Election Season is over but Earnings Season has just begun. This week we cover Calix and I will be showing you a bit of what gets missed on these calls because of who is on them.
We will start by capturing the raw numbers. Revenue was $121M in Q3 and this was a record number for Calix and growth of 8% year over year. Earnings were $0.12 per share non-GAAP and $0.01 per share GAAP. Now just a reminder there was some extraordinary benefit this quarter in Operational Expenses (OPEX) due to the end of the litigation over the acquisition of Occam Networks some years ago. Q4 looks strong on the Revenue side as well but lower Gross Margin and a return to more normal OPEX numbers make the company break-even at best.
The stock reacted with a shrug. To put things in perspective, from September 2011 to today the stock has hovered from about $6 to $12 with the bulk of the time above $8/share being in the 2nd half of 2013 through the first half of 2014. Meaning that if you play the stock as a long-term investment that it has really not done anything over the last 5 years. In fact during that span, Calix stock is down over 45%, the S&P 500 is up over 30%, and the NASDAQ is up over 45%. The company is solid financially and has good products and customers. But the last 5 years has not been kind to investors.
So, I read the call transcripts and want to point out some things that the analysts missed. I know most of these analysts and if they want to hire me to help them ask better questions, they know how to find me. Simon Leopold was answered about the products in the Verizon trial. The follow-up that Simon missed was to ask about the ONT. Here is why. You could have figured out what services were being tested. Verizon used MOCA to deploy data in residential and had 3 wavelengths for overlay video. I suspect (nobody has said this) that the trial is an overlay of FiOS for wireless deployment. If that is true, then the ONT would not need voice ports, MOCA or a 3rd wavelength. That would help us understand any upside from a Verizon contract.
Another miss was on Gross Margins. The analysts both Greg Mesniaeff and George Notter asked follow-ups around the guidance down on Gross Margin. The company laid this off on an increase in Service Revenue and that Revenue has lower margins. Here is the thing. Calix has now announced its 2nd Cloud “product” as part of this call. These products should have very high Gross Margins if they are doing well – not quite software margins but well above corporate average. To answer George’s question, these products SHOULD be the path to the goal of 50% gross margin and SHOULD offset the lower margins of Professional Services. If they aren’t then that will tell you something about the customer’s use of them.
Have a great week!
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