Is Calix Networks (CALX) back? Skeptics who have burned before might have reason for caution, but the company’s earnings beat gives the optimists a reason to look forward to an expansion in 1 Gigabit broadband deployments.
New service provider investment in Calix’s access equipment was evident in the company’s earnings report. In reporting its second quarter 2014 results last night, Calix reported sales of $98.0 million, up 4% above the same period last year and above consensus analyst estimates of about $95 million. The reported earnings per share (EPS) of $0.10 was better than consensus estimates of $0.01. Shares popped about 11%, rising to nearly $10 in morning trading.
As we’ve reported here, interest in deploying gigabit Ethernet as a premium service for high-tech business is growing among service providers, and there has been a noticeable uptick in deployments. The trend is also supported by government stimulus policies.
“The sales upside came as a pleasant surprise and included improved spending from tier 2 & 3 operators, recognition of deferred revenue from stimulus projects, and perhaps increased share from top customer CenturyLink,” wrote Raymond James Managing Director and analyst Simon Leopold in a research note this morning. “We envision Calix’s business as stabilizing with the improved tier 2 & 3 spending, but visibility remains a challenge; at least y/y comparisons for 4Q and 1Q appear fairly easy.”
Looking forward, the company predicted sales of $102-106 million for the third quarter, which is flat year-over-year. It gave guidance for EPS of $0.05-0.10 vs. consensus estimates of $0.09. Management indicated that gross margin would be 44.5-46.0%, from the 47.7% this quarter, reflecting mix, new projects, deferred revenue recognition, and international contributions.
For investors, the quarter offers a glimmer of hope in what has been a disappointing performance. Calix shares are well below their 2010 IPO price of about $14 per share. Yes, there was a brief period of time in 2012-2013 where you could have made money on this company — if you nailed it you could have tripled your money by buying ths ahres at $5 in the summer of 2012 and selling them a year later around $12-$13. But since then, Calix shares drifted back into single-digit midget territory.
What’s next? It will come down to whether the Gigabit broadband story is real. Calix has announced 30 customers with Gigabit deployments, but it’s got 1,000 customers total, leaving the optimists plenty of room for upside. With Calix and rival Adtran (ADTN) the two most prominent players in the North American market, Calix stands to benefit if the service providers seen an need to accelerate their upgrade of access services to 1-Gig.