Behind The Numbers – Calix (CALX)
On September 28th in our Morning Conversations podcast, we provided research on shares of Calix as it was showing impressive relative strength and looking to break out after two months of consolidation. Fundamentally, the spotlight during that discussion was on RDOF as well as new funding, such as the state of Tennessee awarding over $446M in broadband funding to 36 companies which will serve over 150,000 homes and businesses in 58 counties. The read-through from that would be positive for shares of Calix.
Fast forward to Monday after the close when the company reported its Q3 earnings. The next day, shares would finish higher by over 18%.
-EPS of $0.34 vs $0.23 estimate – Beat
-Revenue of $236.3M vs $215.25M estimate – Beat
-Sees Q4 EPS Guidance of $0.22 – $0.28 vs $0.23 estimate – Beat
-Sees Q4 Revenue Guidance of $237M – $243M vs $218.91M estimate – Beat
Chairman Carl Russo, in his prepared remarks, said that robust demand continued in the third quarter, which resulted in a 37% Y/Y increase in revenue and a 65% Y/Y increase in RPOs. “This growth continues to be driven by broadband service providers that are providing broadband-as-a-service rather than just a dumb pipe. We expect this trend to continue and many of our aggressive DSP customers are using the economic slowdown as an opportunity to gain share by delivering an exceptional subscriber experience to those who have never received one.”
Meanwhile, the company’s platform offerings generated near 90% of its bookings in the quarter and management expressed high confidence in exceeding 90% in Q4.
The company’s AXOS platform revenue increased +118% Y/Y driven by the upgrade cycle to 10G XGS-PON, while EXOS increased +81% Y/Y on continued fiber adoption from new and existing customers.
Needham, in their post-earnings note, highlighted how top-line growth was driven by CALX’s newfound strength in its medium customer segment (+105% Q/Q and +140% Q/Q) due to shipments to a new customer (likely Brightspeed) and increased shipments to existing customers.
CEO Michael Weening, in response to a question on the medium-sized customer, would say, “Well, so the answer is Brightspeed is coming into the mix, but it’s not the driver of that. It’s more medium sized customers, but to be clear, Brightspeed is now accepting deliveries as they position themselves to take over, which they did at the beginning of October. So it started coming into the mix in the third quarter, but it’s not the primary driver. It is simply we are seeing more medium sized customers start to step into what we’re doing. And as we’ve discussed, as you know, George for many years, when the small second segment was growing, seemingly at 90%, which didn’t quite make it to. We said that as the disruption continues, you’ll start to see larger customers take it off, that’s what that’s all about. It’s not any one customer.”
Needham added that with the near completion of its transition to platform from legacy products, the company is now focused on its efforts on building out an ecosystem and partner community.
Finally, it’s worth noting that this morning, B. Riley Dave Kang would provide “laterals” following recent earnings news from not only Calix, but also Celestica (CLS), Juniper Networks (JNPR), and Adtran (ADTN). The analyst pointed out that with CALX’s AXOS revenue, consisting of mostly access/edge, increasing 118% Y/Y, this is a positive read-through for DZS Inc. (DZSI). CALX management reported demand is expected to remain robust in 2023, which is a critical data point that should alleviate investors’ concerns about a possible slowdown in telecom spending due to the macro uncertainty. Although costs remain elevated and lead times are still extended, the supply chain situation is starting to improve, which was consistent with Nokia’s (NOK) view. The analyst also believes CALX’s data is positive for Infinera (INFN) and Ciena (CIEN), as access/edge and metro/ backbone are highly correlated.
