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Casa Systems, Inc.  (NASDAQ:CASA)
Q4 2018 Earnings Conference Call
Feb. 21, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, greetings and welcome to Casa Systems' Fourth Quarter and Full Year 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this program is being recorded.

It is now my pleasure to introduce your host, Eleanor Johnson, Investor Relations for Casa Systems. Thank you. You may begin.

Eleanor Johnson -- Investor Relations

Thank you, operator, and good afternoon, everyone. CASA released results for the fourth quarter and full year 2018 ended December 31, 2018 this afternoon, after the market close. CASA also announced it actually entered an agreement to acquire NetComm Wireless this afternoon, after the market close. If you did not receive a copy of our earnings release or the transaction press release, you may obtain them from the Investor Relations section of our website at investors.casa-systems.com.

With me on today's call are Jerry Guo, Chief Executive Officer; Maurizio Nicolelli, Chief Financial Officer; and Scott Bruckner, SVP, Strategy and Corporate Development. This call is being webcast and will be archived on the Investor Relations section of our website.

Before I turn the call over to Jerry, I'd like to note that today's discussion will contain forward-looking statements based on the business environment as we currently see it, and as such, does include certain risks and uncertainties. Statements in this communication regarding the Company and transaction that are forward-looking, including financial projections and projections as to the anticipated benefits of the transaction are based on management's estimates and assumptions and are subject to significant uncertainties and other factors, many of which are beyond the control of the Company.

Please refer to our press releases and our SEC filings for more information on these specific risk factors that could cause our actual results to differ materially from the projections described in today's discussion. Any forward-looking statements that we make on this call or in the earnings release or transaction release are based upon information that we believe as of today, and we undertake no obligation to update these statements as a result of new information or future events.

In addition to U.S. GAAP reporting, we report certain financial measures that do not conform to Generally Accepted Accounting Principles. During the call, we may use non-GAAP measures if we believe it is useful to investors or if we believe it will help investors better understand our performance or business trends.

And with that, I would like to turn the call over to Jerry.

Jerry Guo -- President & Chief Executive Officer

Good afternoon, everyone, and thanks for joining us today. We have four agenda for our call today. First, I would like to discuss our fourth quarter and the full-year results for 2018 and our outlook for 2019. Second, I am excited to announce our agreement to acquire 100% of NetComm Wireless, and I will discuss the details of this transaction, our strategic rationale and the many benefits that we believe it will bring to both CASA and Netcomm. Third, I want to introduce you to our new CFO, Maurizio Nicolelli, who will discuss our financial results in detail. Provide our financial guidance for 2019 and discuss the $75 million share buyback program we announced in our earnings release.

Let me now turn to our fourth quarter and fiscal year 2018 results. For the fourth quarter, as we noted in our pre-announcement release, our results were impacted by lower than expected spending by certain MSO customers, particularly in hardware. We also experienced longer than anticipated wireless product certification and acceptance testing which are affecting the timing of our Wireless revenue recognition. I will discuss this in more detail later in my remarks, but we do anticipate having certification and acceptance testing on this product completed and the revenue recognized in both the first and second half of this year. While we were within guidance on non-GAAP net income and non-GAAP diluted net income per share, we delivered lower than anticipated revenue due to these two issues.

During the fourth quarter, we generated revenue of $67.8 million representing a 43% decline year-over-year from Q4 2017. And the $297 million for the full year, representing a decline of 16% from the prior year. Our margins, on the other hand, remained strong at 73% for both Q4 and full-year due to the increased share of software-based capacity expansions in our revenue mix, both during Q4 and for the full year.

Given the trends in customer procurement that we saw during 2018, the lower CapEx spend announcements made by certain customers for 2019. And while we await initial 5G spend and a more aggressive shift to DAA in cable, we are taking a conservative approach to our outlook for 2019. For the coming full year, we expect revenue in a range of $250 million to $300 million, with the gross margin in a range of 65% to 70%, and a reduced EBITDA and earnings per share relative to 2018, as we accelerate our investment in R&D and the sales and marketing in wireless and the fixed telco.

This is an important year for CASA in the wireless space, and I'm committed to ensuring that we are fully prepared for the very large revenue opportunity in wireless that we see ahead. In addition, we are committing additional resources to the development of a new 5G video solutions. Accordingly, we are pulling forward some of our planned R&D spend for 2020 into this current fiscal year. Maurizio will comment on this in more detail in his remarks.

While we are disappointed with our top line results in the fourth quarter, there were several positive developments in our business, during the quarter and the past year that I would like to point out. We gained additional footprint in CCAP with two of our largest customers. We closed and shipped a major deal in distributed access architecture representing almost 17% of revenue during the quarter. We expanded our wireless customer footprint as we entered into multiple wireless deals, including one with a new and important Tier 1 operator. We added six new customers, one of which is a Tier 1 operator as I just noted.

Finally during 2018, we continue to implement a significant cable rollout of DOCSIS 3.1 in Germany with Vodafone. This represented a material footprint expansion for us in 2018 with a major diversified communications service provider. We also continue to strongly position ourselves for future business by increasing our trial activity. As a reminder, during the third quarter, we were engaged in 56 active trials with 40 customers, including 26 in wireless, seven in fixed telco and 23 in cable, for both our integrated CCAP and a remote PHY products.

During the fourth quarter, we converted five active trials, two in DAA, one in CCAP and two in mobile into orders and increased the overall number of trials we are supporting to 67 with 49 customers. These include 27 in wireless involving both our software products and our video products, eight in fixed telco with our virtual BNG and PON products and 32 in cable for DAA, integrated CCAP and the virtual CCAP core.

Turning to near-term trends and drivers for our business. Let me start with cable. As we noted on our last call, with the several years of significant CapEx spend to upgrade and more capacity in the network, we believe that our cable business is and will continue to be for the near-term in a digesting period. During the fourth quarter, our customers again invested more in software capacity expansion rather than large scale appliance purchases. This does not signify any footprint loss, but rather a shift toward more software license sales to feed additional capacity into our extensive installed base of chassis.

As I noted earlier, hardware as a percentage of total revenue has been declining with demand steadily shifting toward more software-based capacity expansions. We continue to believe that many of our customers will move forward with the DAA, and as is evident in the trial and new order numbers I just gave you. And our DAA remote PHY business has been very active.

However, we believe that the pace of DAA conversions will be slower than originally anticipated. As I have said previously, shifting intelligent network functions to outside plant is a complicated endeavor with similar technology alternatives for MSO to choose from including Remote PHY, Remote MAC-PHY spectrum expansion and the full duplex Remote PHY.

As a result, the move to DAA will likely occur as part of a multi-year upgrade process. Additionally, we believe that some MSOs will further delay DAA spend decisions, as they await the availability for the second generation knows. We expect that in 2019 our cable customers will satisfy their bandwidth growth through a combination of software license and long capacity expansions, some chassis purchases and some DAA deployments.

In our wireless business, while we were able to recognize some revenue in the fourth quarter, we are continuing to work on final certification, shipment acceptance of more than $20 million of wireless backlog. In the meantime, we continue to make progress with additional wins. As I mentioned earlier in my remarks and with continued trials of our full wireless product portfolio, including our Apex Strand micro cell, Apex Lifestyle center cells, and small cell cores, and our Axyom 4G/5G packet core.

Having said that, with 5G standards only recently set and uncertainty around timing for the CBRS spectrum auction. We believe that the ramp in expanding wireless by the mobile network operators and MSOs will not begin to occur meaningfully until 2020. However, we expect 2019 to be an active year for us in this space as we respond to RFPs and engage in trials.

Given the magnitude of network transformation, we are associated with the shift to 5G, the opportunity presented to us by wireless is huge. As a reminder, while the TAM for our CCAP DAA business is expected to increase from $1.5 billion to $1.8 billion by 2021, wireless represents a material expansion opportunity for our company that brings our total TAM to over $20 billion by 2021.

As such wireless remains a key focus for our future business to ensure that we remain at the cutting the edge of delivering innovative and differentiated products, and to capitalize on these sizable growth opportunities. As I noted earlier, we'll be accelerating investment in R&D and sales in this area, which will impact EBITDA and EPS in 2019. Maurizio will discuss this in more detail in his remarks.

In our fixed telco segment, customer reception engagement for our Axyom Virtual BNG router and the Multiservice Router remains very strong. We have deployed our Virtual BNG to a Tier 1 fixed telco in eight current trials, two of which are with the Tier 1 diversified communications service providers.

While 2018 was a much slower year than we anticipated, I remain extremely optimistic about our business and believe that 2019 will be an important year for CASA. Given the number of trials we are in, the deployments of new products we are starting to see, new customers in strategic markets across the globe, and the very positive feedback we are getting from customers about our solutions, mobile and fixed telco. We believe that we are well-positioned for the huge opportunity presented by the transformation in network architecture, our service providers are beginning to implement.

And it is with this large market opportunity in mind particularly in wireless that we have announced our first acquisition. I'm very excited about our agreement to acquire NetComm for AUD161 million in all-cash transaction. NetComm based in Australia is a leading global provider of fixed wireless access products and fixed broadband connectivity solutions, some of the many benefits of this deal include highly complementary product portfolios with no product overlap. This enables us to create an end-to-end solution from the core to the user equipment for our customers with the addition of high value fixed wireless access devices. In addition this combination creates opportunity for material revenue synergies through cross-selling of our respective products to each other's customers.

Attractive synergies that we believe are relatively quick to achieve and that we estimate will add additional -- incremental adjusted EPS of $0.02 to $0.03 in fiscal 2019 and $0.07 to $0.08 in fiscal 2020. This transaction has three Tier 1 diversified communication service providers to our customer portfolio increases our scale and materially expands our TAM, while positioning CASA as a key player in what we believe will be a large 5G fixed wireless access market.

The transaction will be funded by cash on hand and expected to be accretive on an adjusted earnings per share basis in calendar year 2019. We expect to close this acquisition in the second quarter of this year.

Before turning to a few slides that we have prepared on this acquisition, I like to turn the call over to Maurizio for a detailed review of our financial performance and our outlook for 2019.

Maurizio Nicolelli -- Chief Financial Officer

Thank you, Jerry, and good afternoon, everyone. I will start by reviewing our fourth quarter and full year 2018 financial results and then discuss our outlook for fiscal 2019.

As Jerry mentioned earlier, our fourth quarter results were in line with the preliminary results we provided on January 17. Total revenue for the fourth quarter of 2018 was $67.8 million, down from a 118 million in the fourth quarter of 2017. Total product revenue was $57.4 million in the fourth quarter of 2018, of which $24.6 million or 43% was from hardware and $32.8 million or 57% was from software. This compares to a $106.7 million of total product revenue in the fourth quarter of last year with $56.3 million or 53% from hardware and $50.4 million or 47% from software, continuing the trend of increased software revenue as a percentage of our total product revenue.

Hardware sales during the fourth quarter and the full year respectively accounted for 36% and 45% of revenue, down from 48% in the prior year quarter and 56% of sales for all of 2017. Customers continued to invest in software-based capacity expansions, while they digest hardware purchased during prior peak.

Our GAAP gross margin for the fourth quarter of 2018 was a healthy 73.2% compared to 77.1% in the fourth quarter of 2017. The decrease in our gross margin was primarily due to a lower gross margin on some of our broadband products during the quarter. As a reminder, our gross margin can fluctuate from quarter-to-quarter based on a mix of sales of our hardware products with higher initial software-enabled capacity and software-enabled capacity expansions.

As we scale our wireless business, we continue to expect that our revenue distribution will tilt slightly toward hardware initially with first phase orders from our Apex family of RAN products, including our small cell core and purchases of 4G and 5G software cores likely starting late in the first or second quarter of 2019. As a result, we believe that our fiscal 2019 margin will be in the range between 65% and 70%.

Turning to expenses, total GAAP operating expenses in the fourth quarter of 2018 were $32.8 million, down 10.2% compared to $36.6 million in the fourth quarter of 2017. The decrease in total operating expenses was due to lower commission and bonus compensation as a result of reduced revenue, partially offset by additional research and development investments.

Adjusted EBITDA for the fourth quarter of 2018 was $21.6 million compared to $59.8 million in the fourth quarter of 2017, primarily due to lower revenue in the current year period.

We recorded a net benefit of $1.7 million in our provision for income taxes during the fourth quarter. As in previous quarters, during the fiscal year, this was related to exercises and sales of equity awards by our employees. We currently expect that our effective tax rate for 2019 will range between 0% and 10% as we project to benefit from equity award transactions during the fiscal year.

Non-GAAP net income for the fourth quarter of 2018 was $17.3 million compared to $45.7 million in the fourth quarter of 2017. Non-GAAP diluted net income per share was $0.20 for the fourth quarter of 2018 compared to $0.54 for the fourth quarter of 2017.

Free cash flow for the quarter totaled $2.7 million compared to $43.6 million for the same period in 2017. The decline in free cash flow was driven by increased inventory and lower accrued expenses, offset by a reduction in our days sales outstanding from a 124 days at the end of fiscal 2017 to 98 days at December 31, 2018.

We ended the fourth quarter with cash and cash equivalents of $280.6 million and total debt of $295.5 million. During the three months ended December 31, 2018, we repurchased and retired 2.1 million shares for $29.4 million before commissions, thereby completing purchases under the $75 million stock repurchase program that was announced in August of 2018. As we announced today, the Board of Directors has approved an additional $75 million for our share repurchase program, which we intend to execute on during the next 12 months.

For the full year 2018, we achieved revenue of $297.1 million, a decrease of 15.5% compared to the prior year period. Total product revenue was $257 million in 2018, of which $133.4 million or 52% was from hardware and a $123.6 million or 48% was from software. This compares the $311.9 million of total product revenue in 2017 with a $198.1 million or 64% from hardware, and $113.7 million or 36% from software.

Our GAAP gross margin for the full year 2018 was 73.4%, which was identical to 2017. Total GAAP operating expenses for the full year 2018 was $139 million or 47% of revenue compared to $121.8 million or 35% of revenue in 2017.

Adjusted EBITDA for the full year 2018 was $98.1 million compared to $153.1 million in 2017. And non-GAAP net income for the full year 2018 was $81.5 million or $0.88 per diluted share for the full year 2018, compared to $110.2 million or $1.31 per diluted share in 2017.

Now I would like to turn to our guidance for the fiscal year 2019. Our guidance for 2019 reflects two main themes. First, we continue to project that our largest cable customers will continue to digest the significant capacity expansions from hardware purchases during the past 12 months. As such, we do see reduced hardware purchases, offset by continued software based capacity expansions.

Second, as Jerry mentioned, the wireless opportunity for us is very large. Given the magnitude of the opportunity, we are planning to accelerate investment in our wireless research and development plant for 2020 into 2019, which will reduce our operating income.

For the full year of 2019, we expect total revenue to be between $250 million and $300 million. Revenue in the first half is expected to be approximately 40% of the annual total with the first quarter being the lowest revenue quarter for the year. As mentioned earlier, we expect our gross margin in the range between 65% and 70%.

During the first half of 2019, we expect to begin recognizing wireless revenue primarily from hardware purchases by customers. These products have a lower margin, thus reducing our overall gross margin for the year.

Adjusted EBITDA is expected to range between $50 million and $60 million. Our effective income tax rate, as discussed earlier, will range between 0% and 10%. We anticipate non-GAAP diluted income per share to be in a range of $0.30 and $0.40, and GAAP diluted income per share to be in the range of $0.20 and $0.30. Stock-based compensation is expected to be approximately $11 million in 2019.

Guidance for fiscal 2019 does not include results from the expected acquisition of NetComm. If the acquisition closes in our second quarter, we project non-GAAP diluted income per share accretion between $0.02 and $0.03 in 2019 and $0.07 and $0.08 in 2020 from attractive deal synergies.

In summary, fiscal 2019 is a transition year for our company as we intend to invest to meet the significant opportunity ahead of us, while we allocate capital to inorganic growth to select M&A opportunities and returning capital to shareholders through share repurchases.

I will now turn the call over to Scott Bruckner, Senior Vice President of Strategy and Corporate Development, to review the details of the NetComm transaction, our strategic rationale and the many benefits that we believe it will bring to both CASA and NetComm.

Scott Bruckner -- Senior Vice President, Strategy & Corporate Development

Thank you, Maurizio. Before I jump into the presentation, I just want to note to everybody that in the Investor Relations section of our website, there is a presentation that accompanies today's call. You can find it at investors.casa-systems.com under News & Events and then Events & Presentations, directly under the webcast link.

So with that, I want to echo what Jerry has said about this transaction. We're pretty excited about it and we have prepared a short deck as I've mentioned to brief you on the key transaction terms and on NetComm Wireless. And what I would like to cover are the transaction terms and process, a summary of the NetComm Wireless business, and importantly, a summary of why we did this deal and what benefits we think it brings to CASA, as we continue to build our position as a leading enabler of gigabit speeds for cable, wireless and fixed telco.

So if we -- for those of you following along, please turn to Slide 3. These are the transaction highlights. And as we noted in our press release announcing our agreement to acquire NetComm Wireless, we have agreed to pay AUD1.10, that's Australian dollars per share, and with approximately $146 million fully diluted shares outstanding. This values the company at around AUD161 million or approximately $114 million.

We are financing the acquisition as Maurizio said with cash on hand and the deal is being executed under a scheme of arrangement with customary closing conditions that include Australian Court approval, shareholder approval and Foreign Investment Review Board approval in Australia. And with all of that, we do expect the transaction to close in the second quarter of 2019.

One key highlight is that we anticipate this deal to be immediately EPS accretive, and I'll talk about this more later in my remarks. With that I'd ask you to turn to Slide 4, where I'd like to tell you a little bit about NetComm. The company is a leading developer of network grade telecommunications equipment that includes 4G and 5G wireless access solutions, solutions from the cabinet or curb to the customer premise for fiber-to-the-distribution point broadband architectures, and I'll explain that in just a bit, industrial IoT and fixed broadband residential gateways.

It's largest customers that are publicly disclosed include NBN, the National Broadband Network in Australia, AT&T, Bell Canada among others. The company is based in Sydney, Australia. It is listed on the ASX, has around 250 employees, 155 of whom are engineers, which will add significantly to our existing pool of R&D talent. And briefly on NetComm's financials for fiscal year 2018, the company generated just over AUD180 million in revenue and for fiscal year 2019 has guided the market to approximately AUD210 million or $150 million at the midpoint of its range.

Turning to Slide 5, as we've mentioned, we think that this acquisition does bring significant benefit to both companies, but there are several attractive elements of this deal that drew us to NetComm.

The first is that it enables us to offer end-to-end broadband solutions to our customers from the network core to user equipment with the addition of high value fixed wireless devices. As we have said previously, we do believe that fixed wireless access will be an important area of mobile network operator spend as they roll out their 5G networks. And in fact in an informal review that we conducted, there are approximately 15 large global mobile network operators that have already announced their intentions to make fixed wireless access part of their 5G network build-out.

Second, the acquisition expands our footprint by adding several Tier 1 service providers to our customer list. I've name the ones that are publicly disclosed, NBN, AT&T and Bell Canada.

Third, and importantly, it significantly expands our total addressable market for 5G fixed wireless access alone. That TAM is forecast to grow from just under $1 billion in 2021 to over $3 billion in 2025.

Fourth, the acquisition diversifies our revenues by customer and geography, while also increasing our scale. I will talk about pro forma revenue distribution in just a moment. But with respect to scale, using the midpoint of our fiscal year 2019 guidance range, the acquisition increases our revenue by greater than 50%.

And finally, we do see attractive synergies in this transaction. Importantly with minimal customer overlap, no product overlap, we see multiple cross-selling opportunities for our products into NetComm's customer channel, and likewise NetComm's products into our customer channel.

Let me now turn to Slide 6 and tell you a little bit about the product portfolio. We've outlined this portfolio that the acquisition brings to us, all of which, as Jerry noted, is incremental to what we currently offer. So NetComm has four product segments with approximately 90% of its revenues coming from three segments. The first is fixed wireless solutions which connects subscribers wirelessly to broadband with LTE and soon 5G wireless outdoor and indoor devices. Second products for fiber to the distribution point. This connects homes from the network node or curb or cabinet to deliver fiber-like speeds over copper without having to build fiber to the premise. And then industrial IoT, which represents an expansion of our business with 4G routers and modems that are currently deployed for enterprises connecting vending machines.

If I move to Slide 7 for your reference and I won't go through a lot of detail here. We've provided more detail on the products that NetComm offers in two important product categories for us 4G and 5G fixed wireless and fiber to the distribution point.

If I turn to Slide 8, you can see how we've tried to pull all of this together. So that is evident that how NetComm's products nicely slot into our product map. This gives CASA a fuller end-to-end solution for customers, and it extends our footprint in the network to the edge and user equipment. And we believe that this fuller portfolio gives CASA a more compelling offering for our customers, and importantly, it enhances our exposure with mobile network operators with fixed wireless products.

On Slide 9, as I previewed earlier, one of the important benefits of this acquisition is that it reduces our revenue concentration by customer and by geography. On a pro forma basis, North America share of CASA's revenue moves from 49% to 36% with significantly more balance across other regions of the world. And also on a pro forma basis, revenue contribution from our top four customers moves from 64% to 44%, and we add new Tier 1 customers that will account for almost a quarter of our pro forma revenue.

On Slide 10, and importantly, as we considered the rationale for this transaction, is how we build value for our shareholders. So, in addition to the strategic benefits that I've been talking about, we do believe that this acquisition will lead to increased value for shareholders as a result of increasing our revenue scale, increasing our ability to drive future revenue growth through the cross selling potential I mentioned earlier and realizing potential synergies that we anticipate from this deal, which we currently estimate to have a run rate conservatively of $7 million to $8 million, or as Maurizio mentioned, on a non-GAAP diluted net income per share basis, $0.02 to $0.03 of EPS accretion in fiscal year 2019, and $0.07 to $0.08 of EPS accretion in fiscal year 2020.

I'll wrap up by taking us through Slide 11, entitled illustrative shareholder value creation synergies what -- expected synergies. What we've tried to quantify here is shareholder value that we anticipate creating with this acquisition by building an illustrative value creation bridge. Using conservative synergy estimates as mentioned, we expect to generate incremental non-GAAP EPS for CASA of $0.07 to $0.08 in fiscal year 2020.

Using the number of shares outstanding, this represents $6 million to $7 million in non-GAAP net income for CASA in fiscal year 2020, and it causes current fiscal year 2020 consensus non-GAAP P/E multiple of 13.3 times. This $6 million to $7 million of additional net income equates to $80 million to $95 million of value for CASA's shareholders.

In other words, we anticipate that 70% to 85% of the total equity consideration paid by CASA will be covered by simple and quick to achieve Phase 1 synergies alone. And this calculation does not yet consider the fiscal year 2020 EBITDA that we're acquiring from NetComm and other material revenue synergies that we hope to achieve from this acquisition.

So with that, I will stop and hand it over to questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Simon Leopold from Raymond James. You're now live.

Victor Chiu -- Raymond James -- Analyst

Hi, guys. This is Victor Chiu in for Simon Leopold. Just a quick housekeeping. I'm sorry if I missed this, but can you again repeat the contributions from hardware and software in this quarter for fourth quarter?

Jerry Guo -- President & Chief Executive Officer

Yes, we're just looking it out, just give us a second.

Maurizio Nicolelli -- Chief Financial Officer

During the fourth quarter, its contribution for hardware was $24.6 million and the contribution from software was $32.8 million.

Victor Chiu -- Raymond James -- Analyst

$32.8 million?

Maurizio Nicolelli -- Chief Financial Officer

Yes.

Victor Chiu -- Raymond James -- Analyst

Okay. Great, thank you. Okay. So just kind of clarifying on the outlook that you provided for 2019. The slowing implies that the issue extends beyond just the uptake of Remote PHY and DAA deployments, and that the core CCAP uptake as you see some headwinds back to you. So, can you just maybe give us a little more clarity into kind of what you see, what's kind of the shift and change in catalyst for this? And why we wouldn't expect this again in 2020 as well, since I guess previously we thought predominantly the issues were around DAA and Remote PHY, and maybe some wireless, but it seems like the core business is kind of slowing now a bit. So can you maybe just throw a little more color on that?

Jerry Guo -- President & Chief Executive Officer

Yes, Victor, this is Jerry here. So we -- as we mentioned in our prepared remarks we do see that the MSOs slowing down in their purchase of appliances and hardware during this transition period. And they are satisfying their capacity needs through software license purchases, while they make the decision on the next generation of their hardware upgrade. We do believe this period is going to be a short-term, but we have no way of knowing it exactly what that the next upgrade cycle is going to be.

Victor Chiu -- Raymond James -- Analyst

So your estimation is that it's a timing issue and that you expect that this renowned (ph) simply because I'm just a little confused because why -- I'm just not sure why this wouldn't continue, I guess, and why you would expect that this is not secular kind of issue that we're looking at now, instead of just the timing issue, kind of debating deployment strategies.

Scott Bruckner -- Senior Vice President, Strategy & Corporate Development

Yes. No, look, that it's a good question. It's Scott here. I guess I would answer the question by trying to put this all in context. Let's remember that the MSOs are coming out of a very significant period of increased spend, and that entails not only technology upgrade, but moving to acquire capacity to deliver gigabit speeds to their customers. There was a lot of CapEx involved in that.

We always suspect it, although it was very difficult and I think maybe impossible to understand the timing for this that at some point that capacity acquisition would shift from hardware more to software. And that's what we're seeing now. Our view on growth of demand for downlink speeds of broadband has not changed. And in fact the conversations that we're having with our customers is about how they plan for that meeting that future demand. And there are a number of alternatives that they're looking at which include CCAP and that's a big acquisition because as you know that takes some space in the head end or other alternatives that involve virtualization and DAA.

We already saw one of our customers begin to move representing significant revenue in our quarter to DAA, so this transition is beginning to happen. We are just in the low period as we're moving through capacity absorption and a shift to new architecture.

Victor Chiu -- Raymond James -- Analyst

Great. That's helpful. Thank you.

Operator

Thank you. Our next question comes from the line of Meta Marshall from Morgan Stanley. You're now live.

Yuuji Anderson -- Morgan Stanley -- Analyst

Hi. It's Yuuji Anderson on for Meta. Thanks for taking my question. A question on the gross margin guide. It's pretty conservative compared to prior years. So I'm just trying to better understand. I heard the commentary on the wireless core coming in the first half year. But I guess on its face, I would have thought because system sales are still slowing you would see that offset on the software side of things. So, I guess, it's just the question which is like just clarification, if the mix shift really -- the gross margin guidance really is a result of this -- is entirely a result of this mix shift to the wireless core, or how should we think about the mix of software versus chassis, and the other parts of the business there?

Maurizio Nicolelli -- Chief Financial Officer

Yes, this is Maurizio. Thanks for the question. So we ended the fourth quarter, our gross margin was at 73%. And so, our guidance is between 65% and 70%. So not that much lower than where we really ended up at the fourth quarter. So we took a cautious approach in projecting out our gross margin. We do anticipate starting to really get some meaningful wireless revenue going forward, and the majority of that really is going to be on the hardware side, which has a lower gross margin. So we took that all into account and projecting out our gross margin for the year. And I just would say just overall I thought we took a cautious approach toward projecting that out, and then we'll update that as we move forward within the fiscal year.

Yuuji Anderson -- Morgan Stanley -- Analyst

Okay. Understood. And then on the wireless backlog, I noticed the $20 million number that you gave in the prepared remarks there, so is that incremental to what has been disclosed in the past there? And I guess the follow-up is, when you look at your wireless backlog now like how much of that you think will be recognized in the first half, perhaps just on a -- you know just on a high level, like any color on that would be helpful?

Maurizio Nicolelli -- Chief Financial Officer

It includes the originally disclosed orders, and of course, we are adding new orders in wireless, while we continue to close deals on the wireless side. In terms of how much we're going to recognize in the first half, we cannot say accurately at this point, but we do believe we're going to continue to recognize every single quarter going forward.

Yuuji Anderson -- Morgan Stanley -- Analyst

Okay. And if it's OK, just one more question on just the NetComm deal. I understand that's not built into guidance right now. But the elevated expenses on the wireless side of things, is that just wholly separate from anything you might be doing on integrating NetComm or definite to its integration?

Jerry Guo -- President & Chief Executive Officer

Correct.

Yuuji Anderson -- Morgan Stanley -- Analyst

Okay, got it. Okay. Thank you so much for taking my questions.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Rich Valera from Needham & Company. You're now live.

Rich Valera -- Needham & Company -- Analyst

Thank you. I was wondering if you can give us a sense of roughly the magnitude of revenue you expect to come from new products in 2019?

Maurizio Nicolelli -- Chief Financial Officer

Hi. Sorry, Rich, it's Maurizio. To our guidance there that we gave is between $250 million and $300 million. Now we still -- the majority of our revenue during the year is still from our cable business. But we're starting to see good amount of new wireless revenue coming in, and a few other products, new products coming on board. But the way to think about though is that we still are in the early phase of our new products and we're really going to start to see that later on this fiscal year.

Rich Valera -- Needham & Company -- Analyst

Right. And then just following up on the wireless backlog question from before, I'm confused why that didn't grow from $20 million. It didn't sound like you recognized much in 4Q if any and you've announced several new wireless orders. So why didn't that $20 million number grow during the quarter?

Maurizio Nicolelli -- Chief Financial Officer

The number did grow, Rich. As Jerry said, we did sign additional deals. We -- at the appropriate time, we'll disclose that number, but it is larger than $20 million.

Rich Valera -- Needham & Company -- Analyst

Is there any particular reason you can't disclose the size of it now?

Maurizio Nicolelli -- Chief Financial Officer

No particular reason other than with $20 million, I think, you've got appropriate guidance on what we expect to recognize through the year.

Rich Valera -- Needham & Company -- Analyst

Okay. That's perfect. And just one more if I could on NetComm. I mean we're somewhat familiar with them and understand they have a quite large program with NBN. I'm wondering if you have the information sort of how much of the revenue in the last year was generated by NBN or just in the Asia-Pac region if you have that information and if you have sort of a sense for the trajectory of that? Thank you.

Maurizio Nicolelli -- Chief Financial Officer

Yes. So, let me -- honestly, I don't know what they publicly disclosed. I will check that and whatever is out there, I will get back to you with that information.

Rich Valera -- Needham & Company -- Analyst

Okay. Appreciate that. Thank you.

Maurizio Nicolelli -- Chief Financial Officer

Okay. Sure.

Operator

Thank you. Our next question comes from the line of John Marchetti from Stifel. You're now live.

John Marchetti -- Stifel -- Analyst

Thanks very much. Just a quick clarification on the DAA contribution that you mentioned in calendar 4Q. You mentioned that it was 17% of I think total revenue. I'm just curious in terms of it if that skews more toward hardware as nodes or shipped maybe without software, if it's split sort of in between those two lines, just trying to think of it as we started to see some of the initial DAA deployments, how to think of that may be impacting from a hardware, software perspective, and then how that maybe flows through a little bit to that gross margin outlook?

Jerry Guo -- President & Chief Executive Officer

That deal was a combination of hardware and software. But we do expect more contributions from both the hardware and software going forward, even with that (inaudible).

John Marchetti -- Stifel -- Analyst

Got it. So, that is when you're talking shipping in DDA like that, it is a combination of both hardware and software such skewed the way some initial hardware deployments are on the traditional sort of core cable side, and then you come back with sort of license sales or software sales over time.

Jerry Guo -- President & Chief Executive Officer

Correct. We do expect both software license increase as well as more hardware sales.

John Marchetti -- Stifel -- Analyst

Okay, fair enough. And then when I think about this bigger push now Jerry into wireless, not just the investments that you're making and obviously the increased focus here in '19 and going forward, with NetComm now coming down, how do you think about competition in that market relative to what you're used to seeing in more of the cable market where maybe that the opportunity set obviously from a TAM perspective is significantly larger, but you also have a I think a much broader competitive landscape that you're butting up against there? Just curious how you think about competition and the right level of sort of resource allocation as you move into what is essentially a new market for you?

Jerry Guo -- President & Chief Executive Officer

Yes. We -- of course when we choose a tough market to address, we always think about how we can differentiate ourselves. We are not doing generic things to compete with the legacy wireless and technology providers. We always look at how do we leverage our strength, like how Apex Strand mounted a video, and we are leveraging our strength from both the wire-line side and wireless side is in a converged technology. So we have a significant differentiation. And on the 4G and 5G packet core, we're basically leveraging a new trend or a new generation of technology or the architecture transformation of the whole wireless network, not competing with the traditional chassis-based packet cores. So we're doing completely virtualized micro services based packet cores which are very different and differentiated than the traditional legacy players. We always choose something we think we are fairly unique and differentiated to compete.

John Marchetti -- Stifel -- Analyst

Thank you. And then, lastly, just on sort of the cash position here. You certainly are in a comfortable spot now. As you pay this out, you mentioned wanting to do the $75 million buyback program over the extent at this calendar year, exiting the year then roughly at $100 million at least using where you ended sort of calendar 4Q. Does that give you plenty of comfort? You obviously feel like you've got enough cash there to continue to fund these wireless initiatives as you continue to expand that portfolio line.

Maurizio Nicolelli -- Chief Financial Officer

Hi. It's Maurizio. So we ended the year at a very nice cash position right around $280 million. Even with the acquisition, it brings us down to somewhere around $160 million. But at the end of the day, we are in a very good position even after the acquisition. So we have the opportunity to both give money back to shareholders in the share repurchase program and continue also to look at M&A opportunities in the future, select M&A opportunities. And on top of all that, be able to invest additional capital R&D to really push into the wireless market. So given our balance sheet where we are today, we feel like we're in a very good position in terms of capital.

John Marchetti -- Stifel -- Analyst

Thank you.

Operator

Thank you. Ladies and gentlemen, we have no further questions in queue at this time. I'd like to turn the floor back over to management for closing comments.

Jerry Guo -- President & Chief Executive Officer

Well, thank you to everyone for joining us today, and we look forward to updating you on our progress next quarter, and seeing some of you at our Analyst Event at Mobile World Congress in Barcelona next week. Thank you.

Operator

Thank you. This does conclude our teleconference for today. You may now disconnect your line at this time. Thank you for your participation and have a wonderful day.

Duration: 53 minutes

Call participants:

Eleanor Johnson -- Investor Relations

Jerry Guo -- President & Chief Executive Officer

Maurizio Nicolelli -- Chief Financial Officer

Scott Bruckner -- Senior Vice President, Strategy & Corporate Development

Victor Chiu -- Raymond James -- Analyst

Yuuji Anderson -- Morgan Stanley -- Analyst

Rich Valera -- Needham & Company -- Analyst

John Marchetti -- Stifel -- Analyst

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