Casa Systems said it secured a significant deal for its budding virtual converged cable access platform (vCCAP) business, but apparently not without some meddling from competitors.

In tandem with its Q1 2023 financial results, Casa announced Tuesday that it closed a deal supplying vCCAP software and remote PHY equipment in support of Claro Colombia's next-gen network. But the closing of that deal was pushed out because Casa "had to deal with some fear, uncertainty and doubt" (FUD) stoked by competitors, according to Ed Durkin, Casa's CFO and interim CEO.

Figure 1: (Source: Pavel Kapish/Alamy Stock Photo)

The deal was "delayed by a few weeks as we dealt with some untruths being circulated by some of our fact-challenged competitors," Durkin said on the call. That made the win with Claro Colombia "particularly gratifying," he added.

Durkin said the FUD stemmed from announcements Casa made in March that founder and CEO Jerry Guo was stepping down and that the company was trying to extend a long-term loan. Casa said that without refinancing, the loan could force the sale of "significant assets" and create "substantial doubt about our ability to continue as a going concern."

Claro Colombia represents a deal supporting "mid-to-high-single-digit millions" of customers and provides "validation" of Casa's vCCAP and DAA business, Durkin said.

He didn't identify the competitors by name, but there's not a long list of them in the vCCAP sector. Harmonic and its CableOS platform is leading the vCCAP market by a wide margin. CommScope is refocusing efforts on that piece of the access network sector, and Vecima Networks is considering its options to join in. Cisco Systems has put its vCCAP efforts on hold.

Critical loan refinancing and extension

FUD aside, Casa also disclosed a transaction support agreement (TSA) to extend its critical Term Loan B with an ad hoc committee of lenders representing about 60% of Casa debt set to mature on December 20, 2023. With JP Morgan serving as the lead arranger, the proposal is to extend the maturity of about $133.9 million to December 20, 2027. Casa expects the TSA to be consummated in mid-June with additional participation from other term loan B lenders.

"This is a significant milestone for Casa," Durkin said of the TSA. "And we believe that a support of a large majority of the lenders of the TSA demonstrates their confidence in our operating plan and the resiliency of our business."

Casa also shed a few more details on a recent restructuring and reduction of staff, disclosing that it has laid off about 13% of its workforce, or about 135 employees. Casa expects to take a one-time charge of about $2.1 million tied to the layoff. Durkin said Casa expects annualized savings of about $28 million via the restructuring.

Durkin told Light Reading last month that the reduction was made as Casa backed away from certain parts of the business with little or no return on investment and was considered a "final step" toward the company's goal of returning to EBITDA profitability this year. He also stressed that Casa remained "totally committed to cable," its most profitable segment.

Financial snapshot

Turning to Q1 results, Casa posted Q1 sales of $45.3 million, down 30% year-over-year, and below the $66.7 million expected by analysts. However, Casa reiterated full-year 2023 sales guidance of $300 million to $325 million, with revenues expected to be weighted toward the second half of the year.

Casa has also reset how it reports its business. Instead of reporting product revenues for two units – cable and wireless – Casa now divides that into three groups: Cloud (5G, MEC software and security gateways), Cable (all products customarily associated with that part of the business) and Access (including fixed wireless access devices that originated from Casa's 2019 acquisition of Netcomm).

Casa also ended the period with $140 million of backlog and new wins that "support a favorable trajectory," Raymond James analyst Simon Leopold said in a research note.

Update: Raymond James announced May 11 that it is dropping coverage of Casa Systems "[d]ue to reallocation of resources." Raymond James' final recommendation on Casa shares was "market perform.")

The supplier also touted progress with its mobile edge compute (MEC) deal with Verizon, which now holds a nearly 10% stake in Casa. No revenues from that project were recognized in Q1, but Casa said it has hit all milestones and that revenue contributions are expected to pick up later in the year. Leopold estimates that $120 million of the deal's $140 million total value still remains.

"We're just waiting on the formal acceptance but the project itself is going great and I would expect more meaningful revenue contributions from Verizon in Q2 and in the second half of 2023," Durkin said.

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— Jeff Baumgartner, Senior Editor, Light Reading