"Face reality as it is, not as it was or as you wish it to be." − Jack Welch
Global cloud and software platforms, systems, and services provider Calix (NYSE:CALX) helps Communication Services Providers (CSPS) enhance subscriber experience and cut costs by simplifying network architecture. In Q3 2020, the company beat EPS and revenue estimates by $0.21 and $21.07 million, respectively, and got awarded with up-revisions from four analysts. Most analysts out here are bullish on its prospects.
I have created a CALX factsheet that will help investors get under the company’s skin and understand how it ticks, and whether its future is as bright as analysts predict it to be.
Customer Concentration Risk
About 12% of CALX’s Q3 2020 revenues came from just one customer (p.17) – Lumen Technologies (LUMN). About 13% of the accounts receivable as of Q3 2020 were also due from the same customer. LUMN’s business to CALX has been dropping over the years. CALX earned 31% of its total revenue from LUMN in 2017, 18% in 2018, and 15% in 2019, and this year it is down to 12% (p.32). CALX has attributed the decline to LUMN’s acquisitions.
Image Source: CALX’s SEC Disclosures
Aside from LUMN, CALX has disclosed that it has experienced declines or delays in orders by some clients mainly because their financial condition had weakened. Windstream and Frontier, other of its key customers, though not as large as LUMN, had filed for Chapter 11 bankruptcy, which is likely to weaken their business after restructuring.
CALX estimates that it will continue to derive a large portion of its revenues from a limited number of customers, and those large customers can exploit the situation by demanding higher discounts or longer credit periods.
Intense Competition and Increasing Expenses
CALX operates in a very competitive marketplace
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