Calix, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; filed March 1, 2019. The filing also reports unaudited fourth-quarter results. Calix provides cloud and software platforms, network systems and services to communications service providers (CSPs), with strategic focus on Calix Cloud, EXOS and AXOS.
Financial performance
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $441.3 million | $510.4 million |
| Gross profit / margin | $197.4 million / 45% | $172.9 million / 34% |
| Operating loss | $18.5 million | $81.6 million |
| Net loss | $19.3 million | $83.0 million |
| Net loss per share, diluted | $0.37 | $1.66 |
| Cash from operating activities | $3.6 million | $(62.8) million |
Annual revenue fell 14%. Systems revenue declined 4% to $405.9 million; services revenue declined 60% to $35.4 million. Lower CAF-related and turnkey project services drove much of the decline. Gross margin recovery reflected fewer loss-making project costs, improved services efficiencies and product mix, partly offset by $3.2 million of tariff-related costs in Q4.
Q4 2018: Revenue was $115.5 million, gross profit $51.6 million, operating loss $5.2 million and net loss $5.6 million, or $0.10 per share. Q4 2017 revenue was $137.9 million, gross profit $50.6 million, operating loss $12.8 million and net loss $12.9 million, or $0.25 per share.
Liquidity, debt and cash flow
At year-end, cash and cash equivalents were $49.6 million, restricted cash $0.6 million, working capital $31.1 million and total stockholders’ equity $151.9 million. Calix had drawn the full $30.0 million revolving credit facility, due August 2020, with a 7.0% interest rate at year-end. It was compliant with its amended financial covenants at December 31, 2018, but had previously breached a covenant in 2017, which the lender waived. Equipment financing entered into during 2018 totaled approximately $5.1 million. Contractual obligations totaled $119.9 million, including $57.8 million of non-cancelable purchase commitments.
Operating cash flow improved to $3.6 million from a $62.8 million outflow in 2017. Cash use included a $20.6 million inventory increase associated with supply-chain realignment. Investing cash flow was a $0.1 million outflow; financing cash flow was $7.5 million inflow.
Changes, outlook and material risks
- Operating expenses fell to $215.9 million from $254.4 million, primarily reflecting restructuring and lower R&D spending. Restructuring charges were $5.7 million in 2018; completed actions were expected to generate annualized savings above $20 million.
- Calix sold its outdoor cabinet product line for $10.4 million cash and recorded a $6.7 million gain.
- Management expected tariff costs and supply-chain transition expenses to weigh on gross margin and cash flow in the near term. It aimed to mitigate tariff effects through supply-chain re-engineering, with cost impact expected to diminish after the first half of 2019 if the transition proceeded as planned. The filing provides no clear numerical revenue or earnings guidance.
- A February 2019 credit amendment eased certain first-half 2019 liquidity and EBITDA covenant requirements to accommodate anticipated tariff-mitigation costs. Management believed existing cash and available credit would fund needs for at least twelve months, but warned that delays or higher costs could pressure liquidity and covenant compliance.
- CenturyLink represented 18% of 2018 revenue, down from 31% in 2017. Customer concentration, CSP spending cycles, project acceptance and collection timing remain important risks; Windstream had filed for Chapter 11 bankruptcy protection.
- Other significant exposures include dependence on China-based manufacturing and limited-source components, intense competition, execution and adoption risks for new platforms, and potential cybersecurity, privacy, product-quality and regulatory issues. Calix reported no pending legal proceedings expected to have a material adverse effect. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Investor verification priorities
- Track tariff mitigation progress, supply-chain transition costs and resulting gross-margin trends.
- Review credit-facility availability, covenant headroom, amendment terms and cash needs against the full $30 million draw and purchase commitments.
- Assess revenue diversification and exposure to CenturyLink and other financially stressed or concentrated CSP customers.
- Separate recurring platform, cloud and services demand from non-recurring CAF and turnkey project revenue; note that FY2018 comparisons use different revenue-accounting standards, and Topic 606 increased reported 2018 revenue by $1.7 million.
- Monitor whether restructuring savings and increased traction in AXOS and Calix Cloud translate into sustained growth and operating profitability.