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open RAN

Mavenir gets $95M, but faces a tightening financial situation

Open RAN proponent Mavenir raised another $95 million, but this time via public debt. At the same time, the company signaled that it may reshuffle its workforce in the pursuit of financial optimization.

The news is noteworthy considering a top Mavenir rival, Parallel Wireless, recently engaged in a significant round of layoffs. More broadly, Mavenir faces a looming recession alongside ongoing questions over the momentum around the open RAN opportunity.

"As you know, markets are not what they were last year. We are [a] private-equity owned company, but our debt is through public lenders," Mavenir CEO Pardeep Kohli wrote in response to questions from Light Reading about the company's new $95 million term loan and rumors of layoffs. According to a new Mobile World Live report citing unnamed sources, Mavenir made significant cuts to its marketing team last week.

(Source: Mavenir)
(Source: Mavenir)

"We grew from 3,200 [employees] in March, 2020, to 6,000 in May, 2022," Kohli wrote. "Like any other company, we are looking at ways to optimize as we go further. Our headcount at the end of the year [2022] will be [the] same, but we may let go some people and hire people with different skills."

Some analysts aren't surprised.

"With open RAN peer Parallel Wireless having announced recent layoffs and even the Internet giants Google and Microsoft being more careful about headcount it is not a big surprise to see Mavenir also having to tighten their belts," wrote analyst James Crawshaw with research and consulting firm Omdia. (Both Omdia and Light Reading are owned by Informa.) "They have significantly increased R&D spending over the last couple of years to support their very broad portfolio. They might need to focus their bets a little as they ride out the challenging macroeconomic backdrop," he said.

'Very low profitability'

In its review of Mavenir's new funding, credit rating firm Moody's noted that the company's private equity investors – including Koch Strategic Platforms, Siris Capital Group and others – have traditionally funded Mavenir. The vendor backed away from an initial public offering (IPO) in the early days of the COVID-19 pandemic.

"This shift in the financing mix, with a material issuance of debt, is [a] significant break" from the company's existing financial strategy, Moody's explained. Partly as a result, the credit rating firm downgraded its opinion of Mavenir's financial position.

"Like any company, when we need money, we look for the cheapest way of getting that money at that time. Last month, we concluded that raising money through debt was better than raising money through selling equity," Kohli explained of the transaction. "Raising money through equity would have been more dilutive. We are well funded now and will continue to grow as planned. We are doing optimizations like all other companies do. We would have done this even if we were not raising money."

In its assessment of Mavenir, Moody's said the company's revenue growth is strong, that it enjoys support from a range of big customers, and that its business is spread all over the world.

"The company's strong niche position in leading technology software and services, and strong engineering talent and patent portfolio also support the credit profile," the firm wrote, adding that it expects Mavenir to maintain "adequate liquidity" over the next 12 months.

But Moody's also warned Mavenir is "pursuing a very aggressive growth strategy that requires substantial research and development spending. This strategy is producing very low profitability, negative free cash flows and high leverage (all measures based on Moody's, as adjusted). This dynamic requires the [company's financial] sponsors to constantly pre-fund the business with capital to maintain adequate levels of liquidity and necessitates some level of dependence on other investors in the debt and equity markets."

Added Moody's: "The company is also relatively small in scale, with revenues below $700 million, has high customer concentration (above 20%), limited segmental diversity, and has a small share of a large market with many, and much larger competitors."

Tackling the market

The development comes at a critical time for Mavenir, which recently began building its own open RAN hardware to couple with its software offerings. For example, a key Mavenir open RAN customer, Dish Network, has suffered troubles and delays in its efforts to launch voice and data services on its nascent 5G network in the US.

But Mavenir has also touted progress recently, including deals with the likes of Quickline Communications in the UK and the Rural Independent Network Alliance (RINA Wireless) in the US. Mavenir is also among the companies that will likely bid for $1.5 billion in open RAN funding via the US government's new CHIPS and Science Act.

Indeed, Mavenir is now one of the world's five largest providers of mobile core network technology, according to research and consulting firm Dell'Oro Group.

But Mavenir continues to compete against market behemoths like Ericsson, Nokia and Samsung. Broadly, the company has argued that those big vendors maintain a tacit lock on the telecom equipment market in part due to the integrated nature of their products. Open RAN, according to Mavenir and other proponents of the technology, would help break up that integration with interoperable interfaces, thus allowing new vendors (like Mavenir) to more fully enter the market. However, open RAN remains mostly a talking point among big network operators both in the US and globally.

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Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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