Calix: Absence Of Bad News Doesn't Guarantee Good News

Summary

• Calix set a 2Q19 earnings release date (July 23 2019) two weeks earlier than prior years. 2Q17 and 2Q18 earnings were into the first week of August.
• The early date and lack of a negative pre-announcement cannot, however, be read as a trustworthy signal that Calix has overcome its 1H production problems.
• For example Calix did not pre-announce ahead of its two worst recent calls - 4Q18 and 2Q17 results that drove the stock down -40% and -37% respectively.
• News from customers Verizon, CityFiber, and CenturyLink has been encouraging, however. An absence of reported delays does suggest Calix may have resolved its 1H19 production problems.
• If production is back on track, pent-up demand from delayed 1H19 orders should bolster an already-strong 2H19 outlook.  In that case, the July 24 call should be a positive catalyst.

When a company sets a firm earnings date, investors can usually reasonably conclude they will report results broadly in line with market expectations.

Calix (NYSE:CALX) setting an earnings date two weeks earlier vs prior years would seem to further buttress that positive message. In 2018 and 2017, Calix held their 2Q call in the first week of August. In 2019, they are releasing results on July 23rd after the close, with a call on July 24th before market open.

I would caution against drawing a positive conclusion from Calix's call announcement and timing. In Calix's case, the absence of a pre-announcement has not been a reliable signal.

Calix Didn't Pre-Announce Ahead of Their Two Worst Recent Earnings Calls.

Calix largest recent negative post-earnings reactions came after quarters the company chose not to pre-announce. Calix's stock went down 40% after their 4Q18 call. CALX went down 37% after their 2Q17 call.

Neither were preceded by a pre-announcement. As evidenced by the massively negative post-call price reactions, market expectations differed substantially from actual results and guidance. Investors can usually count on a company to re-set such a wide divergence from market expectations ahead of a call.

Given Calix's track record of surprise disappointments, however, I would caution against drawing such a conclusion for this particular company.

Customer News-Flow is, However, Encouraging.

Having said that, an absence of bad news from Calix's major customers does suggest Calix is working through its 1H19 production problems (see context on these customers and the production problems in my previous Seeking Alpha Calix note). Looking at what I believe to be their three largest 2019 customers...

Verizon's (VZ) 5G build, for which Calix is the sole supplier of fiber access gear, lit up two new cities at the end of 2Q19. Revenues from the

Analyst’s Disclosure:I am/we are long CALX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.