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Casa Systems

CASA: NASDAQ

Casa Systems is a provider of software centric network solutions to wireless and cable TV providers. The company was founded by Jerry Guo in 2003 and is based in Andover, MA.[1] The founder is still CEO today and owns 12% of the company.[2]

Investment thesis

Legacy cable providers, like Charter, Time Warner, and Comcast have a network built for analog transmission. To get bandwidth these companies need CCAP (converged cable access platform) systems and software from players like Casa Systems.[3] Casa Systems has over 400 customers, including Tier 1 providers.[4] Casa’s first installation is for a fraction of the network, and at a fraction of the network capacity capable of the CCAP product. Over time, customers may purchase line cards/software to increase capacity at nearly 100% gross margins to Casa Systems. Thanks to the line card/software revenue, Casa Systems historically has had 65% to 75% gross margins, and over 30% operating margins.[5]

Confirmation through research

Looking at product specifications, we believe Casa Systems CCAP systems have greater energy savings, a smaller footprint, and higher bandwidth then competitors.[6] We believe Casa Systems is now at an inflection point as they lead the next wave into DA (distributed access) systems, which allow operators to extend the digital link closer to the customer. This provides the customer with better speed/performance.[7] Further, we believe that Casa Systems is at an inflection point in their wireless business, focused on small cells solutions, after we carefully studied their wireless Tier 1 wins.[8]

Variant Perception

We believe that Casa Systems wireless business could become the majority of the company’s business over time. We also think that the market is not assigning fair value to the business due to the quarterly volatility in earnings, which should smooth out as their wireless business becomes a larger part of the overall business. Finally, we believe the business will generate strong free cash flows, even with the inflection in DA and wireless revenue growth.