Calix (CALX) FY 2025 Conference June 10, 2025 04:00 PM ET Speaker0 Hi. Good afternoon, everyone, and, thanks for joining us at the Rosenblatt Age of AI tech conference. I'm Mike Genovese, the cloud and communications equipment manager equipment manager. Equipment analyst. That's my other job, equipment manager. So, again, thanks for joining us. Super happy to have, management from, Calix with us today. We've got the chairman, Carl Russo, the chief financial officer, Corey Sindelar. And, with her camera off ...

Group 1 - Calix, Inc (CALX) has reached a key level of support, with its 50-day simple moving average crossing above its 200-day simple moving average, indicating a "golden cross" which may signify a potential bullish breakout [1] - A golden cross consists of three stages: a downtrend that bottoms out, a shorter moving average crossing above a longer moving average, and a subsequent upward price movement [2] - CALX has experienced a rally of 33.7% over the past four weeks, and currently holds a 3 (Hold) rating on the Zacks Rank, suggesting it could be poised for a breakout [3] Group 2 - There have been two upward revisions in earnings expectations for CALX in the current quarter, with no downward revisions, and the Zacks Consensus Estimate has also increased [3] - The combination of positive earnings estimate revisions and the technical breakout signals indicates that investors should monitor CALX for potential gains in the near future [4]

Summary of Calix (CALX) FY Conference Call - May 13, 2025 Company Overview - **Company**: Calix (CALX) - **Industry**: Broadband Equipment and Services Key Points and Arguments Industry Dynamics - The company is experiencing a wave of disruption in the broadband equipment landscape, particularly post-COVID, with a return to sequential growth and gross margin expansion [1][6] - Larger public companies are losing broadband subscribers to "broadband experience providers," which are gaining market share due to superior customer experiences [5][6] Customer Engagement and Strategy - Calix focuses on helping broadband experience providers enhance their service offerings, which leads to high net promoter scores and low churn rates among subscribers [6][7] - The company emphasizes the importance of deployment rates and customer success, indicating that they have direct relationships with customers to monitor and support their growth [17][18] Financial Performance - Calix reported a 16% continuous annual growth rate from Q1 2019 to the present, with gross margins expanding by 175 basis points annually [13][14] - Gross margins have improved from 50% during the pandemic to 56.2% currently, indicating recovery and growth in profitability [15] Market Trends and Customer Behavior - Higher interest rates are seen as beneficial for Calix, as they prompt customers to optimize their network infrastructure and subscriber acquisition strategies [8][9] - The company has observed lumpiness in customer spending patterns, which is attributed to varying deployment schedules among small, medium, and large customers [12][16] Growth Drivers - The primary growth driver for Calix is the expansion of existing customers rather than acquiring new ones, focusing on a "land and expand" model [28] - The deployment of GigaSpire systems is a key indicator of new subscriber acquisition and overall business health [26][27] Supply Chain and Tariff Management - Calix is proactively managing supply chain challenges and tariffs, with plans to move manufacturing to Mexico to mitigate costs [30][31] - The company aims to minimize disruption to customers and will only pass on tariff costs as a last resort [32][36] Future Outlook - The company expects to maintain a long-term growth rate of 10% to 15% annually, with margin expansion of 100 to 200 basis points, despite uncertainties in the macroeconomic environment [71][72] - The potential relaxation of technology rules in government funding programs is anticipated, which could further benefit the broadband sector [64][67] Managed Services and Cloud Offerings - Adoption of managed services is increasing, with a notable ramp-up in customer deployments, which is expected to positively impact gross margins [48][51] - The Service Cloud is the most advanced offering, while the Engagement Cloud is growing as customers evolve into broadband experience providers [54][56] Government Funding and BEAD Program - There is ongoing uncertainty regarding the BEAD program, but no indications of cancellation have been reported, suggesting continued investment opportunities in the broadband space [62][63] Additional Important Insights - The company has a strong focus on cash flow management, emphasizing the importance of maintaining gross profit neutrality amidst changing market conditions [75][78] - Calix's strategic positioning and customer-centric approach are expected to provide a competitive advantage in the evolving broadband landscape [36][67]

Core Insights - Calix (NYSE: CALX) reported a strong quarter with positive growth across its financial metrics, indicating robust performance [1] - The company is successfully transitioning its business model towards a more SaaS and subscription-based approach, which is expected to enhance visibility for investors [1]

Financial Data and Key Metrics Changes - Revenue for Q1 2025 was $220 million, representing a 7% sequential growth and a 39% year-over-year increase in RPOs to $340 million [17][18] - Non-GAAP gross margin reached a record 56.2% in Q1, driven by customer mix and new subscriber wins [18] - Cash and investments totaled $282 million, with double-digit free cash flow generated for the eighth consecutive quarter [19][20] Business Line Data and Key Metrics Changes - The company added 16 new BSP customers in Q1, primarily through competitive takeaways, indicating strong demand for its platform [18] - The introduction of SmartBiz for small businesses and SmartMDU for multi-dwelling units expanded the customer base and service offerings [9][18] Market Data and Key Metrics Changes - Demand for broadband experiences remains strong and inelastic, with consumers prioritizing broadband over discretionary spending [12][44] - The company anticipates continued growth in demand through 2025, supported by its unique business model [11][12] Company Strategy and Development Direction - The company aims to differentiate itself from traditional speed-based network operators by focusing on experience-based broadband services [7][8] - The strategy includes leveraging marketing analytics to help customers reduce churn and grow revenue per subscriber [35][60] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of broadband demand despite potential economic downturns, citing historical trends during the pandemic [44][46] - The company raised its revenue guidance for Q2 2025, expecting revenue between $221 million and $227 million [21] Other Important Information - The board approved an additional $100 million for the stock repurchase program, reflecting confidence in the company's financial health [23] - The company plans to keep operating expenses flat to slightly up in 2025, while gross margins are expected to improve [22] Q&A Session Summary Question: Insights on macro spending environment and CapEx plans - Management noted that customers are continuing to invest appropriately in capital expenditures, driven by consumer and business demand [34][36] Question: Clarification on customer pull-forwards - Management clarified that the pull-forwards were not related to tariffs but were due to inherent business lumpiness [39][40] Question: Expectations for sequential revenue growth - Management confirmed expectations for continued sequential growth, even with the pull-forward from a large customer [49] Question: Impact of tariffs on gross margins - Management stated that there was no impact from tariffs in Q1, and they will pass through any future costs without adding a profit margin [54][56] Question: Opportunities from DZS bankruptcy - Management expressed sympathy for affected customers but noted that they are offering support and assistance to those in need [102][103]

Financial Data and Key Metrics Changes - Revenue for Q1 2025 was $220 million, representing a 7% sequential growth and a 39% year-over-year increase in RPOs to $340 million [17][18] - Non-GAAP gross margin reached a record 56.2% in Q1, driven by customer mix and new subscriber wins [18] - Cash and investments totaled $282 million, with double-digit free cash flow generated for the eighth consecutive quarter [19][20] Business Line Data and Key Metrics Changes - The company added 16 new BSP customers in Q1, primarily through competitive takeaways, indicating strong demand for its platform [18] - The introduction of SmartBiz for small businesses and SmartMDU for multi-dwelling units expanded the customer base and service offerings [9][18] Market Data and Key Metrics Changes - Demand for broadband experiences remains strong and inelastic, with consumers prioritizing broadband over discretionary spending [12][44] - The company anticipates continued growth in demand through 2025, supported by its unique business model [11][12] Company Strategy and Development Direction - The company aims to differentiate itself from traditional speed-based network operators by focusing on experience-based broadband services [7][8] - The strategy includes leveraging marketing analytics to help customers reduce churn and grow revenue per subscriber [35][60] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of broadband demand despite potential economic downturns, citing historical trends during the pandemic [44][45] - The company raised its revenue guidance for Q2 2025 to between $221 million and $227 million, reflecting ongoing strong demand [21] Other Important Information - The board approved an additional $100 million for the stock repurchase program, indicating confidence in the company's financial health [23] - The company plans to keep operating expenses flat to slightly up in 2025, while gross margins are expected to improve by 100 to 200 basis points annually [22] Q&A Session Summary Question: Insights on macro spending environment and CapEx plans - Management noted that customers are continuing to invest appropriately in capital expenditures, driven by consumer and business demand [34][36] Question: Clarification on customer pull-forwards - Management clarified that the pull-forwards were not related to tariffs but were due to inherent business lumpiness [39][40] Question: Expectations for sequential revenue growth - Management confirmed expectations for continued sequential revenue growth, even with the pull-forward from a large customer [49] Question: Impact of tariffs on gross margins - Management stated that there was no impact from tariffs in Q1, and they will pass through any future costs without adding a profit margin [54][56] Question: Opportunities from DZS bankruptcy - Management expressed sympathy for affected customers but noted that they are offering support and assistance to those in need [102][103]

Core Viewpoint - Calix reported quarterly earnings of $0.19 per share, exceeding the Zacks Consensus Estimate of $0.13 per share, although down from $0.21 per share a year ago [1][2] Financial Performance - The earnings surprise for the quarter was 46.15%, with the company having surpassed consensus EPS estimates three times over the last four quarters [2] - Calix's revenues for the quarter were $220.24 million, surpassing the Zacks Consensus Estimate by 6.37%, but down from $226.31 million year-over-year [3] Market Performance - Calix shares have declined approximately 3% since the beginning of the year, while the S&P 500 has decreased by 10.2% [4] - The current consensus EPS estimate for the upcoming quarter is $0.16 on revenues of $210.65 million, and for the current fiscal year, it is $0.71 on revenues of $859.52 million [8] Industry Outlook - The Internet - Software industry, to which Calix belongs, is currently ranked in the top 27% of over 250 Zacks industries, indicating a favorable outlook compared to the bottom 50% [9]

Revenue Performance - In Q1 2025, revenue was $220.2 million, a sequential increase of 6.9% but a decrease of 2.7% year-over-year[12]. - U.S. revenue accounted for 96% of total revenue in Q1 2025, up from 90% in the previous quarter[22]. - Revenue for Q1 2025 was $220,242 thousand, down from $226,310 thousand in Q1 2024, representing a decrease of approximately 4.7%[58]. Profitability Metrics - Gross margin reached a record 55.7%, up 70 basis points sequentially and 150 basis points year-over-year[24]. - Non-GAAP net income for Q1 2025 was $13.1 million, an increase of $7.9 million from the prior quarter[28]. - GAAP gross margin for the three months ended March 29, 2025, was 55.7%, an increase from 55.0% in the previous quarter[64]. - Non-GAAP gross margin for the same period was 56.2%, up from 55.5% in the prior quarter[64]. - GAAP net loss for the three months ended March 29, 2025, was $4.787 million, compared to a loss of $17.924 million in the previous quarter[68]. - Non-GAAP net income for the same period was $13.131 million, significantly higher than $5.230 million in the prior quarter[68]. Cash Flow and Investments - Free cash flow was positive for the 19th consecutive quarter, with cash and investments totaling $282 million at the end of Q1 2025[4]. - Cash and cash equivalents at the end of Q1 2025 were $42,300 thousand, down from $88,418 thousand at the end of Q1 2024[62]. - Non-GAAP free cash flow for the three months ended March 29, 2025, was $12.902 million, compared to $10.214 million in the previous quarter[68]. Shareholder Actions - The company repurchased 1.2 million shares in Q1 2025, with an additional $100 million authorized for share repurchase[33][34]. Guidance and Projections - Guidance for Q2 2025 revenue is projected between $221 million and $227 million, reflecting a 2% increase at the midpoint from the prior quarter[37]. - Non-GAAP operating expense guidance for Q2 2025 is $110 million, indicating a flat quarter sequentially[40]. - The company expects GAAP gross margin for the next quarter to be between 54.35% and 56.35%[70]. - Projected non-GAAP net income per diluted common share for the next quarter is expected to be between $0.18 and $0.24[70]. Operating Expenses - Operating expenses for Q1 2025 were $128.8 million, representing 58% of revenue, with a decrease in sales and marketing expenses compared to the previous quarter[26]. - Total operating expenses for Q1 2025 were $128,789 thousand, compared to $124,609 thousand in Q1 2024, an increase of about 3.5%[58]. - Total GAAP operating expenses for the three months ended March 29, 2025, were $128.789 million, slightly down from $132.117 million in the previous quarter[66]. - Stock-based compensation for the three months ended March 29, 2025, was $19.745 million, compared to $22.075 million in the previous quarter[68]. Market Position and Strategy - The company continues to focus on expanding its BXP customer base and enhancing its platform, cloud, and managed services[43]. - The company is in the early stages of a significant disruption in the broadband industry, with expectations for further footprint gains[42]. - The company emphasizes the importance of its non-GAAP financial measures to provide a clearer view of its operating performance[55]. Remaining Performance Obligations - Remaining performance obligations (RPOs) rose 39% year-over-year and 4% quarter-over-quarter to $340 million[3].

Financial Performance - Revenue for 2024 was $831.5 million, a decrease of 20% from $1,039.6 million in 2023[219]. - Gross profit for 2024 was $453.6 million, down from $518.3 million in 2023, reflecting a gross margin of 54.5%[219]. - Net loss for 2024 was $29.7 million, compared to a net income of $29.3 million in 2023, resulting in a diluted loss per share of $0.45[219]. - The company reported a comprehensive loss of $29.7 million in 2024, compared to a comprehensive income of $31.1 million in 2023[219]. - Revenue from the United States was $764.6 million in 2024, a decline from $944.2 million in 2023, representing a decrease of approximately 19%[326]. - The company reported interest income of $11.4 million in 2024, an increase from $9.2 million in 2023[327]. - The adjusted cost of revenue for 2024 was $372.2 million, down from $515.6 million in 2023, reflecting improved cost management[327]. Cash and Liquidity - The company has $297.1 million in cash, cash equivalents, and marketable securities as of December 31, 2024, primarily held in cash and highly liquid securities[191]. - Cash and cash equivalents at the end of 2024 were $43.2 million, down from $63.4 million at the end of 2023[226]. - The total current assets decreased from $597.956 million in 2023 to $584.735 million in 2024, with cash and cash equivalents dropping from $63.409 million to $43.162 million[215]. - The company has approximately $9.1 million of cash held by foreign subsidiaries in India, China, and the United Kingdom, with minimal credit risk associated with these cash and cash equivalents[244]. Inventory and Assets - As of December 31, 2024, the company reported components and finished goods inventories with a carrying value of $102.7 million and excess and obsolete component liabilities of $27.5 million[209]. - Inventory decreased to $102.7 million in 2024 from $132.9 million in 2023, a decline of approximately 23%[277]. - The total fair value of marketable securities as of December 31, 2024, was $271.5 million, compared to $199.7 million in 2023, indicating an increase of approximately 36%[271]. Liabilities and Equity - Total liabilities decreased significantly from $222.9 million in 2023 to $158.3 million in 2024[215]. - Stockholders' equity increased from $719.0 million in 2023 to $780.9 million in 2024, reflecting a positive trend in the company's financial position[215]. - The allowance for doubtful accounts increased to $311,000 in 2024 from $304,000 in 2023, showing a slight increase of about 2%[276]. Operating Expenses - Operating expenses increased to $496.6 million in 2024, compared to $492.7 million in 2023, with R&D expenses at $179.9 million[219]. - Stock-based compensation expense rose to $70.8 million in 2024, compared to $62.8 million in 2023[226]. - Depreciation and amortization expenses increased to $19.6 million in 2024 from $16.6 million in 2023, a rise of approximately 18%[277]. Risks and Challenges - The company has a history of fluctuations in gross margin and operating results, making future performance predictions difficult[68]. - Customer credit risks could adversely affect operating results and financial condition, particularly if accounts receivable are not collected as anticipated[69]. - The company faces risks related to product defects, which could harm reputation and adversely affect business and financial condition[73]. - Intense competition in the broadband access equipment market could lead to pricing pressures and reduced profit margins, impacting overall financial results[86]. - A concentrated customer base poses risks, as the loss or reduced spending from key customers could significantly affect revenue[88]. - The company faces challenges in developing new products due to rapid technological advancements and potential delays in meeting development targets[90]. Compliance and Regulatory Issues - Compliance with evolving data privacy laws, such as the CCPA and GDPR, may result in increased costs and operational changes[95]. - Regulatory scrutiny regarding data transfers and privacy practices could lead to additional costs and operational adjustments[98]. - The company may incur substantial costs to implement new security measures to comply with regulations, impacting financial condition[100]. - Violations of privacy and security laws could result in regulatory investigations and fines, adversely affecting the company's reputation and financial results[101]. Future Outlook - Significant expenses and cash outlays are expected as the company seeks to expand its business and target new customer opportunities[68]. - The company may need additional capital in the future if current plans change, which could lead to dilution for existing stockholders[112]. - The company expects to recognize stock-based compensation expense of $49.0 million in 2025, $21.4 million in 2026, $6.6 million in 2027, and $0.9 million in 2028[306].

Group 1 - Calix Inc. (NYSE: CALX) is highlighted for its strong value proposition that enables customers to compete against incumbents, leading to a reiteration of a buy rating [1] - The author emphasizes a diverse investing background, incorporating fundamental, technical, and momentum investing strategies to enhance the investment process [1] Group 2 - The article serves as a platform for tracking investment ideas and connecting with like-minded investors [1]