Calix Q4 2024 Earnings Report

Calix EPS Results

• Actual EPS: -$0.24
• Consensus EPS: $0.07
• Beat/Miss: Missed by -$0.31
• One Year Ago EPS: N/A

Calix Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $203.91 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Calix Announcement Details

• Quarter: Q4 2024
• Date: 1/29/2025
• Time: After Market Closes
• Conference Call Date: Thursday, January 30, 2025
• Conference Call Time: 11:30AM ET

Calix (NYSE:CALX), together with its subsidiaries, engages in the provision of cloud and software platforms, and systems and services in the United States, rest of Americas, Europe, the Middle East, Africa, and the Asia Pacific. Its cloud and software platforms, and systems and services enable broadband service providers (BSPs) to provide a range of services. The company provides Calix Cloud platform, a role-based analytics platform comprising Calix Engagement Cloud, Calix Service Cloud, and Calix Operations Cloud, which are configurable to display role-based insights and enable BSPs to anticipate and target new revenue-generating services and applications through mobile application, such as CommandIQ for residents and CommandWorx for businesses; Calix Intelligent Access EDGE, an access network solution for automated and intelligent networks; and Calix Revenue EDGE, a premises solution for subscriber managed services. It also offers SmartLife managed services, including SmartHome managed services and applications to enhance, operate and secure the connected experience of subscribers in their home; SmartTown managed services that reimagine community Wi-Fi as a ubiquitous, secure, and managed experience across a BSP's footprint; and SmartBiz managed services that address the business networking and productivity needs of business owners with an all-in-one managed service. In addition, the company provides Wi-Fi systems under GigaSpire and GigaPro brands to be ready for deployment as a complete subscriber experience solution for BSP's residential and business subscribers. It offers its products through its direct sales force and resellers. The company was incorporated in 1999 and is headquartered in San Jose, California.

Calix Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Answer session will follow the brief prepared remarks. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nancy Fazili, Vice President of Investor Relations. Please go ahead.

[Nancy Fazioli, Vice President of Investor Relations at Calix]

Thank you, Latanya, and good morning, everyone. Thank you for joining our Q4 2024 earnings call. Today on the call, we have President and CEO, Michael Wenning and Chief Financial Officer, Corey Sindelar. As a reminder, yesterday after the market closed, Calus issued a news release, which was furnished on a Form 8 ks along with our stockholder letter and was also posted in the Investor Relations section of the Calves website. Today's conference call will be available for webcast replay in the Investor Relations section of our website.

[Nancy Fazioli, Vice President of Investor Relations at Calix]

Before I turn the call over to Michael for his opening remarks, I want to remind everyone that on this call, we will refer to forward looking statements, including all statements the company will make about its future financial and operating performance, growth strategy and market outlook, and that actual results may differ materially from those contemplated by these forward looking statements. Factors that could cause actual results and trends to differ materially are set forth in the Q4 2024 letter to stockholders and in the annual and quarterly reports filed with the SEC. Callus assumes no obligation to update any forward looking statements, which speak only as of their respective dates. Also in this conference call, we will discuss both GAAP and non GAAP financial measures. A reconciliation of GAAP to non GAAP measures is included in the Q4 2024 letter to stockholders.

[Nancy Fazioli, Vice President of Investor Relations at Calix]

Unless otherwise stated, all financial information referenced in this call will be non GAAP. With that, Michael, please go ahead.

[Michael Weening, CEO, President & Director at Calix]

Thank you, Nancy. As I stated at Connections, the industry is at a crossroads. A broadband provider must decide if they remain a speed based network operator, risking commoditization or embrace differentiation through broadband experiences. The Q4 delivered strong results as our business model was embraced by a growing number of broadband experience providers

[Michael Weening, CEO, President & Director at Calix]

to meet the needs

[Michael Weening, CEO, President & Director at Calix]

of the entire community consumer, small business, education, MDU, government and the municipality. By doing so, the experience provider becomes a community brand that wins. One such story is MGW's SmartTown network in Virginia. MGW utilized their network to provide secure WiFi across multiple towns, transforming how residents work, play, learn and communicate. During Hurricane Helene, MGW's SmartTown network ensured seamless outdoor WiFi aiding in disaster recovery.

[Michael Weening, CEO, President & Director at Calix]

This highlighted MGW's commitment to their community and ensured their brand is synonymous with the communities they serve, going way beyond speed and price. Our mission remains aligned to help our customers win for the disruption ahead as they leverage our platform to simplify operations and their go to market, innovate with new experiences that differentiate their offerings and grow for their investors, members and the communities they serve. The strength of our mission strategy and execution is evidenced in our results in the Q4. Corey, over to you to cover the quarter.

[Cory Sindelar, CFO at Calix]

Thank you, Michael. We saw strong demand during the Q4 and delivered revenue of $206,000,000 which is at the high end of our guidance range we provided in October and represents 2.6% sequentially quarterly revenue growth. Demand for our platform cloud and managed services was strong once again and is best evidenced by growth in our RPOs, which grew 10% sequentially to $326,000,000 and increased 34% year over year. Our current RPOs were $121,000,000 up 10% sequentially and up 27% year over year. This strength in our platform, cloud and managed services led to record non GAAP gross margin of 55.5 percent in the Q4.

[Cory Sindelar, CFO at Calix]

As we have said all year, our focus remains on landing new footprint. And in the Q4, we added 18 new customers, ESP customers. The overwhelming majority of these customer wins were competitive takeaways. On the expansion front, 21 customers adopted our platform, 15 customers started with Calix Cloud and 32 customers deployed a managed service for the first time. These are all examples of customers partnering with Calix to cross the chasm and become broadband experience providers to win in their markets.

[Cory Sindelar, CFO at Calix]

Our balance sheet metrics remain pristine. After purchasing $7,000,000 of our common stock during the quarter, we ended the year with record cash and investments of $297,000,000 DSO remained an industry best at 36 days. Inventory turns were 3.1. And if you exclude component inventory, inventory turns were over 4. This compares to our target range of 3 to 4 turns.

[Cory Sindelar, CFO at Calix]

Inventory deposits decreased by $4,000,000 bringing our inventory deposits to $63,000,000 down from a peak of $78,000,000 a year ago. Coupled with operational discipline, management of our working capital remains a focus to enable consistent quarterly double digit free cash flow. Moving to guidance. For the Q1 of 2025, our revenue outlook is between $204,000,000 $210,000,000 which at the midpoint would represent a sequential increase in revenue. For the Q1 of 2025, non GAAP gross margin is expected to remain flat to slightly up due to product mix as we continue to see a shift toward subscriber systems.

[Cory Sindelar, CFO at Calix]

For 2025, we anticipate annual gross margin improvement will be at the lower end of our target financial model of 100 to 200 basis points. We expect clients margins to be a headwind to overall margins due to a mix shift towards subscriber systems and an increase in revenue from medium and large customers as we land new footprint. Regarding non GAAP operating expense, we plan to continue to hold our 2025 operating expenses flat to slightly up compared with 2024 in terms of absolute dollars. In summary, our visibility continues to improve. Our objective is to implement our strategy with discipline, helping our customers become broadband experience providers who deliver value to their subscribers and succeed in the marketplace, to continue to increase our footprint by landing new broadband service providers and to continuously expand our platform, cloud and managed services with each of our customers.

[Cory Sindelar, CFO at Calix]

Michael, back to you.

[Michael Weening, CEO, President & Director at Calix]

Thank you, Corey. We're in the early stages of this once in a generation opportunity as the broadband industry disrupts. The Calix broadband platform, cloud and managed services enable network operators to cross the chasm and become broadband experience providers that win in the communities they serve. We are excited about the opportunity ahead in 2024 and we thank our team, our customers, our partners and shareholders for their support. Nancy, let's open the call for questions.

[Nancy Fazioli, Vice President of Investor Relations at Calix]

Thank you. Latanya, we're ready to start.

[Operator]

At this time, we will conduct a question and answer session. Our first question comes from Sameet Chatterjee with JPMorgan. Please proceed.

[Joseph Cardoso, Vice President, Equity Research at JP Morgan]

Hey, good morning. Thanks for the question. This is Joe Cardoso on for Samik. I guess maybe just for the first one, you had another large increase in RPO this quarter, which is pretty impressive following some large step ups the last couple of quarters. I think in the bulk of the prior quarters, you referenced large deals that were closed and called them out.

[Joseph Cardoso, Vice President, Equity Research at JP Morgan]

Just curious, was the increase this quarter a function of another one of these large deals coming through and you guys closing? And then how are you guys thinking about momentum continuing in 2025 on the RPO front, just given the success you have had over this past couple of quarters in these large increases? And then I have a quick follow-up.

[Michael Weening, CEO, President & Director at Calix]

Sure. As we came through Q4, we had connections, right? And while that was right before the previous earnings call, we came out of that event with a lot of momentum. And a big part of that was the CEOs and general managers who were there, which is the largest number we ever had over 300. We had a lot of conversations with regards to how the industry is disrupting and how they need to change.

[Michael Weening, CEO, President & Director at Calix]

And there was this it was a significant shift in mindset that I noticed and that our selling teams noticed where the customers were in the past were saying, no, I'm going to continue with my old business model. They were saying, no, I need to embrace it. And that's what RPOs are. RPOs are an example of customers who are embracing the transformation that they have to go through to launch new managed services, launch experiences. And as part of that, they drive incremental revenue and we reflect that through our RPO growth.

[Michael Weening, CEO, President & Director at Calix]

And you really saw that in Cory's opening statement where he talked about how many net new customers, the number of customers, I think it was 32 who launched them, managed service for the first time. So that momentum we expect that to continue.

[Cory Sindelar, CFO at Calix]

And Joe, I'd add one other comment on that, which is in the Q4 is typically our strongest quarter as people are aligning their contracts with their operating plans for the following year. And so we normally see a strong. And as our platforms all monetize on subscriber ads, as these customers cross the chasm and become broadband experience providers, we expect that momentum to continue going forward, albeit it may be at varied rates, but we expect it to continue to increase as we go forward.

[Joseph Cardoso, Vice President, Equity Research at JP Morgan]

Got it, guys. Thanks for the color there. And then for my next question or last question, obviously, there's this lingering narrative around the risks around needs or government programs that are broadly coming under increased scrutiny, meaning new administration coming in. Maybe you can just share your thoughts on these concerns or updated thoughts on these concerns, the conversations that you're having with customers, which is perhaps making you less concerned of these perceived risks from the investment community? Thanks for the questions guys.

[Michael Weening, CEO, President & Director at Calix]

Yes. There is a lot of noise and no news. So we run our business based upon facts and things changing. And therefore, as the facts evolve, we'll adjust our strategy accordingly. But at this point, we have no comment because it's just a lot of noise.

[Joseph Cardoso, Vice President, Equity Research at JP Morgan]

No, understood. Thanks, Corey. I appreciate it. Sorry. Thanks, Michael.

[Joseph Cardoso, Vice President, Equity Research at JP Morgan]

Appreciate it.

[Michael Weening, CEO, President & Director at Calix]

Yes. Thanks, Joe. Next question

[Operator]

comes from Ryan Coats with Needham and Company. You may proceed.

[Ryan Koontz, Senior Analyst at Needham & Company]

Great. Thanks. Nice really nice RPO number. Maybe stepping back big picture here, given all the noise about beat you mentioned. And I think has a lot of the traditional infrastructure suppliers, a little nervous about that.

[Ryan Koontz, Senior Analyst at Needham & Company]

But your primary business is really built on subscriber connections. Can you maybe speak to how the company is focusing on targeting and monetizing the installed base of fiber served homes and businesses? That would be great. Thanks.

[Michael Weening, CEO, President & Director at Calix]

Yes. Thanks, Ryan. Great question. And as you'll notice in the letter, I don't believe the word beat is used once in the entire letter because the fundamentals of our business model is regardless of government funding, we're going to succeed. And as you stated, the whole premise and growth model for Calix, which we've been investing in for now 13 years, 1,400,000,000

[Michael Weening, CEO, President & Director at Calix]

is to

[Michael Weening, CEO, President & Director at Calix]

build a broadband platform that allows our customers to do what you just said, which is monetize the subscriber. And that monetized subscriber can be on what Beed is going to focus on is expanding out fiber networks and connections to subscribers. But for us, it's around whether it's a Calix network or someone else's network. How do we help that service provider differentiate in what is becoming a commodity market and win the subscriber to monetize? And then on top of that, how do you grow ARPU through incremental services that are very sticky, which is what my whole keynote at Connections was about, where I personally was with a service provider who basically took my fiber connection when I signed out from $80 down to $54 and then through 5 months in for free when I really should have been monetized at between $100 $150 a month.

[Michael Weening, CEO, President & Director at Calix]

So to your point, our growth model, what you saw in the RPOs and our focus is on how do we actually win help our customers win more subscribers regardless of the network. And that's about that's why we use the words crossing the chasm. So we're very comfortable right now that we've gone through the product adoption cycles of the early adopters and the innovators. We're now crossing that chasm into the early adopters and connections was a great indicator and RPOs were great indicator that more and more customers are crossing that chasm. Corey, anything to add?

[Cory Sindelar, CFO at Calix]

No, I think you covered it, Michael.

[Ryan Koontz, Senior Analyst at Needham & Company]

Great. And maybe we can double click on the smaller customers. Look like they were pretty weak relative to recent trends going back for a while here. How do you think about that particular market, the U. S.

[Ryan Koontz, Senior Analyst at Needham & Company]

Tier 3s kind of getting going again relative to their greenfield projects. Do you have much hope that that's going to pick up this year? Or did you think do you think about that as upside to numbers? Or how should investors think about that core market of yours? There's talk about ACAM and the CPF awards maybe starting to help that segment.

[Ryan Koontz, Senior Analyst at Needham & Company]

Thanks.

[Cory Sindelar, CFO at Calix]

Yes, Ryan. We see strength kind of across the board. So everything's kind of returned back to more normal ordering patterns. As you look at that chart, it's a little misleading in the sense that there were 2 medium sized customers really driving the growth in the quarter.

[Cory Sindelar, CFO at Calix]

One of those customers, if you were to look at the year ago period, was in the small category. And during the year last year, became a medium. So it's a little bit of comparing apples to oranges, if you're looking at that bar chart. So if you were to kind of put that guy back down in the smalls, it wouldn't look so dramatic as it does today.

[Ryan Koontz, Senior Analyst at Needham & Company]

Got it. And is that a U. S. International customer? Can you tell me?

[Cory Sindelar, CFO at Calix]

International.

[Ryan Koontz, Senior Analyst at Needham & Company]

Perfect. All

[Ryan Koontz, Senior Analyst at Needham & Company]

right. Great.

[Ryan Koontz, Senior Analyst at Needham & Company]

Thank you.

[Michael Weening, CEO, President & Director at Calix]

Yes.

[Michael Weening, CEO, President & Director at Calix]

And the other thing I would add in there is just there's a seasonality element to that, right? It's kind of like when in previous quarters when they're like, oh, the large is down significantly. Is that an issue? I would not read anything into the mix from the quarter at all. To Cor's point, strong across both segments.

[Ryan Koontz, Senior Analyst at Needham & Company]

Got it.

[Ryan Koontz, Senior Analyst at Needham & Company]

Thanks guys.

[Michael Weening, CEO, President & Director at Calix]

Thank you.

[Operator]

The next question comes from George Notter with Jefferies. Please proceed.

[George Notter, Managing Director, Equity Research at Jefferies & Company Inc]

Hi, guys. Thanks a lot. I guess I'd love to start by asking about, if I look at your tax rate guidance for the year, and I heard what you said about adding or growing an international customer. It seems like there's a lot of strength in international, which would push that tax rate up. I guess I'm inferring that that customer or maybe other international customers are going to remain strong for a good chunk of the year.

[George Notter, Managing Director, Equity Research at Jefferies & Company Inc]

But can you talk us through the dynamics that you're seeing there? And maybe anything you can tell us on these new customer wins or the ramp in existing customers internationally?

[Cory Sindelar, CFO at Calix]

Yes, George. On the international side, it's going to be fairly consistent. So this is one of those things where I think you as we all seen in the past, those international comps of customers can be lumpy, right? If you were to go back, there would be a quarter or 2 or it'd be up and then it goes back down. I suspect you're going to see the same thing as we look at 2025.

[Cory Sindelar, CFO at Calix]

Overall, I don't think international will grow disproportionately to the United States. And so therefore, I think it'll be relatively the same as you look at it for the whole year. So I think that's it. I wouldn't characterize that you're going to see an increase in international. It's certainly not going to grow faster than what's going on in the United States.

[George Notter, Managing Director, Equity Research at Jefferies & Company Inc]

Okay.

[Cory Sindelar, CFO at Calix]

Does that make sense? What was your second part of your question?

[Michael Weening, CEO, President & Director at Calix]

Tax rate,

[Michael Weening, CEO, President & Director at Calix]

could have the impact on tax rate?

[George Notter, Managing Director, Equity Research at Jefferies & Company Inc]

Yes. I assume the

[George Notter, Managing Director, Equity Research at Jefferies & Company Inc]

tax rate was part of this. Why is the tax rate higher, I guess is the question?

[Cory Sindelar, CFO at Calix]

It is where we were able to take advantage of some tax credits and those are running off a bit. And so it's just normalized a little bit higher. So we've had some recapture of some prior tax credits that brought down the effective rate last year and those have run out. So this is kind of more of our normalized rate moving forward.

[George Notter, Managing Director, Equity Research at Jefferies & Company Inc]

Got you. Okay. And then, I think each of the last two quarters you talked about a large new customer coming on board. I think maybe more in the context of the cloud offerings. But was that part of the RPO strength this quarter?

[George Notter, Managing Director, Equity Research at Jefferies & Company Inc]

Or is that still to come in terms of the RPO improvement? Thanks.

[Cory Sindelar, CFO at Calix]

Yes. You're right. When we were talking about the largest deal signed in the Q2 and then topped it in the Q3, that was related to our cloud our platform cloud and managed services. In the Q4, there was no such large contract.

[Michael Weening, CEO, President & Director at Calix]

We had no large contract of

[Cory Sindelar, CFO at Calix]

the load. So there are lots of medium sized contracts and it was broad based across a number of many customers.

[Michael Weening, CEO, President & Director at Calix]

Go back to your opening statement. We had the reason why Q4 was strong is and the makeup of that was a very strong diversified business, which we're very proud of, which is 31 net new customers or 32 who launched their first managed service. And when they launch that managed service, they sign up with us for a multiyear contract and with a ramp or however we end up doing it with them depending on the deal specifics. And that was the makeup of the Q4 strength. So the good thing and what makes Cory and I very confident and happy about the quarter with RPOs is actually wasn't one deal.

[Michael Weening, CEO, President & Director at Calix]

It was strength across the board. Great.

[George Notter, Managing Director, Equity Research at Jefferies & Company Inc]

Super. Thanks a lot. I appreciate it guys.

[Michael Weening, CEO, President & Director at Calix]

Thanks, George.

[Operator]

The next question comes from Christian Schwab with Craig Hallum. Please proceed.

[Christian Schwab, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Hey, good morning guys. So in the letter we again talked about this once in a generation disruption in the broadband industry and you said you guys were excited about your multi year outlook for the business. Can you quantify what that multiyear outlook looks like revenue and earnings potential over some type of multiyear timeframe that you're running the business to? I don't know if you guys have talked about that recently.

[Cory Sindelar, CFO at Calix]

No, we haven't provided any color out there certainly over a multiyear period. If anything, I would fall back to our target financial model, which says, hey, we can grow somewhere in that 10% to 15% range. At this point, we haven't provided anything over a longer term than that.

[Christian Schwab, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Okay. And then earlier this morning, very early our time, Kia did talk about the fact that they were shipping to some bead customers already in Q4. I know there's only been a few states that have released money, but have you seen any benefit from those few states that already got their money?

[Cory Sindelar, CFO at Calix]

Yes. So, in terms of what we see so far is, yes, we've received our first order out of Louisiana, albeit it's small. And in conversations with those customers, they're looking to do exactly what we thought they would do, which is continue to place orders in the 1st and second quarter. They'll have their first customer turn ups in the 3rd and 4th quarters. And so you'd expect delivery in the 3rd and 4th quarters.

[Cory Sindelar, CFO at Calix]

So it's like what we expected would happen and we're seeing it come to fruition.

[Christian Schwab, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Okay. Fantastic. No other questions. Thanks guys.

[Michael Weening, CEO, President & Director at Calix]

Thank you.

[Operator]

The next question comes from Tim Savageaux with Northland Capital. Please proceed.

[Tim Savageaux, MD & Senior Research Analyst at Northland Capital Markets]

Hi, good morning. Excuse me. And this question kind of comes out of the comments around gross margins for the year or the improvement being at the low end of the range. And I guess, and I want to kind of marry that up with revenue growth expectations. Given that you're talking about more medium to large carrier appliance growth, could we see somewhat of an offset, I guess, to the low end gross margin guide in terms of stronger than expected revenue growth, given those dynamics.

[Tim Savageaux, MD & Senior Research Analyst at Northland Capital Markets]

And as you mentioned, the 10% to 15% range, I mean, do you think the company could be in a position I know you got a tough comp for Q1 here in terms of the year, but in a position to return to that double digit growth range by the end of calendar 'twenty five or at some point in the second half, given those dynamics you mentioned of larger revenue more revenue from larger customers and lower gross margins? Thanks.

[Cory Sindelar, CFO at Calix]

Yes, Tim. So in a sense, if you look at what we just did in the Q4, we grew 2.6% sequentially. If you annualize that, we're back to kind of a double digit growth rate as it was. Now, we're obviously not guiding for that in the Q1. What we've said is that we will grow sequentially between 1% 5% going forward.

[Cory Sindelar, CFO at Calix]

And we said that we expect to be in the middle of the range as we exit 2025. So as long as we can get back to that 2%, 3% growth rate sequentially, you're a double digit grower. And so the answer to your question is, yes, we think that happens certainly by the second half of this year. And that's with no meaningful impact from Bede in that number. So I think we'll do that just with what customers we acquired over the last year and the growth of our existing customers.

[Cory Sindelar, CFO at Calix]

As it relates to margins though,

[Michael Weening, CEO, President & Director at Calix]

may I take that one? So I want to talk about mix. So what we identified in the margin in a way it's at the lower end of the range is because you're seeing a mix shift over to the subscriber, what you call now, subscriber system side, right? And as an investor, that's the most important thing you need to pay attention to because you should be looking at that and saying that, oh, what Calix always said that the most important thing that we should be doing is winning new subscribers. And we do that by our customers winning subscribers, putting systems into the home and business and then we monetize on top of it through incremental services.

[Michael Weening, CEO, President & Director at Calix]

So when I look at the lower end of the range on margins, think of this as us laying out significant incremental footprint that will monetize over a long period of time. So we look at this as a significant positive through the year. It's not necessarily a short term revenue bump, although Corey did identify some opportunities for that and how we're back into double digit growth. But for us, this is core to who we are and how our leadership team is focused, expand the footprint, monetize on top of it. And that's the biggest thing we're focused on and that creates long term value for shareholders from our perspective from our opinion.

[Tim Savageaux, MD & Senior Research Analyst at Northland Capital Markets]

Great. And if I could follow-up on the medium and large carrier fronts, I guess, would you characterize that growth that you expect is coming from existing or new customers? And in particular, do you have any more visibility here as we work through the end of last year and into this year on prospects for growth at Verizon given what's going on over

[Michael Weening, CEO, President & Director at Calix]

there? Thanks. Verizon continues to Verizon has been a customer of ours for what 6 years now. And so they've continued to invest in Calix technology in a pretty consistent rate, a bit lumpy, but I would expect not some significant shift from Verizon in the way that they're operating and this is going to continue on. With regards to winning customers, we talked about how a Tier 2 customers in the medium size basically launched small Smart Business for the very first time and was a big win for us in second half last year.

[Michael Weening, CEO, President & Director at Calix]

And that represents for us a great example where that segment of the market who is generally slower to move than the smaller customers simply because of the fact that smaller customers can be more agile, but they're also starting to acknowledge that there is a significant challenge in the market with regards to broadband commoditization and that they need to operate differently. Do I think that those opportunities open up for us through the year? Yes. I lead from the front. I did a lot of miles last year meeting with customers.

[Michael Weening, CEO, President & Director at Calix]

And I think part of that is conversing with them around the state of their business and what they're concerned about. And I consistently hear that they look at this commoditization. They look at the challenge of what you're hearing from the Tier 1s is something called convergence, which frankly convergence is a bit of a bit nonsense. It's really just a bundle. How do I build a broadband mobile bundle and then discount?

[Michael Weening, CEO, President & Director at Calix]

And so they look at those challenges and they're saying, how do I compete? And this represents significant opportunity for Calix to work with them to change their go to market and win through experiences.

[Tim Savageaux, MD & Senior Research Analyst at Northland Capital Markets]

Great. Thanks very much.

[Michael Weening, CEO, President & Director at Calix]

Thanks for your questions.

[Operator]

Farrell of Roth Capital Partners. Please proceed. Hey,

[Scott Searle, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

good morning. Thanks for taking the questions. Nice job on the quarter. Mike, maybe to dive in a little bit deeper on the RPO front, significant growth on a sequential and year over year basis. You talked a little bit about some of the high level reasons.

[Scott Searle, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

I'm wondering if you could dive down a layer in terms of what services you're seeing the adoption for? Where's the real interest there? And are you guys thinking about different metrics in terms of how you report that to us beyond just RPOs, for example, the number of different services that customers are using? And how should we be thinking about growth in 2025 and beyond, given that now you're well above 20% growth the last couple of quarters on a year over year basis?

[Michael Weening, CEO, President & Director at Calix]

Sure. So from a it's difficult to say, is there one product like one go to market strategy that's growing? It really depends on the maturity of the customer. So our customer success organization has established a really good maturity of customer model. So what we do is we look at the stages from network operator, which means I know how to dig trenches and run a network, all the way up to a full experience provider, which I would say as an example would be people who are up on stage.

[Michael Weening, CEO, President & Director at Calix]

You heard Bright Speed talking about how they're going down that model. You saw Tom Bigby, who's a cooperative, who has done that very effectively and deployed all every technology that we have in every go to market model. And then you have this mix of everything in between. And so our entire success industry, that's what they do every single day. And it really just depends on where the customer is.

[Michael Weening, CEO, President & Director at Calix]

So is there one that I'm more excited about than another? Absolutely not, because it just comes down to, hey, I'm a network operator, as you heard from the 32 in this quarter who did launch their 1st managed services. Okay. I've launched from basic fiber and Wi Fi management to a managed service of some type. And now I'm going to march up the stack.

[Michael Weening, CEO, President & Director at Calix]

Do I launch SmartTown next? Do I launch small business next? It really just comes down to their leadership, what the stressors are in their market and what their brand strategy is. And so there's nothing specific that I would give out like other than perhaps how many as we go through our customer base, which is over 1,000 broadband providers, the only interesting thing in there is how many are 1, how many are 2 services, how many are 3. That's something that we can contemplate.

[Michael Weening, CEO, President & Director at Calix]

But there is not one specific thing other than there is a very clear journey map that we have that we share with customers on how to progress from network operator to high margin, very profitable, crushing your competition experience provider.

[Scott Searle, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Hey, Mike, maybe just to follow-up on that is what is that gestation period in terms of taking that customer from the initial nibble of managed services to a more deep penetration? And is that timeline shrinking now with the commercial success you're seeing with a lot of other BEP customers out there?

[Michael Weening, CEO, President & Director at Calix]

Well, so that's it really depends

[Michael Weening, CEO, President & Director at Calix]

on the customer. And frankly, I would say that it's not so much they look at their peer group and they would say, oh, that guy is doing it really well and that woman is doing something really innovative, I want to be like them. That's a traditional adoption curve. But what actually drives in my from my perspective, the timelines, frankly, is how much pressure they're under. So the more competition they're in, in a market, when someone's kicking their butt, it's fascinating to watch, you'll see a CEO who's like, you know what, I'm good enough, I'm going to keep building fiber, I'm going to I've got a basic managed service, I'm not doing outdoor Wi Fi.

[Michael Weening, CEO, President & Director at Calix]

I'm not doing these other things, but I'm pretty happy. And all of a sudden, someone announces that they're going to overbuild their market and it's amazing to watch their demeanor change overnight and they realize they're about to get their butt kicked. So from my perspective, it's really around how do we continue to educate and drive that sense of urgency because frankly the CEOs who wait until the crisis is there should be fired. It's that simple. And so we really need to educate them on the freight train that's coming and that they need to change.

[Michael Weening, CEO, President & Director at Calix]

And I would say we're doing a good job of that. That was kind of my takeaway from Connections, what I talked about on the last earnings call is that where the CEOs a year before, you definitely had just this small tranche of CEOs who were those innovators and early adopters, but they were kind of alone. Everybody else was saying they're still saying, golly, I sure wish that the market would stay the same way and I didn't have to do this hard stuff, but I could just dig a ditch, put fiber in it, have a great managed Wi Fi service, do a great job of managing my network and rolling trucks and then that's good enough to succeed. Well, this year everybody was talking about the fact that that isn't good enough. Yes, you got to do that well, but that's the basics.

[Michael Weening, CEO, President & Director at Calix]

Like that's to be in the market, you have to do those things. You really need to think about what you do. And this is frankly, this is what we've been talking about for a real long time. This is why I joined the company 9 years ago and why we've made such massive investments. It really make this happen and make it simple, because this is the key thing is we do make it simple.

[Michael Weening, CEO, President & Director at Calix]

And I would go back to the Bright Speed press release and what we put on the earnings call or sorry, the earnings call that we talked about the last earnings call, but we also put up a connection. As you heard Tom McGuire from Bright Speed say, if you look at BrightSpeed, when Apollo acquired that asset and brought it from Lumen, Lumen's back office that they acquired is very old, decades old. And for them to do anything has significant IT costs, which frankly is the story of every large carrier. I always joke back about my time at Bell Canada, if I use the word Amdocs, it cost me $1,000,000 let alone do a project. And it was 2 years to do an IT integration.

[Michael Weening, CEO, President & Director at Calix]

And Bright Speed was able to launch a new service, a multi gig service and add a new router in 30 days, which is unheard of. And so it's unheard of for everybody else. That's the promise in what we do as a broadband platform. That's what we do every single day. So their ability to launch new services is really not an IT constraint.

[Michael Weening, CEO, President & Director at Calix]

It's not a technology constraint. In fact, IT and the CTO team have nothing to do. They have some base testing to do because it just works because of the platform. The real work and this is where we have been investing in our customer success organization, Matt Collins, our COO and John DiRocio, our Head of Customer Success and myself, we spend all of our time teaching customers that actually the hard work is to become a great marketing and sales company. And this frankly is what the chasm is.

[Michael Weening, CEO, President & Director at Calix]

We have to go from, I have a really great service, I have I'm really good operationally to, I am the best sales and marketing organization in the markets that I serve and I understand brand. And that's everything that we've done. And I'm proud to say that I think we're doing a really good job of demonstrating to our customers how to build a great brand as evidenced by the Digiday award that we won up against companies like Sony PlayStation that are the advertising that we provide our customers so that they can put their brain on it and do the advertising in their market is kind of best in class regardless of industry. And we'll continue to lead there and that's where our focus is. Sorry, long answer to a slower question.

[Scott Searle, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

It's okay. There are no short questions. And just Mike, just to clarify, in terms of Tier 2 and Tier 3 customers outside of 1 customer graduating, it sounds like channel and customer inventory has normalized and there shouldn't be any big digestion periods as we're looking into 2025. And real quick on the competitive takeaway front, it sounds like a lot of your new wins came from competitive takeaways. Anything to note there?

[Scott Searle, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Is it Dusan zone? Is it otherwise? And anything of note? Thanks.

[Cory Sindelar, CFO at Calix]

Yes, Scott.

[Cory Sindelar, CFO at Calix]

So here we are 91 days further along on this process and our visibility has improved. And it looks like the order normalization has completed. We don't expect any anomalies associated with inventory at customer level like customers.

[Michael Weening, CEO, President & Director at Calix]

Yes.

[Michael Weening, CEO, President & Director at Calix]

And then on the competitive takeaway, so what we identified is I believe that all but one of the net new customers are competitive takeaways. But I don't really think of it like a competitive takeaway. I actually think of it as the customer is deciding on a new business strategy and it's not those are not about the network. Those are the majority of them are actually customers saying, I have an existing network and I need to change my go to market model and I'm going to for the first time partner with Calix around what they're doing in their cloud, what they're doing in go to market strategy, behavioral analytics, which engagement cloud, how do I change my business model? So I think you could say that as competitive takeaway, obviously we're displacing someone else's Wi Fi router, but it's really about every single one of those is a march down the path of helping customers cross the chasm and transform their business for the long term.

[Michael Weening, CEO, President & Director at Calix]

And I think that also like I don't think I know we're unique with regards to this. Everyone else is just selling a bunch of dumb boxes. And as one customer said to me, it's fascinating to me on the Wi Fi side that how many people still run their business based upon can I save $20 on a router? And they're making like a 7 year decision and for that capital gain of like a couple bucks, they're giving up all of the incremental revenue, all of the MPS gains and then the incremental opportunities such as SmartTown, which allows them to solidify their brand and support the community around education, police, fire, ambulance, their subscriber roaming around the town and then future monetization opportunities. And so and I think the more customers who are strategically minded versus short term, what's my CapEx, the more we can actually educate them on how to do that, that's the key thing.

[Michael Weening, CEO, President & Director at Calix]

Again, I go back to my time when I was running a business at a large telco, I actually had this conversation with my procurement team. I'm like, go away, we'll never cut our way to growth. We're going to invest in the right choices and we're going to grow ARPU, we're going to drop down churn, we're going to grow ARPU and then we're going to shift our brand and win new subs. And that's what we did. When I was there, we had a 25% increase in ARPU over 3 years after 5 years decline.

[Michael Weening, CEO, President & Director at Calix]

And that's exactly the mindset that we bring to our customers and everything that we've done over the last decade and the investments that we're making.

[Scott Searle, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Great. Thanks so much.

[Michael Weening, CEO, President & Director at Calix]

Thanks.

[Operator]

Thank you. We have reached the end of our question and answer session. And I'd like to now turn the call back over to Nancy Fazilio for closing remarks.

[Nancy Fazioli, Vice President of Investor Relations at Calix]

Thank you, Latanya. Catalyst will participate in several investor events during the Q1. Information about these events, including dates and times, and publicly available webcast will be posted on the Events and Presentations page of our Investor Relations section of calix.com. Once again, thank you, everyone, on this call and the webcast for your interest in Calix and for joining us. This concludes our conference call.

[Nancy Fazioli, Vice President of Investor Relations at Calix]

Have a good day.

[Operator]

Thank you. That concludes today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.

Participants

Executives

• Nancy Fazioli, Vice President of Investor Relations
• Michael Weening, CEO, President & Director
• Cory Sindelar, CFO

Analysts

• Joseph Cardoso, Vice President, Equity Research at JP Morgan
• Ryan Koontz, Senior Analyst at Needham & Company
• George Notter, Managing Director, Equity Research at Jefferies & Company Inc
• Christian Schwab, Senior Research Analyst at Craig-Hallum Capital Group LLC
• Tim Savageaux, MD & Senior Research Analyst at Northland Capital Markets
• Scott Searle, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC