And if we look at 2020 second half revenue compared to the second half of 2019 when we first consolidated NetComm, our total revenue grew by over 16%.
Looking at our product lines wireless revenue for the year was a $118.6 million or 30% of revenue. This was up 98% compared to full year 2019 and up 38% on a second half comparison.
Fixed telco revenue came in at $98.8 million or 25% of revenue. And this was up a 150% compared to the prior year.
And on a second half comparison basis fixed telco was up 43%. Cable revenue for the year was relatively stable at a $175.8 million or 45% of revenue.
While our gross margin for the year came in at 51%, our gross profit for the year is $200.6 million. That's up 23.4% year-over-year or on a second half comparison basis up over 16%.
This combined with our efficient cost structure is what is increasing our profitability further down on the P&L and it's also fueling resources for investment and growth while reducing our financial leverage. Total GAAP operating expenses for the year were a $176.4 million or 45% of revenue for the year.
That's down from 61% of revenue in 2019. And again if we look at second half expenses compared to the second half of 2019, GAAP operating expenses in the second half of 2020 were 39% of revenue.
And that's down from 50% of revenue in the second half of 2019. Adjusted EBITDA for the year was $55.3 million.
That's up 131%. Second half 2020 adjusted EBITDA was up 91% over 2019 second half adjusted EBITDA.
Additionally, for fiscal year 2020, we delivered a GAAP operating profit of $24.2 million as compared to a $9.1 million operating loss in 2019. And on a non-GAAP basis, operating income was $43.1 million.
And this is an increase of 256% year-over-year. GAAP income tax for 2020 was a benefit of $15.1 million and a provision of $4.3 million on a non-GAAP basis.
Now, you may remember from our last call that our effective tax rate for 2020 is being positively impacted by NOL carrybacks that we've been able to take from the CARES Act stimulus package. I want to note that we don't anticipate having a similar benefit again in 2021 based on current tax law.
For the full year, GAAP net income was $24.8 million or $0.29 per share on a fully diluted basis. And this is up significantly from the GAAP net loss of $48.2 million or negative $0.57 per share -- per fully diluted share that we booked in 2019.
And remember that the large GAAP loss we booked in 2019 was primarily due to the valuation allowance on our deferred tax assets that we recorded that year. Non-GAAP net income came in at $24.3 million or $0.28 per fully diluted share.
This is up significantly from non-GAAP net income of $2.6 million or $0.04 per fully diluted share that we booked for the full-year of 2019. Now, let’s take a minute to review our fourth quarter results.
As Jerry said, we had one of our strongest quarters. We had record wireless revenue and a healthy backlog to support our top line growth in 2021.
Revenue in the fourth quarter was $120.5 million dollars and this is up 7% year-over-year and up 14% sequentially. And as Jerry noted wireless at $50.4 million or 42% of total revenue was the largest revenue contributor in Q4.
Fixed telco was at $22.1 million or 18% of revenue. And cable at $48.1 million was 40% of Q4 revenue.
Turning now to profitability in Q4. GAAP OpEx of $44.9 million was 37% of revenue.
This is a significant improvement from Q4 2019 when GAAP OpEx was 44% of revenue. Fourth quarter GAAP operating income was $17.3 million up 73% year-over-year and non-GAAP operating income came in at $22.4 million up 51% from the fourth quarter of 2019.
And adjusted EBITDA for the quarter was $25.3 million. That's a 21% margin and an increase of 39% over Q4 2019.
I will now turn to our balance sheet. We ended the year in a very strong liquidity position.
We had $157.5 million in cash, net receivables of $94.3 million. This was up sequentially due to orders that were shipped late in the fourth quarter and inventory of $101.2 million, a good percentage of which is comprised of backlog that we expect to ship in the first or second quarter of this year.
Total debt was $291.3 million including $6.5 million from our revolver. And finally on debt our increased liquidity and higher adjusted EBITDA in 2020 translated into lower net leverage for the company which on a net debt basis was around 2.5 times LTM EBITDA.
Let me conclude my remarks with our guidance for 2021. As Jerry mentioned our backlog gives us an excellent starting point for the year.
And our focus on an efficient cost structure makes us confident that 20 21 growth will be delivered profitably. Now a couple of quick notes about our 20 21 guidance.
First, we believe that gross margin is not the best metric for assessing progress on achieving our key objectives of growth and profitability and to be clear we're not stating this because we expect gross margin to deteriorate significantly. This change is related to the way that we run and think about our business given the up and down fluctuations of gross margin based on product mix.
So for our business progress and success we look at operating income, EBITDA and cash that we are able to deliver irrespective of gross margin. So going forward we will be providing guidance for GAAP and non-GAAP operating income in place of gross margin.
Second, our EPS guidance is a reflection of the best estimate we currently have of our 2021 effective tax rate. Unlike in prior years where we saw a significant tax benefits, this year we do expect our effective tax rate to be higher due to both the exploration of the CARES Act benefits and our inability to recognize tax benefits from carry-forward NOLs while we continue to be an evaluation allowance position.
Okay, that being said, here's our guidance for 2021. Revenue, $425 million to $445 million, or almost 11% year-over-year growth at the midpoint.
Adjusted EBITDA, $60 million to $70 million or 17.5% year-over-year growth at the midpoint. GAAP operating income, $28 million to $38 million.
Non-GAAP operating income, $48 million to $58 million. GAAP EPS $0.05 to $0.14 cents, and non-GAAP EPS, $0.23 to $0.32.
And with that, we're ready to start the Q&A. Operator?
Operator
Thank you. We will now be conducting a question-and-answer session.
[Operator Instructions] Thank you. Our first question comes from Rich Valera with Needham & Company.
Please proceed with your question.
Rich Valera
Thank you. Just a question on the three business segments and the relative growth outlook of those for the -- for 2021.
Do you expect growth in all of them or maybe still expecting flattish in cable? And just any color on sort of the magnitude or relative growth you expect in the different segments?
Thank you.
Jerry Guo
Hi, Rich. Jerry here.
Let me answer that question. We -- in our business model, we are not counting on the growth in the cable product line.
So we’ll continue to expect that growth in the telco side, the fixed telco and the wireless.
Rich Valera
Got it. And any -- between the two of them, any color on which one might see stronger growth or just both?
Jerry Guo
Yeah. We do see clearly wireless is the strongest growth on product line.
Rich Valera
Got it. And then I saw you -- actually had very strong wireless shipments and used some backlog.
How does the order outlook look for wireless? Do you expect to be building backlog net over the next couple of quarters or any color on that at all?
Jerry Guo
In the prepared comments, we already mentioned that we received significant order to replenish what was shipped in Q4. And we do see that wireless orders will continue throughout the year.
Rich Valera
Got it. And then just on the supply chain side, there's been a lot of talk about component shortages generally speaking in tech, wondering are you guys seeing any of that?
Has that affected you at all at this point?
Jerry Guo
Scott, do you want to take that?
Scott Bruckner
Yeah. Absolutely.
Sorry, I was just coming off mute. So Rich, as we said in our previous calls throughout the year that Casa has absolutely not been immune to disruptions that COVID brought to the supply chain.
But we were able to manage these extremely well in 2020 with no material delays in product deliveries to our customers. So in 2021, we will continue to take steps to try to mitigate any impact from supply shortages.
But we do acknowledge that this is a risk for the coming year. And with respect to the 2021 guidance that we've given, we've used the best information about this currently available to develop the budget and guidance.
Rich Valera
Got it. Appreciate it.
And just one final one for me on the model, the tax rate for 2021, you said it's going to be higher. Can you give us some kind of range there, Scott?
Scott Bruckner
Yeah. So what I would do -- our tax, as I've said previously, is a little bit funky.
So what I -- what I'm going to do is guide for the absolute tax dollars that we will pay for 2021. And so we expect to be paying in a range of $10 million to $12 million for the year.
Rich Valera
Perfect. Okay.
Thanks, gentlemen. And congratulations on a strong finish to the year.
Scott Bruckner
Thank you, Rich.
Operator
[Operator Instructions] Our next question comes from Meta Marshall with Morgan Stanley. Please proceed with your question.
Meta Marshall
Great. Thanks.
Maybe a question on the wireless business and just -- you mentioned quite a number of products that you're seeing traction with. But should we assume that the vast majority of that revenue is still -- or I guess the majority of the revenue is still small-cell-based?
And then maybe just as a second question, you mentioned having kind of a customer on the 5G millimeter-wave product, just if you could speak a little bit more to the trials that are being done or when you think that that product could scale either with your main customer or kind of with other customers. Thanks.
Jerry Guo
Hi, Meta. Let me answer that question.
We actually had appeals [ph] revenue from all three types of wireless products from the small cells, the radio, and to fixed wireless access products, both 4G and 5G, and packet course. And we did have more hardware than software in 2020.
As to millimeter-wave trials and rent, we do expect millimeter-wave to ramp in 2021. And the trials we conducted or with a couple of operators to basically to break the records on the distances a millimeter-wave can travel with line of sight, and we believe -- well, we continue to hold that record at this point.
And we do believe that we're going to have multiple customers to shift the millimeter-wave wireless products this year, even though the 2020 revenue did not include a millimeter-wave shipment.
Meta Marshall
Got it. And maybe just on -- as you've cleared out some of the wireless pipeline and added additional kind of new pipeline, how is the visibility of revenue recognition for that pipeline?
And do you guys feel that you’ve kind of have a better sense of when that pipeline could get recognize or was it largely from new customers where you still need to get qualified? Thanks.
Jerry Guo
We actually have a much better visibility this time around than last year with the outdoor radio. We -- there are risks like we discussed and that Scott discussed earlier like supply chain.
But other than that we do expect customer acceptance but the risks are very manageable in our view.
Meta Marshall
Great. Thanks.
Jerry Guo
Meta, the only thing I would add to that question is as we said in the previous quarter we do expect that the bulk of this backlog will get shipped in the next couple of quarters.
Meta Marshall
Great. Thanks.
Operator
Thank you. There are no further questions at this time.
I would like to turn the floor back over to Jerry for any closing comments.
Jerry Guo
Well thank you for joining this conference. I'm looking forward to see you guys at the next conference call.
Operator
This concludes today's conference. You may disconnect your lines at this time.
Thank you for your participation. Have a wonderful evening.