Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. CALIX, INC (1406666) 10-Q published on Apr 30, 2020 at 4:54 pm
Reporting Period: Mar 27, 2020
The Company is subject to risks and uncertainties as a result of the recent COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict. The Company has instituted office closures, implemented shelter-in-place orders and restrictions and instituted a mandatory work from home policy for substantially all of its employees. The spread of COVID-19 has impacted the Company's supply chain operations through restrictions and shutdown of business activities by suppliers whom the Company relies on for sourcing components and materials and third-party partners whom the Company relies on for manufacturing, warehousing and logistics services. Although demand for the Company's products have remained strong as subscribers seek more bandwidth and better WiFi, customers’ purchasing decisions may be impacted by the pandemic, which could in turn impact the Company's revenue and results of operations. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.
We are subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, as the response to the pandemic is in its early stages and information is rapidly evolving. We have instituted office closures, implemented shelter-in-place orders and restrictions and instituted a mandatory work from home policy for substantially all of our employees. The spread of COVID-19 has impacted our supply chain operations through restrictions and shutdown of business activities by suppliers whom we rely on for sourcing components and materials and third-party partners whom we rely on for manufacturing, warehousing and logistics services. While we experienced and continue to experience the effects of a supply disruption, it did not have a significant impact on our first quarter of 2020 results. At the same time, the demand for products in the telecommunications industry, including for our products, has remained strong as subscribers seek more bandwidth and better WiFi, exacerbating the impact of the supply disruption. As the global response to address the COVID-19 pandemic evolves, we believe societal behaviors will accelerate and increase demands on the access infrastructure, which would have a favorable impact on the business outlook for Calix. However, in the near term, the impact to the overall economy and its effect on consumer buying decisions create significant uncertainty, which could in turn negatively impact our revenue and results of operations. The extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity or results of operations is uncertain.
Gross profit increased to $45.6 million for the three months ended March 28, 2020, from $38.3 million during the corresponding period in 2019 primarily due to higher systems and services gross margin.
During the three months ended March 28, 2020, systems gross margin was negatively impacted by U.S. tariff and tariff-related costs of $1.0 million, or 100 basis points, and intangible asset amortization of $0.7 million, or 70 basis points. Excluding the impact of U.S. tariff and tariff-related costs and intangible assets amortization, systems gross margin was 48.1% for the three months ended March 28, 2020. During the three months ended March 30, 2019, systems gross margin was negatively impacted by U.S. tariff and tariff-related costs of $2.2 million, or 260 basis points. There was no intangible asset amortization in the three months ended March 30, 2019. Excluding the impact of U.S. tariff and tariff-related costs, systems gross margin was 48.5% for the three months ended March 30, 2019. Systems gross margin excluding U.S. tariff and tariff-related costs and intangible assets amortization declined 40 basis points for the three months ended March 28, 2020 compared the corresponding period in 2019, mainly due to a less favorable customer and product mix, partially offset by continued growth in our all-platform offerings.
In late 2019 a novel strain of coronavirus, or COVID-19, was reported in Wuhan, China. COVID-19 has since been declared a global pandemic by the World Health Organization and has severely impacted the global economy, disrupting financial markets, supply chains, customer spending and purchasing patterns and general business operations. In response, governments have implemented measures to attempt to contain and mitigate the transmission of COVID-19, including shelter in place orders, travel restrictions, mandatory quarantines and shutdown of certain non-essential business activities, all of which have resulted in global business disruptions. We cannot predict the continued impact of the pandemic and the degree to which our business and results of operations may be affected. There are no assurances that the global economy will recover quickly or at all, or that impacted areas will be able to fully contain COVID-19 to avoid a new wave of infections. The COVID-19 pandemic has also presented financial challenges to numerous businesses, which may result in liquidity issues leading to heightened difficulties with collections.
As a global company, our performance is affected by global economic conditions as well as geopolitical issues and other conditions with global reach. In recent years concerns about the global economic outlook have adversely affected market and
business conditions in general. Macroeconomic weakness and uncertainty also make it more difficult for us to accurately forecast revenue, gross margin and expenses. Geopolitical issues, such as tariffs and trade policy changes imposed by both the United States and China beginning in late 2018, other international trade policy changes and the withdrawal of the United Kingdom from the European Union have resulted in increasing global tensions and create uncertainty for global commerce. In particular, the United States has referenced the potential imposition of tariffs on imports from other countries where we produce some of our products, such as the recent imposition of tariffs on steel imported from Vietnam. We have incurred substantial costs and diversion of resources as a result of these tariff and trade policy changes. More recently, the uncertainty over COVID-19 in China, which has resulted in government-imposed travel restrictions across a number of countries and closures of numerous business operations in China, has disrupted and delayed our and our suppliers’ operations in China. Sustained uncertainty about, or worsening of, global economic conditions, geopolitical issues and other conditions with global impact may increase our cost of doing business or disrupt our supply chain operations and may cause our customers to reduce or delay spending and could intensify pricing pressures. Any or all of these factors could negatively affect demand for our products and our business, financial condition and result of operations.