Calix Shares Hit New Lows


By: R. Scott Raynovich

Access networking player Calix (CALX) appears to be entering a crisis, with increasing losses, dwindling cash, and a sagging stock price that just hit a new low.

It all amounts to a grim picture for the telco equipment provider, which is manned by CEO Carl Russo -- who rose to fame as CEO of Cerent, an optical network startup that was sold to Cisco in 1999 for $7 billion. Calix has not seen such fortunes. The company went public in 2010 at $13 a share and is now selling 60 percent below its IPO price.

Recent financial results weren't helpful, as Calix this week announced continuing losses in its quarterly earnings results. Its stock price fell to a new 52-week low of $5.10 this morning, down 3 percent. The stock is down 25 percent since the earnings were released on Tuesday.

"This was another ugly quarter for Calix as terrible margins in the Services business masked the benefit of Y/Y Product sales growth," writes Jefferies analyst George Notter in a research note earlier this week, after Calix earnings were released. "In our view, their foray into Professional Services makes it difficult to construct a bullish case for the stock."

The big problem in services, according to Notter, is that Calix is selling its professional services with large losses, reporting a negative gross margin (-30 percent) in that business.

Calix touted its "record revenue" in the quarterly earnings, announced Tuesday, but the revenue growth has not helped because losses are mounting. Revenue for the second quarter of 2017 was $126.1 million, an increase of 17.4 percent compared to $107.4 million for the second quarter of 2016. But the company reported a GAAP net loss for the second quarter of 2017 of $19.0 million, or $0.38 per share, compared to a GAAP net loss of $5.8 million, or $0.12 per share, for the second quarter of 2016.

This means that Calix is burning cash. It reported cash and cash equivalents of $38 million at the end of the quarter, down from $50 million at this time in 2016. The company announced a restructuring plan in March of 2017, but another year of cash burn and it may lead to a financial crisis.

What's to look forward to? Calix is putting a lot of its eggs in the bid for NG-PON2 projects, the next-generation platform for fiber-optic access. In its earnings announcement it touted a First Office Application (FOA) for the Verizon NG-PON2 business, which is an important step to getting the business. But many other competitors are going after the NG-PON2 contracts with Verizon and others -- including large Verizon supplier Nokia and another big access player, ADTRAN.

ADTRAN, meanwhile, recently announced quarterly sales of $184.7 million, up 14 percent year-over-year (y/y). Net income was $12.4 million, compared with $10 million. Both numbers beat analyst forecasts.

With rivals such as Nokia and ADTRAN reporting better financial results over the last year and Calix's finances deteriorating, the company's position in the market appears to be weakening. With numbers like that, winning large amounts of NG-PON2 business is going to become more challenging.

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