Wall St. Embraces Casa Systems


By: R. Scott Raynovich

Now here's something you don't see very often: An Initial Public Offering (IPO) in the cable technology space. Casa Systems (CASA) went public on the Nasdaq exchange on December 15th. After initial rocky start that required the Andover, Mass.-based company to reduce the size of its offering, its shares have performed well since the IPO and this week were embraced by two Wall St. firms.

Casa had orginally planned to sell 8.4 million shares, but the week of the IPO it reduced the offering to 6 million. The company also decreased the price range of the IPO from $15 to $17 per share to $13, raising $78 million.

This last-minute reduction in the price and the size of the offering appears to have paid off in aftermarket performance. Shares are up about 30 percent since the first day of trading, now at $18.55. It's also been upgraded and/or initiated with an outperform ratings at several banks, including William Blair and Raymond James.

Casa provides software-based infrastructure to route voice, video, and data over cable networks. It's helping cable companies make the transition to a virtualized network that can handle video, fixed-line telecom, and wireless services at once. In 2016, the company posted $316.1 million in revenue. For the first nine months of 2017, Casa reported $205 million in revenue, compared with $192 million in 2016 during the comparable period. The company is profitable, reporting a profit of $7.7 million during the first nine months of 2017, according to its S-1 filing statement with the SEC.

Casa's two biggest customers are Time Warner Cable and Liberty Global. Founded in 2003, the company received a total of $100 million in venture capital, primarily from Summit Partners, which owned more than half of Casa Systems prior to the IPO. Liberty Global Ventures owned six percent, though those portions were reduced as investors sold shares in the IPO.

The "quiet period" for the shares, during which executives and banks are not allowed to discuss material facts following the IPO, ended this week. Today, two banks initiated Casa with favorable ratings.

William Blair analyst Jason Ader initiated coverage with an 'Outperform' rating. In addition, Raymond James analyst Simon Leopold initiated coverage with an 'Outperform.'

"We initiate on Casa with an Outperform rating and see fair value near $23," wrote Raymond James' Leopold in a research note. "Casa is a leading software-centric network infrastructure vendor that allows cable operators to deliver voice, video, and broadband data services over a single platform at multi-gigabit speeds. Casa's growth is underpinned by a structural shift in cable operators' network infrastructure, and we expect this transition to continue for a number a years as they evolve toward an all-IP based architecture and continue to upgrade their networks."

As it turns out, the reduction in the IPO price has ended up rewarding Casa investors. Casa is now popping up on the screen of technology stocks that are performing well in 2018. With cable companies transforming their infrastructure to adapt to more services using virtualization techniques, Casa is an interesting new public company to watch.