Calix, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 28, 2015; comparison is with the three months ended March 29, 2014. Calix provides broadband access systems and software to communications service providers. Q1 2015 had one fewer day than the prior-year quarter.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 / prior date |
|---|---|---|
| Revenue | $91.0 million | $85.8 million; up 6% |
| Gross profit / margin | $42.5 million / 47% | $36.9 million / 43% |
| Operating expenses | $54.4 million | $46.8 million |
| Operating loss | $11.9 million | $9.9 million |
| Net loss / diluted loss per share | $11.9 million / $0.23 | $10.0 million / $0.20 |
| Net cash used in operating activities | $11.9 million | $5.2 million |
| Cash, cash equivalents and marketable securities | $97.8 million | $111.7 million at December 31, 2014 |
| Total liabilities / borrowings | $82.8 million / none | $97.6 million at December 31, 2014 |
Revenue growth reflected stronger bookings and shipments across territories and additional acceptance of stimulus-funded projects. Gross margin improved primarily on product and customer mix, higher revenue, and lower inventory write-downs ($1.0 million versus $1.3 million). Operating expenses rose, including R&D of $21.9 million, sales and marketing of $19.8 million, and G&A of $10.2 million. G&A included $1.9 million of Occam-litigation legal fees and expenses not reimbursable under existing D&O coverage.
Operating cash outflow increased year over year, with working-capital uses including higher receivables and lower accounts payable. Investing cash outflow was $7.3 million, including net purchases of marketable securities and $1.7 million of capital expenditures. The $50 million secured revolving credit facility was undrawn, with $50 million available; the company reported covenant compliance. Management said current cash, securities, and facility availability should cover anticipated needs for at least 12 months.
Outlook, risks and unusual items
- No specific revenue or earnings guidance was provided. Management expected operating expenses to rise in absolute dollars but decline as a percentage of revenue over time, and planned continued investment in R&D and sales and marketing.
- Management said ARRA-funded projects were expected to reach completion by June 30, 2015, and related revenue was expected to decline in 2015. Government-funded project acceptance and deferred revenue recognition can make results uneven. Deferred revenue was $28.5 million at quarter-end.
- Key risks include ongoing losses, quarterly variability, CSP spending cycles and customer concentration, competition, product development and margin pressures, and reliance on contract manufacturers and limited-source components. U.S. customers generated 89% of revenue; CenturyLink represented 19% of Q1 revenue, as disclosed in the risk factors.
- Occam merger litigation remains pending. The company may have to indemnify former Occam officers and directors and Jefferies; future exposure cannot be quantified, and Jefferies-related indemnification may not be insured. Plaintiffs’ valuation expert estimated a $7.77–$9.65 per-share gap between Occam’s asserted fair value and merger consideration; defendants’ expert valued Occam below the consideration. The company was paying Jefferies’ fees and expected further payments.
- After quarter-end, on April 26, the board authorized repurchases of up to $40 million of common stock. The authorization does not require purchases and may be changed or terminated.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether revenue growth and improved gross margin persist as stimulus-funded projects wind down, and whether inventory write-downs remain lower.
- Cash burn, working-capital movements, and actual use or availability of the credit facility under its covenants.
- Developments and potential costs in the Occam litigation, including insurance coverage and indemnification exposure.
- Whether the authorized $40 million repurchase is executed and how it affects liquidity and share count.