One supplier's poor performance is dragging down Calix's revenues, but the company's transformation from hardware vendor to platform provider is still going in the right direction, CEO Carl Russo told analysts and shareholders.
Prior to the US government placing tariffs on some Chinese goods, Calix had explored moving production to different OEMs not based in China, Calix CEO and President Carl Russo wrote in a letter to stockholders and
updated financial guidance sent in April. Once the US enacted tariffs, Calix accelerated those plans and inked deals with three manufacturers, he said. One of those OEMs has had challenges meeting its product shipments and Calix has, therefore, been "rationing them out to our customers to make sure we keep them in deployment mode," Russo noted.
As a result, revenue was down, he said. For the quarter ended March 31, Calix earned revenue of $89.35 million compared with $99.4 million in the prior year-ago period. Of this, systems accounted for $82.36 million in the most recent quarter 2019 versus $93.29 million in the first quarter 2018, while services amassed revenue of $6.99 million in the first three months of 2019 and $6.11 million in the comparable year-ago timeframe.
"Bookings were in line with our plan, delivering solid 7% year-over-year growth. Gross margin expanded by 380 basis points year-over-year. And now our pace of innovation continued unabated even as our investments were tightly controlled with opex declining more than 10% year-over-year," Russo said in today's earnings call, a SeekingAlpha transcript showed.
Research and development, for example, decreased to $19.33 million for Q1, compared with $25.54 million a year ago. Total cost of revenue declined to $51 million versus $57.34 in Q1 2018.
And Calix is adding customers. In its most recent quarter, Calix racked up 25 new customers, bringing it to 107 new clients for the past four quarters, he noted. While Calix continues to work with existing tier one cable and telco clients in North America and Europe, the developer also is finding success with "emerging customer verticals," Russo added. In fact, these customers account for more than half of Calix's new business, he said.
Business from larger customers was stronger in Q1 than smaller and midsize providers, according to Calix. This differs from more recent periods when Calix's relationships with regional, municipalities, utilities and smaller operators generated more business. Calix expects more purchases from Verizon -- potentially to the point where the service provider accounts for at least 10% of Calix's revenue, said Russo.
"We did not have a new 10% customer [in Q1]. As you are probably aware following their earnings announcements, they are quite robustly committed to delivering their One Fiber network, an intelligent edge network, over these next couple of years so they continue unabated," Russo said.
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