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Why Casa Systems Stock Got Crushed Today

By Evan Niu, CFA – Updated Apr 25, 2019 at 3:30PM

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The company reported fourth-quarter results and announced a splashy acquisition.

What happened

Shares of Casa Systems (CASA 0.91%) got crushed today, down by 21% as of 1 p.m. EST, after the company reported fourth-quarter earnings results. The telecommunications specialist also said it is acquiring NetComm Wireless.

So what

Revenue in the fourth quarter came in at $67.8 million, which translated into non-GAAP net income of $17.3 million, or $0.20 per share. Both top- and bottom-line results beat the Street's expectations of $65.9 million in sales and an adjusted profit of $0.15 per share. Gross margin was 73.2% and adjusted EBITDA was $21.6 million. Casa's board also authorized a $75 million stock repurchase program.

Red stock chart going down

Image source: Getty Images.

While the results topped consensus estimates, CEO Jerry Guo acknowledged several challenges that Casa is facing. "Our fourth quarter results were impacted by lower than expected spending by a few MSO customers, particularly with respect to hardware, which led to lower than expected hardware volumes," Guo said in a statement. "We also experienced wireless product certification delays, which affected the timing of our wireless revenue recognition."

Check out the latest Casa Systems earnings call transcript.

Now what

Casa announced that it will be acquiring Australia-based NetComm Wireless for 161 million Australian dollars ($115 million), or AU$1.10 ($0.79) per share, with Casa funding the deal with cash on hand. The company finished the fourth quarter with $280.6 million in cash and cash equivalents on the balance sheet. The deal price represents a 53% premium compared to NetComm's closing price on Feb. 20.

"We believe that this transaction will create a global leader in the rapidly growing broadband enablement space for service providers across all access technologies," Guo said. NetComm Wireless shareholders will vote on the deal this summer.

In terms of outlook, Casa expects full-year 2019 revenue to be in the range of $250 million to $300 million, with adjusted EBITDA of $50 million to $60 million. That should result in non-GAAP earnings per share of $0.30 to $0.40. This forecast does not include results from the NetComm Wireless acquisition.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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