The cable industry is in a "digestion phase" as operators mull their next-gen network moves, Casa Systems CEO Jerry Guo said Thursday on the company's Q3 call. Unfortunately for Casa, this digestion phase is also causing a spell of indigestion for its overall business.
Casa Systems shares plunged more than 34% in Friday morning trading after the company posted poor Q3 results and slashed its financial guidance for full 2019.
Casa posted Q3 revenues of $81.8 million, well below Wall Street's expected $108 million. The company also posted a 3 cent pro-forma loss per share, versus expected earnings per share of 10 cents. Excluding revenue from NetComm, the Australia-based wireless business acquired in July, Casa's Q3 revenues decreased 34% year-over-year.
A significant portion of the damage originated with Casa's cable business, which spans access network gear and software, including cable modem termination systems (CMTSs), integrated converged cable access systems (CCAPs) and fiber nodes.
Guo said the company saw "increased purchasing appetite" in cable, primarily for capacity enhancements for legacy integrated CMTSs and CCAPs. However, the closing of some large orders with major MSOs was delayed and "slipped out of the quarter" and could be pushed out to Q4 2019 or Q1 2020, he added.
Cable's migration to a distributed access architecture (DAA), a move that will spur investment, is still a spotty thing, as it's not happening quickly and not at the same rate among cable operators around the globe. Another drag on Casa's business is Charter Communications, which has already completed its DOCSIS 3.1 network upgrade and, in general, has chopped capital spending.
For the near-term and at least through 2020, Casa sees cable operators primarily adding capacity to deployed, traditional integrated CCAPs amid smaller and "measured" progress for DAA deployments and some initial work to virtualize the access network.
Cable's expected to stay in a "digestion period for a few quarters" with respect to DAA, Guo said, believing that it's "inevitable" that cable will adopt this new architecture. "But it's not like everyone is going to deploy DAA at the same time."
The good bit of news for Casa is that it's becoming less reliant on cable as its business further diversifies. For Q3, 52% of Casa revenue came from cable, versus 26% from wireless and 22% from its fixed telecom segment.
Casa remains optimistic about its wireless and mobile business. Guo said Casa has a deal in place for its 5G core and another for its 5G radios, and expects some wins to roll in for access devices here over the next few quarters.
But based on its revised outlook on the market, Casa lowered its guidance for 2019. It now expects total revenue of $255 million to $270 million, compared to earlier guidance of $320 million to $350 million.
Analyst agitation over lack of communication
An analyst covering Casa appears to be puzzled by some of Casa's behavior as he tried to get more clarity on the company's outlook.
"We came away from the call with a number of unanswered questions, as management took only two questions on the call despite being covered by six analysts and canceled our scheduled follow-up discussion," Simon Leopold, analyst with Raymond James, wrote in a research note. "The outlook leaves us with little insight around the timing and magnitude of a potential recovery. We presume wireless helps, but cable spending likely remains an uphill battle exasperated by operator adoption of virtualization."
Casa's "guidance swings make it difficult for investors to get comfortable with Casa’s story, which we believe has longer-term potential," he added. "We empathize with the fact that N. American cable spending has been difficult all year. However, we also believe that this makes it even more important for Casa to engage the Street. Disclosures are sparse, and management's reduced communication presents added uncertainty and therefore risk."
Leopold maintained his "Underperform" rating on the stock. While wireless, including the NetComm acquisition, appear to be in line with expectations, "weak cable operator spending remains a drag," he noted.
Casa shares were down $2.30 (34.27%) to $4.41 in mid-day trading Friday.
- Casa Systems buys AT&T's fixed wireless equipment supplier for $115M
- Casa Systems Revenues Reach $81.8M in Q3 Amid Light Cable Product Sales
- Casa Demos Virtual CCAP, Low-Latency DOCSIS 3.1
- Casa Sees Cable Spending Perk Up in Q2
- Harmonic's 'Cable OS' Deployment Nears the 1M Modem Mark
— Jeff Baumgartner, Senior Editor, Light Reading