Casa Systems' transformation into a vendor focused on wireless and 5G continued Monday with word that the company signed a multi-year deal to supply 5G core network software that will be used to power Verizon's public Mobile Edge Compute (MEC) service offering. Tied in, Verizon is also about to take a nearly 10% stake in Andover, Massachusetts-based Casa.
Casa said terms of the six-year purchase and development agreement has a potential value of up to $140 million. That includes an initial commitment by Verizon to pay $20 million to Casa in 2022, and a remaining $120 million that is subject to Casa executing its agreement and Verizon accepting various deliverables covered by the multi-year deal.
In a separate but related transaction, Verizon will invest about $40 million in Casa common stock, a move that will give Verizon a 9.9% ownership stake in the vendor (but no board seats). Per the terms of that agreement, Verizon will scoop up 9.32 million shares of Casa common stock at $4.24 per share, representing a premium of 9% to the April 14 closing price of Casa's shares.
The announcements caused Casa shares to jump $2.54 (+68.12%) to $6.54 each in Monday morning trading.
The agreements with Verizon represent an "important milestone for our wireless program and Casa's continued journey to long-term growth," Jerry Guo, Casa's CEO, said Monday during a call with reporters and analysts to discuss the deals in more detail. "We expect that Verizon's endorsement of the Casa connected cloud technology will help unlock new business at other large-scale service providers around the world who are right now planning their own shift to a cloud native network architecture."
Though Casa's commercial deal with Verizon is focused on the carrier's public MEC offering, Guo believes it could open the door for more 5G and 4G core business with other top service providers around the world. Those intentions place Casa in closer competition with vendors such as Nokia, Ericsson, Cisco Systems, Mavenir and Microsoft (following its acquisition of Affirmed Networks).
"We believe the 5G and 4G cloud native core addressable market is wide open today," Guo said. He noted that Casa has 5G core native technical trials underway with multiple (but still unnamed) service providers worldwide, and has bids out for commercial deployments. More detail on that activity is expected to be announced later this year.
"We have quite a few bids ongoing at this point," Guo added. "This announcement [with Verizon] effectively makes Casa Systems the safe bet vendor for other carriers who will monitor closely the decisions made by operators like Verizon."
Wireless takes the lead, but cable access remains a focus
Wireless, now Casa's largest business segment, generated revenues of $54.15 million in Q4 2021, compared to cable, which pulled down $22.96 million in the period. In February, Guo said he does not expect Casa to see any growth from its cable unit this year due in large part to ongoing supply chain constraints.
Update: Raymond James analyst Simon Leopold agreed that the deals with Verizon could serve as a springboard for Casa with other big mobile carriers and help the vendor establish itself as a credible competitor against incumbents such as Cisco, Ericsson and Nokia.
"The deal is certainly a positive momentum builder for Casa, which up until now has not had material traction with North American wireless operators, and serves as a reference win for other potential opportunities with other Tier 1 North American carriers," Leopold wrote in a note issued Monday.
Wireless now makes up 52% of Casa's business mix, but material traction at tier 1 operators in North America "has been elusive," Leopold. And while Verizon gives Casa a marquee mobile customer in the region, the analyst also points out that the commercial element of the agreement represents a small piece of Verizon's expected overall 2023 capex of about $17 billion.
Casa said the Verizon agreements will not impact the vendor's focus on the cable access market or its pursuit of next-gen projects and technologies such as the distributed access architecture (DAA) and DOCSIS 4.0.
"[O]ur cable business will continue to be a key strategic component of our business as it has been since the company was founded nearly 20 years ago," a spokesperson said in an emailed statement. "As a leader in the industry, we will continue to invest and evolve our product and solution roadmaps based on technology trends, including next-generation solutions such as DOCSIS 4.0 and DAA."
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— Jeff Baumgartner, Senior Editor, Light Reading