Calix, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 28, 2020. Calix provides cloud and software platforms, systems, and services for communications service providers. The quarter had one fewer day than the comparable 2019 period.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $101.7 million | $89.4 million |
| Gross profit / margin | $45.6 million / 44.9% | $38.3 million / 42.9% |
| Operating loss | $6.3 million | $9.1 million |
| Net loss | $6.9 million | $9.8 million |
| Basic and diluted loss per share | $0.12 | $0.18 |
| Cash from operations | $1.2 million | Cash used: $0.4 million |
| Capital expenditures | $1.7 million | $5.0 million |
Revenue grew 14% year over year: systems revenue increased 15% to $94.5 million and services revenue increased 3% to $7.2 million. Systems were 93% of revenue. U.S. revenue was $88.1 million, or 87% of the total.
Gross margin improved 2.0 percentage points. Systems margin was 46.3% versus 45.8%; services margin rose to 25.4% from 8.4%, reflecting lower personnel costs and a shift toward software maintenance and platform-aligned services. Systems margin included $1.0 million of tariff-related costs and $0.7 million of intangible amortization; excluding these items, management reported 48.1% systems margin.
Operating expenses were $52.0 million, up from $47.5 million. Research and development and sales and marketing each rose 7%; general and administrative expense rose 21%, including higher personnel costs and amortization related to the cloud ERP system.
At March 28, 2020, cash and cash equivalents were $46.2 million, with another $0.6 million restricted. Current assets were $155.7 million and current liabilities $128.4 million. The company reported $30.0 million drawn on its $35.0 million revolving credit facility, with $5.0 million available; the facility matures in January 2023. Calix reported compliance with its credit requirements and a 7.9-to-1.0 fixed charge coverage ratio. Stockholders’ equity was $150.9 million.
Operating cash flow benefited from working-capital movements, including higher accounts payable and lower inventory, and was partly offset by a $20.6 million increase in accounts receivable. Total cash, cash equivalents, and restricted cash decreased $0.6 million during the quarter.
Changes, outlook, and notable matters
- Revenue growth was driven mainly by small regional customers and, to a lesser extent, medium-sized incumbent local exchange carriers. Q1 2019 revenue had been affected by supply-chain realignment production delays.
- Management said telecom demand remained strong as subscribers sought more bandwidth and better Wi-Fi, but COVID-19 disrupted suppliers and manufacturing, warehousing, and logistics. The disruption had not significantly affected Q1 results; its future impact on demand, supply, liquidity, and results remained uncertain.
- Calix had incurred $1.0 million of tariff and tariff-related costs in 2020 and was continuing a supply-chain realignment expected to be completed by year-end 2020. Management also cited increased global freight charges.
- Management believed existing cash, operating cash flows, and available credit would cover anticipated needs for at least the next 12 months. The filing provides no quantified revenue or earnings guidance. Management’s favorable longer-term view that pandemic-related behavior could increase demand for access infrastructure is balanced by near-term economic and customer-spending uncertainty.
- Outstanding inventory purchase commitments were approximately $74.9 million, generally due within one year. The company also disclosed revenue-share obligations tied to developed software, with a potential true-up if minimum payments are not reached during the sales period.
- CenturyLink accounted for 15% of revenue and 25% of accounts receivable at quarter-end. No legal proceedings were identified as expected to have a material adverse effect. Disclosure controls were assessed as effective; the new cloud ERP implementation replaced or revised certain internal controls.
Key investor verification points
- Assess whether COVID-19-related supplier constraints, component availability, freight costs, and customer purchasing decisions changed after quarter-end.
- Track receivables, collections, and customer concentration, particularly CenturyLink, given the quarter’s accounts-receivable increase.
- Monitor credit-facility availability, covenant compliance, and the company’s ability to sustain liquidity while continuing to report losses.
- Evaluate the cost and execution of the supply-chain realignment, tariff exposure, and the $74.9 million of purchase commitments.
- Review whether reported margin gains persist after tariff costs, intangible amortization, product mix, and service-delivery costs are considered.
- Follow ERP-system performance and related reporting controls, including whether migration-related invoicing delays are resolved.