Let’s get one thing straight right from the start: we don’t want to declare Casa Systems dead. But we certainly do have some very tough questions.
The company has been treading a rocky road of late, but there have been a few bright spots. They hired former Cisco executive Michael Glickman as their new CEO in July, realized $20 million in revenue in Q2 from a cloud-native 5G core deal they inked with Verizon in April 2022 and recently participated in a key cable interoperability event that could set the stage for them to capitalize on DOCSIS 4.0 upgrades.
On the Verizon front, Casa executives said during Q2 earnings they expect to receive another $10 million in Q3 and have $96 million in remaining future billings. Inclusive of that number, Casa Systems has around $170 million in backlog and deferred revenue in its pipeline. Casa also managed to put off a major debt deadline to 2027, securing some short-term breathing room.
That said, plenty of questions about the company’s future remain. It continued to be a loss-making enterprise in Q2. Even setting aside a $29 million charge it took related to the aforementioned debt delay, its net loss increased year on year from $16.7 million to $22.1 million.
There’s also an industry-wide digestion period that’s taking place in the wireline market that could impact Casa’s performance in the cable and fiber markets. CFO Ed Durkin said during Q2 earnings that it expects momentum behind CCAP and Remote PHY devices (RPDs) on the cable side to give it a boost.
Indeed, Dell'Oro Group VP Jeff Heynen told Silverlinings that "spending on DOCSIS infrastructure—particularly RPDs and vCMTS platforms, is increasing and it is increasing to the point where it more than offsets declines in the traditional integrated CCAP business." He added he expects spending to ramp even higher in 2024.
But, looking at the short term, Casa actually trimmed its guidance for the full year 2023. And our sister site Fierce Telecom recently reported that cable network upgrades to DOCSIS 4.0 could happen slower than operators are letting on. Obviously, that would be bad news for Casa down the line. Plus, it’s unclear at this point how much Casa will be able to grow its cloud business beyond Verizon.
Durkin said during the call that there are a number of “other cloud customers that we’ve been working hard to close” and was hopeful those contracts would finally come through in the second half of the year. But if it has landed any of those since the Q2 call, they certainly haven’t been talking about them or at least haven’t put out any press releases related to them.
So, unless they’re playing their cards very close to the vest, that means the pressure is on in Q4 to jumpstart the cloud business. That could be tough given who Casa Systems is up against in the cloud-native 5G core market.
Competitors include Ericsson, Nokia, Microsoft, Huawei, Cisco, Samsung and Mavenir.
And one final factor in the Casa equation: its stock price, which crashed in March when ex-CEO Jerry Guo announced plans to leave the company.
Not only has its stock price not recovered, it has actually continued to trend down since August – you know, the same month Casa announced the debt payment deferral and realization of revenue from Verizon.
Investors were apparently not impressed, for whatever that's worth. So where does it go from here?
Can Glickman right the ship? Can Casa woo enough cloud business away from the big guns? Can the company hold on long enough to make it to the 2027 debt deadline? These are all questions which rightly bear asking. Heynen noted that Casa has a "diversified portfolio of products in the cable, small cell and cloud space that will help it to weather the current inventory adjustments that are going on, particularly in the North American market."
But stay tuned for more answers, hopefully directly from the company itself. Silverlinings has reached out to Casa Systems for an interview so we aim to have word from the horse's mouth soon.