Calix Q2 earnings slide 19%; telco supplier blames tepid economy, Tier 3 uncertainty

Telecommunications equipment supplier Calix Inc. (NYSE: CALX) on Tuesday reported expectedly weak second-quarter 2012 financial results following tepid Tier 3 carrier sales.

For the three-month period ended June 30, Calix's revenue fell more than 19 percent, to $78.9 million, compared to the same year-ago period for which the company reported revenue of $98 million.

Calix, which sells broadband communications systems and fiber- and copper-based network architectures, blamed disappointing Q2 earnings on a mediocre economy and mounting regulatory concerns of service providers.

"Softness in demand across multiple consumer markets led to an unexpected slowdown in capital expenditures by service providers," Calix President and CEO Carl Russo said, noting that despite unfavorable conditions, the company ended the quarter with gross margins at "expected levels" even as it reduced its inventories and maintained positive cash flow.

Calix boasts of having, among other customers, 18 of the 20 largest U.S. incumbent local exchange carriers (ILECs).

In an earnings call Tuesday evening with analysts, CFO Michael Ashby said the company's lagging revenues were not so much because of decreased spending by Tier 1 and Tier 2 service providers, but rather a slowdown in Tier 3 regional accounts, which historically account for over half of Calix's business. 

Spending by Tier 3 providers, he said, has been tempered by increasing concerns related to USF/ICC reform and Connect America Fund (CAF) implementation for rate of return carriers.

"The regulatory uncertainty associated with the USF/ICC Reform and the CAF implementation impacted our Tier 3 customers' spending decisions and these concerns are likely to continue at least through the end of this year," Ashby said. "As a result, we do not expect to see any return to normal patterns among those customers in the near future."

As for Q3 revenue from its Tier 1 and Tier 2 customers, he said the company does not expect either "further declines" or "any particular growth" in the near future.

Calix reported Q2 core profits--excluding non-cash charges and one-time expenses--of $1.9 million, or 4 cents per fully diluted share, down from $7.8 million, or 16 cents per share, a year ago.

Analysts polled by Thomson Reuters I/B/E/S had, on average, expected Calix to post Q2 earnings of 10 cents per share, on revenue of $95.1 million.

Russo, conceding he is concerned about overall market slowdown, said he remains optimistic about the company's carrier-class hardware and software sold under its Unified Access Infrastructure portfolio. 

"Our product portfolio is well positioned to meet the needs of our customers," Russo said on the earnings call, adding, the pressure for service providers to upgrade their networks to meet the ever-increasing demand for broadband services remains real."

The Calix Unified Access Infrastructure portfolio includes its C-Series multiservice, multiprotocol access platform and the E-Series Ethernet service access platforms, the company's complementary P-Series optical network terminals (ONTs) and its network-management solution, the Calix Management System (CMS) software. 

Shares of Calix closed Tuesday at $4.61, down $0.29, or 5.92 percent, on the New York Stock Exchange. The shares have traded in a 52-week range of $4.55 to $18.80.

On Wednesday morning, shares of Calix had on them a downgraded "strong-sell" short-term rating and a "neutral" long-term rating by Zacks Investor Research, which has a $5.60 target price on Calix shares.

Last month, doubtful the company would realize an anticipated uptick in quarterly revenue, Calix issued a downward-revised Q2 earnings forecast. 

In its July 12 announcement that sent shares plummeting, Calix said it expected to post revenue of $79 million, far from its May 1 guidance of revenue between $93 million and $97 million.

For the first quarter of 2012, Calix reported revenue of $78.6 million, a 10-percent year-over-year gain.

For more:
 - see the Calix earnings statement

Special Report: Wireline in the second quarter of 2012

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