Vecima’s positive fourth quarter performance was once again led by its video and broadband solution segment, and more specifically, continued dramatic growth for its distributed access architecture (DAA) platform Entra. Although, CEO Sumit Kumar said during an earnings call last week that Entra’s growth might be curbed by a "digestion phase" heading into 2024.
Entra sales more than doubled from CAD $107.3 million in fiscal 2022 to CAD $222.1 million in fiscal 2023, as Vecima continues “to ride the first wave of the global cable industry's wide scale migration to distributed access architecture,” said Kumar.
Vecima has been leaning heavily on Entra’s success this year. It has been the company’s fastest growing product family, representing 73% of fiscal 2023 total sales. To put this into perspective, just three years ago Entra accounted for just over CAD $5 million, or about 5% of Vecima's consolidated sales.
The DAA platform is Vecima's play into the next generation of cable access products as optical transport moves away from analog RF distribution to all-digital Ethernet. DAA is gaining traction among cable operators as a network design approach that moves certain processing functions from a centralized location closer to the end-users. It also allows for the deployment of technologies like full duplex DOCSIS and can reduce power consumption as well as latency.
While Entra’s growth was strong this year, Kumar told investors the company anticipates “a momentary deferment” in momentum at the start of 2024. Heading into its first fiscal quarter Vecima will see “a brief transition” where its customers are working to catch up on and ramp project rollouts using their existing inventories.
“This reflects the short-term transition currently underway in the DAA macro environment,” Kumar said.
In some cases, customer projects are delayed due to the lag in “construction, labor, permitting, utility-make-ready and other requirements” for these large-scale network build outs.
Over 50 Vecima customers use the Entra product suite for cable access and 46 are using it for fiber (or a mix of cable and fiber) access, including deployments with eight of the twelve largest cable operators in North America.
Though the company has not disclosed the names of all eight operators, Charter Communications publicly committed to provide Entra ERM3 next-generation Remote PHY devices for its planned DAA-driven hybrid fiber coax (HFC) network expansion.
As the Tier 1 operators currently deploying Vecima’s products see a digestion phase, Kumar noted this might be a good time for the company to “broaden its exposure to other customers.”
"I want to emphasize that we expect this to be a relatively transient intermission in what is a much broader wave of DAA adoption and growth," Kumar told investors.
Particularly, he said Vecima is hopeful about the opportunities $42.5 billion in Broadband Equity, Access and Deployment (BEAD) funding will bring to the U.S. fiber market, and especially to Vecima as subsidies for broadband will drive fiber-to-the-home deployment with DAA technology.
The fiber access side of Entra saw strong growth in 2023 as Vecima supported the influx of rural broadband buildouts. The company this year reached a fiber milestone with a Tier 1 operator in the U.S, deploying more than 20,000 10G PON ports of Vecima’s Entra Fiber Access portfolio.
“It is still relatively early innings. Some of the operators talk about their overall funding awards, and where they see themselves getting to by the end of calendar ‘23. In the best cases, we think some operators are 20 to 30% deployed,” said Kumar.
“So, there's a lot of activity yet to come... We’re excited about what's in store.”
Financials
In closing its fiscal year, Vecima’s annual revenue was up 62.4% year over year to CAD $303.4 million, with fourth quarter revenue up 26.0% to CAD $75.5 million.
Its Video and broadband solutions (VBS) segment achieved sales growth with annual VBS revenue increasing 77.7% year-over-year to a record CAD $245.1 million. Vecima’s adjusted EBITDA was up 92.8% to CAD $59.8 million over the entire fiscal year.
Kumar told investors that Vecima is nearing a "major new phase of growth and development, further scaling the business beyond the tripling of sales that [it has] achieved over the last three years.”