I want to thank those who listened to the Webinar that I did with Roy Johnston on Success Planning. As promised, here is the LINK to the recording of the event.
This week I will be reporting on the Q3 results of Calix. They reported last week that they had revenue of $105M in the quarter. They reported a GAAP loss but a non-GAAP profit. I will explain that shortly.
First we need to look at the revenue numbers. The numbers were up about 7% Quarter over Quarter and more importantly about 2% Year over Year. The Year over Year is the most important number as Calix has a business that has some amount of seasonality. This means that its customers have a buying pattern is linked to the calendar. In this kind of company, a comparison to the same quarter the previous year is the best measure.
The problem with this number is that the company is investing about 18.8% of revenue in R&D. With that level of investment, the company should be in a significant revenue growth mode. There has not been any evidence of this kind of growth, but we should expect an uptick in Q4. The call revealed that there is some deferred revenue that will show up in the income statement in Q4. But there will not be a long term gain from this money. From the call, this looks to be a one time event.
The second thing we want to talk about is that GAAP versus non-GAAP results. The goal of non-GAAP results is supposed to be to exclude items that are not related to the operational results of the business. In this case, it is Stock Based Compensation and Amortization of Intangible Assets. Stock Based Compensation is the cost associated with Stock Options and Restricted Stock Units. At some level, these costs occurred in the past but are being accounted for now. Similarly, when a company buys something a company or assets at a premium there needs to be some Accounting for the extra cost. These are considered some form of Intangible Asset or Goodwill. These will often require a writeoff either at once or over time. Both of these items have no meaning to the ongoing operations of Calix.
The good news is that Calix has created some new products and has reported significant interest by customers in these products. It is too early to tell if this will eventually have a significant impact. It is not clear that the push into International or into Network Operations created much investor value. We shall just have to wait and see.
So where does all this leave Calix? The market reacted well to the results for Q3, but I would say that the news is best described as mixed. Calix is stable but not growing substantially. If they are going to be relatively flat in revenue, then they are spending too much money. There is a likelihood that the company is spending too much money on platforms that are older and not going to increase in revenue. It would be better that this money was spent on new things or not spent at all.
As we are into Q4, I want to make sure that people have thought about an Annual Operating Plan for their Business. Unlike a larger Business Plan, an Annual Plan provides very specific ideas of what will make your business work over the next 12 months. If you are interested in such a plan and don’t know where to start, contact me at firstname.lastname@example.org. A properly executed plan will more than pay for itself! If you want to understand the service better, then click HERE!
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