First, before diving into the results and the headwinds facing the company, here is some background on its business:
- CASA provides a suite of software-centric infrastructure products that allow cable service providers to deliver voice, video and data services over a single platform at multi-gigabit speeds. Additionally, it offers products for next-generation distributed and virtualized architectures in cable operator, fixed telecom and wireless networks. More specifically, its technology enables customers to cost-effectively and dynamically increase network speed, add bandwidth capacity and new services for consumers and enterprises, reduce network complexity and reduce operating and capital expenditures.
- Its Axyom software architecture allows network functions to be provided and controlled by a distinct segment of software, which can be integrated or combined together in a building block-style fashion with the segments of software responsible for each other network function. This allows CASA to offer network architectures that can be efficiently tailored to meet each customer’s specific requirements, both as they exist at the time of initial implementation and as they evolve over time.
- While CASA initially focused on providing solutions for cable service providers due to its founders’ experience in the cable industry, the commonalities between fixed and wireless network architectures have allowed it to expand into the wireless market as cable service providers have increasingly sought to add wireless capabilities to their service offerings.
- Its principal customers include Charter/Time Warner Cable, Rogers and Mediacom in North America; Televisa/IZZI Mexico, Megacable Mexico and Claro Telmex Colombia in Latin America; Liberty Global, Vodafone and DNA Oyj in Europe; and Jupiter Communications and Beijing Gehua CATV Networks in Asia-Pacific.
Turning back to its quarterly report, CASA actually beat on the
bottom line, posting EPS of $0.24 vs. the $0.23 consensus. However, the beat
was attributable to a tax benefit. Adjusted EBITDA, which excludes this
benefit, fell by 12% year/year to $19.8 mln.
What has really caught investors' attention, though, was the very large revenue miss. Specifically, revenue grew only 3% to $68.7 mln, badly missing the $90.6 mln expectation. As we noted above, what mainly afflicted CASA was the delay in some large orders from its top customers.
During the conference call last night, management reiterated that its quarterly results can be lumpy and unpredictable, due to the size and nature of the projects it is involved in. Furthermore, customer concentration also amplifies the issue, especially when multiple customers pause spending at the same time, which appears to be the case here.
CASA provided additional color on the situation, commenting that certain customers are starting trials of DAA equipment, which is making them more cautious about large scale upgrades to their existing architectures. This is expected to create a slowdown for its cable segment for the remainder of 2018.
Consequently, CASA lowered its FY18 guidance, projecting EPS of $0.80-$0.88 versus the $1.14 consensus, and revenue of $330-$350 mln versus the $390.6 mln consensus.
However, the company believes this slowdown is temporary, is mostly a timing issue, and that there are a few key growth catalysts ahead. Namely, it says that it is still in the early innings of DOCSIS 3.1 upgrades, there is an ongoing transition to distributed architectures and virtualized services that will drive further spending on software and CCAP appliances, and it has launched several new products which has expanded its total addressable market from $9 bln in 2018 to $20 bln in 2021.
In a show of confidence, CASA also announced a new $75 mln share buyback program last night.
To conclude, CASA's disappointing results illustrate the "boom or bust" nature that can sometimes characterize the telecom software/equipment industry. The weak performance does seem more like a timing issue, rather than a dramatic longer-term shift in demand, or, market share loss. Only time will tell for sure, but, for today, many investors aren't willing to stick around to find out as shares plummet by some 25%.