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Calix Reports Third Quarter 2015 Financial Results

October 29, 2015

PETALUMA, CA -- (Marketwired) -- 10/29/15 -- Calix, Inc. (NYSE: CALX) today announced unaudited financial results for the third quarter ended September 26, 2015. Revenue for the third quarter of 2015 was $112.3 million, an increase of 6.2% compared to $105.8 million for the third quarter of 2014.

"Our third quarter results were above our guidance, reflecting strong performance in our customer base for the quarter," said Carl Russo, Calix President and CEO. "This performance contributed to revenues in the first nine months of 2015 increasing 4.4% compared to the first nine months of 2014. In addition, solid execution and favorable product mix led non-GAAP gross margins for the first nine months to increase to 49.8% compared to 46.1% in the same period last year," added Russo.

"Earlier this week the era of Software Defined Access began. During our Calix User Group, we introduced AXOS, the most important launch in our company's history. AXOS is a Linux-based network operating system and software application platform. AXOS was built from the ground up to mesh with the coming shift to Software Defined Networking and Network Function Virtualization across all communications networks. Most importantly, AXOS enables our customers with a 'fast,' 'always-on' and 'simple' access infrastructure over which the flexible, real-time deployment of services to their subscribers becomes a reality. This is a watershed event in our industry and we are extremely excited by the benefits AXOS brings to our customers as well as to Calix," added Russo.

The company's non-GAAP net income for the third quarter of 2015 was $8.3 million, or $0.16 per fully diluted share, compared to a non-GAAP net income of $4.6 million, or $0.09 per fully diluted share, for the third quarter of 2014. A reconciliation of GAAP and non-GAAP results is included as part of this release.

"During the quarter, we repurchased $7.7 million worth of common stock via our previously announced $40 million stock buyback authorization," said William Atkins, Executive Vice President and CFO. "Given our long-term outlook for the company, we continue to view share repurchases as an attractive investment at current levels," added Atkins.

The GAAP net income for the third quarter of 2015 was $0.9 million, or $0.02 per basic and diluted share, compared to a GAAP net loss of $3.8 million, or $(0.08) per basic and diluted share, for the third quarter of 2014. A reconciliation of our third quarter 2015 operating results from non-GAAP to GAAP is provided below:

   
   
Calix, Inc.  
(Unaudited, in thousands, except per share data)  
Three Months Ended September 26, 2015  
                               
    Non-GAAP     Stock-Based Compensation     Amortization of Intangible Assets     Acquisition-Related Costs     GAAP  
Revenue   $ 112,297     $ -     $ -     $ -     $ 112,297  
Cost of revenue     56,933       163       2,088       -       59,184  
Gross profit     55,364       (163 )     (2,088 )     -       53,113  
Gross margin     49.3 %     (0.1 )%     (1.9 )%     - %     47.3 %
Operating expenses     47,151       2,427       2,552       106       52,236  
Operating income (loss)     8,213       (2,590 )     (4,640 )     (106 )     877  
Interest and other income (expense), net     230       -       -       -       230  
Income (loss) before taxes     8,443       (2,590 )     (4,640 )     (106 )     1,107  
Provision for income taxes     185       -       -       -       185  
Net income (loss)   $ 8,258     $ (2,590 )   $ (4,640 )   $ (106 )   $ 922  
Weighted average diluted shares used to compute net income (loss) per common share     52,016       52,016       52,016       52,016       52,016  
Net income (loss) per diluted share   $ 0.16     $ (0.05 )   $ (0.09 )   $ -     $ 0.02  
                                         
                                         

Conference Call

In conjunction with this announcement, Calix will host a conference call at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) today to discuss its third quarter 2015 financial results. A live audio webcast and replay of the call will be available in the Investor Relations section of the Calix web site at http://investor-relations.calix.com.

Live call access information: Dial-in number: (877) 407-4019 (U.S.) or (201) 689-8337 (outside the U.S.)

The conference call and webcast will include forward-looking information.

About Calix

Calix (NYSE: CALX) is a global leader in access innovation. Its Unified Access portfolio of broadband communications access systems and software enables communications service providers worldwide to transform their copper- and fiber-based networks and become the broadband provider of choice to their subscribers. For more information, visit the Calix website at www.calix.com. For more information about gigabit networks, visit www.calix.com/gigabit/.

Use of Non-GAAP Financial Information

The Company uses certain non-GAAP financial measures in this press release to supplement its consolidated financial statements, which are presented in accordance with GAAP. These non-GAAP measures include non-GAAP net income (loss) and non-GAAP basic and diluted income (loss) per share. These non-GAAP measures are provided to enhance the reader's understanding of the Company's operating performance as they primarily exclude certain non-cash charges for stock-based compensation and amortization of acquisition-related intangible assets, and non-recurring acquisition-related costs, which the Company believes are not indicative of its core operating results. Acquisition-related costs include legal fees and associated expenses incurred under a pre-existing contract between Occam and its retained advisor in connection with the Occam acquisition. Management believes that the non-GAAP measures used in this press release provide investors with important perspectives into the Company's ongoing business performance and management uses these non-GAAP measures to evaluate financial results and to establish operational goals. The presentation of these non-GAAP measures is not meant to be a substitute for results presented in accordance with GAAP, but rather should be evaluated in conjunction with those GAAP results. A reconciliation of the non-GAAP results to the most directly comparable GAAP results is provided in this press release. The non-GAAP financial measures used by the company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.

Forward-Looking Statements

Statements made in this press release and the earnings call referencing the press release that are not statements of historical fact are forward-looking statements. Forward-looking statements are subject to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to, but are not limited to, the execution of a stock repurchase program. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations, including but not limited to the risks described in our 2014 Form 10-K and our quarterly reports on Form 10-Q, each as filed with the SEC and available at www.sec.gov, particularly in the sections titled "Risk Factors." Forward-looking statements speak only as of the date the statements are made and are based on information available to us at the time those statements are made and/or management's good faith belief as of that time with respect to future events. We assume no obligation to update forward-looking statements to reflect actual performance or results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. Accordingly, investors should not place undue reliance on any forward-looking statements.

   
   
Calix, Inc.  
Condensed Consolidated Statements of Operations  
(Unaudited, in thousands, except per share data)  
                         
    Three Months Ended     Nine Months Ended  
    September 26,     September 27,     September 26,     September 27,  
    2015     2014     2015     2014  
Revenue   $ 112,297     $ 105,769     $ 302,464     $ 289,594  
Cost of revenue:                                
  Products and services (1)     57,096       58,600       152,308       156,981  
  Amortization of intangible assets     2,088       2,089       6,264       6,265  
    Total cost of revenue     59,184       60,689       158,572       163,246  
Gross profit     53,113       45,080       143,892       126,348  
Operating expenses:                                
  Research and development (1)     22,120       19,930       66,885       59,104  
  Sales and marketing (1)     18,424       18,717       57,398       54,562  
  General and administrative (1)     9,140       7,625       28,728       22,557  
  Amortization of intangible assets     2,552       2,552       7,656       7,656  
    Total operating expenses     52,236       48,824       160,667       143,879  
Income (loss) from operations     877       (3,744 )     (16,775 )     (17,531 )
Interest and other income (expense), net:                                
  Interest income     297       52       1,014       86  
  Interest expense     (263 )     (59 )     (921 )     (174 )
  Other income (expense), net     196       18       273       121  
    Total interest and other income (expense), net     230       11       366       33  
Income (loss) before provision for income taxes     1,107       (3,733 )     (16,409 )     (17,498 )
Provision for income taxes     185       115       378       328  
Net income (loss)   $ 922     $ (3,848 )   $ (16,787 )   $ (17,826 )
Net income (loss) per common share:                                
    Basic   $ 0.02     $ (0.08 )   $ (0.32 )   $ (0.35 )
    Diluted   $ 0.02     $ (0.08 )   $ (0.32 )   $ (0.35 )
Weighted average number of shares used to compute net income (loss) per common share:                                
    Basic     51,756       51,048       51,814       50,635  
    Diluted     52,016       51,048       51,814       50,635  
                                 
(1) Includes stock-based compensation as follows:                                
  Cost of revenue   $ 163     $ 206     $ 549     $ 914  
  Research and development     964       1,207       3,659       3,693  
  Sales and marketing     688       1,316       3,769       4,146  
  General and administrative     775       1,084       2,616       3,366  
    $ 2,590     $ 3,813     $ 10,593     $ 12,119  
                                 
   
   
Calix, Inc.  
Reconciliation of GAAP to Non-GAAP Results  
(Unaudited, in thousands, except per share data)  
                       
    Three Months Ended     Nine Months Ended  
    September 26,   September 27,     September 26,     September 27,  
    2015   2014     2015     2014  
GAAP net income (loss)   $ 922   $ (3,848 )   $ (16,787 )   $ (17,826 )
Adjustments to reconcile GAAP net income (loss) to non-GAAP net income:                              
  Stock-based compensation     2,590     3,813       10,593       12,119  
  Amortization of intangible assets     4,640     4,641       13,920       13,921  
  Acquisition-related costs     106     -       348       -  
Non-GAAP net income   $ 8,258   $ 4,606     $ 8,074     $ 8,214  
Non-GAAP net income per common share:                              
  Basic   $ 0.16   $ 0.09     $ 0.16     $ 0.16  
  Diluted   $ 0.16   $ 0.09     $ 0.15     $ 0.16  
Weighted average shares used to compute non-GAAP net income per common share:                              
  Basic     51,756     51,048       51,814       50,635  
  Diluted (1)     52,016     51,552       52,344       51,122  
                               
(1)   Includes the dilutive effect of outstanding stock options, restricted stock units and ESPP.
     
   
Calix, Inc.  
Condensed Consolidated Balance Sheets  
(Unaudited, in thousands)  
             
    September 26,     December 31,  
    2015     2014  
ASSETS                
Current assets:                
  Cash and cash equivalents   $ 36,194     $ 48,829  
  Marketable securities     57,659       62,850  
  Restricted cash     -       295  
  Accounts receivable, net     48,188       30,744  
  Inventory     43,769       46,753  
  Deferred cost of revenue     2,998       5,080  
  Prepaid expenses and other current assets     8,311       12,936  
    Total current assets     197,119       207,487  
  Property and equipment, net     18,484       20,144  
  Goodwill     116,175       116,175  
  Intangible assets, net     11,259       25,179  
  Other assets     1,091       1,236  
    Total assets   $ 344,128     $ 370,221  
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
  Accounts payable   $ 16,784     $ 23,629  
  Accrued liabilities     38,280       39,443  
  Deferred revenue     11,414       12,722  
    Total current liabilities     66,478       75,794  
  Long-term portion of deferred revenue     19,390       19,393  
  Other long-term liabilities     1,700       2,443  
    Total liabilities     87,568       97,630  
Stockholders' equity:                
  Common stock     1,316       1,291  
  Additional paid-in capital     813,776       801,810  
  Accumulated other comprehensive income     (31 )     80  
  Accumulated deficit     (547,377 )     (530,590 )
  Treasury stock     (11,124 )     -  
    Total stockholders' equity     256,560       272,591  
    Total liabilities and stockholders' equity   $ 344,128     $ 370,221  
                 
   
   
Calix, Inc.  
Condensed Consolidated Statements of Cash Flows  
(Unaudited, in thousands)  
             
    Nine Months Ended  
    September 26,     September 27,  
    2015     2014  
Operating activities:                
  Net loss   $ (16,787 )   $ (17,826 )
  Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                
    Depreciation and amortization     7,602       6,772  
    Loss on retirement of property and equipment     14       41  
    Amortization of intangible assets     13,920       13,921  
    Amortization of premiums related to available-for-sale securities     743       302  
    Gain on sale of available-for-sale securities     -       (1 )
    Stock-based compensation     10,593       12,119  
    Changes in operating assets and liabilities:                
      Restricted cash     295       -  
      Accounts receivable, net     (17,443 )     739  
      Inventory     2,983       7,226  
      Deferred cost of revenue     2,082       9,742  
      Prepaid expenses and other assets     4,181       (315 )
      Accounts payable     (6,841 )     (9,904 )
      Accrued liabilities     (1,055 )     5,520  
      Deferred revenue     (1,312 )     (14,391 )
      Other long-term liabilities     (167 )     597  
        Net cash provided by (used in) operating activities     (1,192 )     14,542  
Investing activities:                
  Purchases of property and equipment     (5,943 )     (9,481 )
  Purchases of marketable securities     (46,750 )     (49,356 )
  Sales of marketable securities     -       615  
  Maturities of marketable securities     51,265       -  
        Net cash used in investing activities     (1,428 )     (58,222 )
Financing activities:                
  Proceeds from exercise of stock options     625       429  
  Proceeds from employee stock purchase plan     2,865       2,453  
  Payments for repurchases of common stock     (11,124 )     -  
  Taxes paid for awards vested under equity incentive plans     (2,093 )     (2,505 )
        Net cash provided by (used in) financing activities     (9,727 )     377  
Effect of exchange rate changes on cash and cash equivalents     (288 )     (45 )
Net decrease in cash and cash equivalents     (12,635 )     (43,348 )
Cash and cash equivalents at beginning of period     48,829       82,747  
Cash and cash equivalents at end of period   $ 36,194     $ 39,399  

Investor Inquiries:
William J. Atkins
408-474-0052
William.Atkins@calix.com

Thomas J. Dinges, CFA
408-474-0080
Tom.Dinges@calix.com

Source: Calix, Inc.

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