Calix, Inc. — Q1 2013 Form 10-Q
Business and period: Calix provides broadband access systems and software to communications service providers. This unaudited quarter ended March 30, 2013; the comparable quarter ended March 31, 2012. Fiscal quarters follow a 4-4-5 calendar, and Q1 2013 had two fewer days than Q1 2012.
Key financial results
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Revenue | $90.5 million | $78.6 million | +15% |
| Gross profit / margin | $41.1 million / 45% | $33.8 million / 43% | +22% gross profit |
| Operating expenses | $46.7 million | $41.2 million | +13% |
| Operating loss | $(5.5) million | $(7.4) million | Loss narrowed |
| Net loss | $(6.2) million | $(7.5) million | Loss narrowed |
| Net loss per share, basic and diluted | $(0.13) | $(0.16) | Improved |
| Cash from operating activities | $2.4 million | $13.5 million | Down $11.1 million |
Gross margin excluding intangible-asset amortization rose to 48% from 45%, which management attributed primarily to product mix and cost reductions. R&D expense was $20.2 million, sales and marketing $15.8 million, and general and administrative expense $8.1 million. Stock-based compensation totaled $4.7 million.
Financial position and liquidity
- At March 30, 2013, cash and cash equivalents were $48.1 million; total assets were $385.0 million and total liabilities were $117.4 million.
- Current assets were $190.5 million and current liabilities were $99.0 million. Accounts receivable was $70.7 million; inventory was $39.2 million.
- Deferred revenue totaled $65.5 million, up from $55.1 million at December 31, 2012.
- There were no borrowings on the $30 million revolving credit facility; approximately $27.5 million was available after letters of credit. The facility matures June 30, 2013, and management said it intended to obtain a similar facility after expiry.
- Operating cash flow was pressured by an $11.2 million increase in receivables and a $5.3 million increase in deferred costs, partly offset by a $10.4 million increase in deferred revenue and lower inventory. Capital expenditures were $1.3 million.
Material changes, outlook, and risks
- Revenue growth reflected higher shipment volume, improved macroeconomic conditions, and international expansion. U.S. sales were approximately 86% of revenue versus 93% a year earlier.
- Management reported steady improvement beginning in the second half of 2012 and continuing into Q1 2013. It expected the 2012 acquisition of Ericsson fiber-access assets to benefit revenue in 2013 and beyond, while continuing investment in product development and international sales. No specific financial guidance was provided.
- Management expected operating expenses to rise in absolute dollars but decline as a percentage of revenue over time. It cited Ericsson-related headcount and facility costs as contributors to higher R&D expense.
- Results remain exposed to CSP capital-spending cycles, customer concentration, long and uncertain sales cycles, competition and pricing pressure, product mix, supply-chain dependence, inventory risk, and delays in revenue recognition, particularly for government-supported contracts. Seasonality and customer budget timing may also cause quarterly variability.
- Q1 2013 operating cash flow was materially below the prior-year period despite a smaller net loss. Management attributed the decline primarily to changes in working capital.
- Calix extended its Petaluma headquarters lease through February 2019, adding $5.6 million of minimum future payments; it received a $0.4 million lease incentive.
- An unresolved Delaware class action related to the Occam acquisition seeks unspecified damages. Calix said it believes the claims are without merit and intends to contest them; the filing states the outcome cannot be assured. Calix may also have indemnification obligations relating to former Occam directors.
- The company reported an accumulated deficit of $498.7 million and continuing net losses. It said existing cash and available credit were expected to meet anticipated needs for at least 12 months. Its $13.5 million of unrecognized tax benefits was primarily subject to a full valuation allowance.
- Disclosure controls were assessed as effective at a reasonable-assurance level, with no material change in internal control over financial reporting reported.
Important facts for investors to verify
- Whether the revolving credit facility was renewed before its June 30, 2013 maturity, and on what terms.
- Whether revenue growth and gross-margin improvement continued, and whether the Ericsson asset acquisition delivered the expected contribution.
- Whether deferred revenue converts to recognized revenue on schedule, particularly for RUS-funded contracts, and whether receivables are collected.
- How the Occam-related litigation progresses and whether any indemnification or other costs arise.
- Whether Calix can improve profitability and operating cash generation while funding R&D and international growth.