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CCAP

Casa Systems Shares Slide on Slashed Guidance

Does anyone have a time machine handy? Casa Systems could use one to spring the company ahead to when cable operators have made their big decisions on next-gen access network architectures and are ready to splash more cash on upgrades.

Shares in Casa Systems Inc. were down almost 25% in after-hours trading Tuesday after the company slashed guidance in large part because some cable operators have delayed large-scale capacity purchases on centralized, chassis-based Converged Cable Access Platform (CCAP) products as they mull over plans focused on new distributed access architecture and the virtualization of some services.

That scenario has caused Casa to cut revenue guidance for the rest of the year by about $50 million. Instead of 2018 revenues in the range of $380 million to $395 million, Casa lowered it to a range of $330 million to $350 million.

The push-out in Q2 revenues accounted for $15 million to $20 million of the $50 million shortfall now expected in 2018.

Casa's revised guidance comes as MSOs continue to take a close look at distributed architectures that will push some key electronics closer to the edge of the network and set them up for the virtualization of some services and new technologies such as Full Duplex DOCSIS, an addition to DOCSIS 3.1 that will support multi-gigabit symmetrical speeds. (See Intraway, Casa Systems Team on Virtual CCAP Demo and CableLabs Pushes Full Duplex Forward.)

But this transition is not happening overnight, and some MSOs are tightening capacity spending and being more deliberate as they shore up their product strategies.

"This shift is complex," Jerry Guo, Casa’s president and CEO, said on Tuesday's earnings call. "It represents a complex change in network architecture and a redirection of network capex."

He said cable's DAA evolution is still in the "digestion phase." At the same time, Casa views DAA as the company's "next growth inflection point in the cable space" as it will drive more spending on software and new nodes that are optimized for DAA, Guo added.

But today's reality is this: The spending spigot is not off, but it's been turned down. Rather than going with big capacity buys on CCAP chassis/appliances, some of Casa's biggest MSO customers are instead buying it for incremental, short-term-focused fill-ins for network hot spots that are feeling the most pressure.

"It has become clear to us we are witnessing a pattern shift in procurement in the cable market," Guo said.

He was hopeful that some larger-scale DAA deployments would get underway by the first half of 2019.

The good news is that Casa didn't lose any market share in Q2, as it saw channel shipments rise by about 30% and gained some new customers in new geographies, according to Guo.

Casa also expects to see some "material" contribution from the company's wireless and small cell product line in Q4, Guo said.

Casa pulled down Q2 2018 revenues of $68.7 million, up 3.1% from the year-ago quarter, but down 23% from Q1 2018. Its board has also authorized the repurchase of up to $75 million of Casa's common stock. (See Casa Systems Revenues Rise 3.1% in Q2.)

Casa shares were down $3.89 (24.94%) in after-hours trading Tuesday.

— Jeff Baumgartner, Senior Editor, Light Reading

Jeff Baumgartner 8/15/2018 | 9:46:28 AM
The Morning After In the aftermath of Tuesday's Q2 results, Raymond James maintained its "Outperform" rating on Casa shares on the Q2 miss and lower guidance (while also cutting the target price to $19, from $28), noting that Casa's still well positioned to play a big role in the longer term as operators  move on next-gen architectures.

"Emotions after poor reports can be overwhelming, but we recommend marking to market and consider the prospects," Raymond James analyst Simon Leopold wrote in a research note. "We believe in the market opportunities as cable capex shifts toward network infrastructure, operators add capacity, and new wireless and distributed access initiatives evolve. Management's credibility will suffer, and the CFO departure was a yellow flag."  He also said Casa's new $75M stock repurchase program could help.

I also checked in with Jeff Heynen, consulting director at SNL Kagan, and he noted that Casa's business has already seen some ups and downs as it's vulnerable to what its big customers do. 

Charter and Liberty Global , by the way, were Casa's 10% or greater customers in Q2 and management said 48% of revenues are were tied to its 10% or greater customers in the period.

As for the DAA stuff, Heynen acknowledged that the transition will take a while, as it's still not clear how quickly operators are going to move on that. But he also believes that any impact on capacity purchases due to this will be relatively minimal.

Notably, even Arris's network & cloud unit came in a little light in Q2, but Arris now has Ruckus and a new focus on enterprise that helps to flatten out revenue volitivity, he pointed out. JB  
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