Calix Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
January 30, 2024

There are 9 speakers on the call.

Operator

Greetings, everyone, and welcome to the Calix 4th Quarter 2023 Earnings Conference Call. At this time, all participants are in listen only mode. A question and answer session will follow the brief prepared remarks. As a reminder, this conference call is being recorded. It's now my pleasure to introduce your host, Jim Fanucchi, Vice President of Investor Relations.

Operator

Sir, please go ahead.

Speaker 1

Thank you, Rob, and good morning, everyone. Thank you for joining our Q4 2023 earnings call. Today on the call, we have President and CEO, Michael Veany and Chief Financial Officer, Corey Sindalon. As a reminder, yesterday after the market closed, Calix issued a news release, which was furnished on a Form 8 ks along with our stockholder letter and both were posted in the Investor Relations section of the Calix website. Today's conference call will be available for webcast replay in the Investor Relations section of our website.

Speaker 1

Before I turn the call over to Michael for his opening remarks, I want to remind everyone on this call that 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 actual results may differ materially those contemplated by these forward looking statements. Factors that could cause actual results and trends to differ materially are set forth in the Q4 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 the GAAP to non GAAP measures is included in the Q4 of 2023 letter to stockholders. Unless otherwise stated, All financial information referenced in this call will be non GAAP.

Speaker 1

With that,

Speaker 2

it is my pleasure to turn

Speaker 3

the call over to Michael. Michael, please go ahead. Thank you, Jim. Ordinarily, I would speak about the results we outlined in the investor letter where the team delivered a strong Q4 With record revenue and margin, completing our 4th year of deliberate revenue growth, gross margin expansion, disciplined operating expense investments ongoing predictability. However, these are not ordinary times.

Speaker 3

2024 represents both a challenge Any unique opportunity for Calix with one constant, our unique platform, cloud and managed services continue to lead the way with robust growth as they enable our strategically aligned broadband service provider customers to simplify their operations and go to market strategy, innovate for residential, business, government and communities and grow for their investors, members and the communities they serve. This strategy is enabling their success as they take market share from legacy network operators at a faster and faster pace. Since our last investor call, We have seen a significant broadening in the number of customers interested in competing for bead funds. Today, Nearly all our customers are either assembling a BEAT strategy or actively pursuing funds. The clear reality is that the BEAT funds are simply too large at $42,000,000,000 and too close for any strategic minded BSP to ignore.

Speaker 3

While they do this, they slow their new builds as bead money could be used instead of consuming their own capital and thus will slow our appliance shipments until decisions are made and funds are awarded. At that point, the winners will move ahead and those who decide to skip the BEAT program or did not receive BEAT funding We'll begin investing to ensure that the winner does not impinge on their market. This represents a delay, but also represents a unique opportunity for Calix in 2024. Before I discuss this unique opportunity, I'd like to turn it over to Corey to review our disciplined execution in the Q4. Corey?

Speaker 2

Thank you, Michael. We closed 2023 with another quarter of strong execution, resulting in record revenue of $264,700,000 Continued robust growth in our platform cloud and managed services drove record non GAAP gross margin of 54.1%. Our supply chain has settled into a new normal where price increases from the past are difficult to undo. We will rely on future design wins and product releases to drive down costs over time, much like prior to the pandemic. Consequently, we consider the pandemic induced supply chain challenges to be behind us.

Speaker 2

From a balance sheet perspective, we continue to see improvement in component lead times during the Q4 and continue to work down our purchase commitments as they decreased by $51,000,000 from the 3rd quarter to $176,000,000 Back to a pre pandemic level. Over time, we expect to see an improvement in inventory turns and a reduction in supplier deposits. These reductions in working capital requirements combined with continued profitability will result in consistent quarterly double digit operating and free cash flow. I do want to offer some commentary on the inventory and component liability charges we took in the Q4 as they impacted our GAAP results. Over the past few years, we have provided progress checks on our transformation from a box ship company to an appliance based platform cloud advantage services company.

Speaker 2

Last year, we communicated that our legacy business represented less than 10% of our Q4 2022 bookings and that the transformation was largely complete. Over the past year, we benefited from the legacy customers moving to our platforms at a faster rate than we initially anticipated. In the Q4 of 2023, we reached a point where we could see the end of the shipments for this legacy product set. While this transformation over the last few years to our platform cloud and managed services has been a huge positive, We had to make purchasing decisions regarding our legacy products during the global pandemic induced supply chain crisis. As a result of these circumstances, we were left with excess legacy finished good inventory and components at suppliers.

Speaker 2

After a thorough evaluation, we took charges in the Q4 to effectively wind down this business. This was the primary reason why our 4th quarter GAAP not a gross margin came in at 42.8% and why we reported a GAAP net loss of $4,100,000

Speaker 3

As we have said previously,

Speaker 2

An added benefit of our unique appliance based platform model is an industry low SKU count, which is now less than 200 go forward SKUs. This low appliance based SKU count gives us operating leverages well as allowing us to better manage our inventory level and have the right inventory at the right time to meet our customers' demands. Our operational focus enabled us to produce our 3rd consecutive quarter of double digit free cash flow and to strengthen our balance sheet. We continue to make deliberate decisions with our strong balance sheet in the 4th quarter. We purchased $44,000,000 of our common stock at an average price of $35 bringing our total utilization of the original purchase repurchase plan to $86,400,000 With expectations for continued double digit quarterly free cash flow generation, the Board authorized an additional $100,000,000 to continue our common stock repurchase program.

Speaker 2

Now let's turn to guidance. In addition to the ongoing decision making process that Michael discussed affecting our appliance shipments. We have a few significant customers pausing their purchases in early 2024 as they reevaluate their capital expenditures. As a result of these factors, our Q1 of 2024 revenue guidance is for revenue to be between $225,000,000 $231,000,000 We expect customers will make decisions regarding whether to pursue government stimulus over the course of the year. As customers decide to pass on bead, they will begin their network builds, which should translate into increased shipments.

Speaker 2

If they decide to pursue bead, Vendor purchases will be delayed until the award is received. We believe there are customers all along the continuum. As such, we expect our Q1 revenue to mark the low point for the year and will grow sequentially thereafter. What is certain is the continued growth of our platform, cloud and managed services revenue. As such, our non GAAP gross margin guidance for the Q1 of 2024 is 54.5% at the midpoint and would represent an increase of 40 basis points compared to the prior quarter.

Speaker 2

Would also set us up well for achieving the high end of our target financial model of 100 to 200 basis points for 2024. Finally, our non GAAP operating expense guidance for the Q1 of 2024 is higher than our target financial model Because of the expected dip in 1st quarter revenue, we plan to hold our operating expense investments relatively flat during 2024, While we execute on our objective of growing footprint prior to the arrival of what we believe will be a significant amount of government stimulus in 2025. In summary, Calix had an amazing year in 2023 and we are just getting started. And to tell you more about that opportunity ahead, I will return the call Back to Michael.

Speaker 3

Thank you, Corey. The unique Calix platform, cloud and managed services are enabling our VSP customers win in their markets against legacy network operators. The insights, data and operational capabilities that they provide combined with our direct sales, service and success relationships give us unparalleled visibility into more than 1,000 VSP customers planning and execution. This visibility makes it clear that their new network builds are going to slow in 2024. However, at the same time, new subscriber additions will continue unabated on our customers' existing network infrastructure as they take market share from legacy network operators.

Speaker 3

Therefore, we are confident that in 2024, our platform, Cloud and managed services will continue their robust growth while our appliance shipments will slow. For four reasons, We believe this is a unique opportunity prior to the arrival of $42,000,000,000 in BEAT funds for new builds in 2025 and beyond. First, we are excited that the vast majority of our BSP customers are contemplating or already applying for BEAT funding as we believe they are best placed to win as they have spent decades servicing rural and travel community. 2nd, we believe our BSP customers will provide the best experience To those formerly under or unserviced subscribers going well beyond the fiber connection, our platform enabled BSPs will supercharge Residential for home office workers in use cases like the farm, education, small and medium business, which are the economic lifebloods of rural America and for local governments. 3rd, we believe our BSD customers have demonstrated for decades that they will make the most effective use of taxpayer dollars.

Speaker 3

They care about the communities they serve and will do the right thing, investing taxpayer dollars for the greatest long term effect to improve the community. And 4th, We believe this presents Calix with unique opportunity to expand our footprint in the North American market. We have heard almost every legacy box vendor speak about 2024 as a tough year. We see this year as a unique opportunity to expand our footprint for the following reasons. 1st, We have a strong balance sheet to continue to invest and execute with discipline throughout the year.

Speaker 3

2nd, we have a talented team that is motivated by the community centric purpose of our BSP customers. It is what motivates us and has powered us to execute our customer focused strategy year in year out. 3rd, service providers will be making network build decisions upon which they expect to rely for a decade or more. This is not a purchasing decision, rather it's a long term strategic investment decision. Calix is best placed enable evolving service providers to build networks that yield the lowest operating cost, highest customer satisfaction and are environmentally sustainable, which enables them to win in the markets they serve.

Speaker 3

Last, we are uniquely positioned with our platform cloud and managed services to ride the BSP disruption that is picking up momentum. As such, since last fall and into this year, I've dramatically ramped up my time with customers, prospects and partners As I know the view is always clearest from the front. In my numerous conversations with CEOs and GMs since our last earnings call And as illustrated in our frequent press releases that share our customers' ongoing success, the Calix platform cloud and managed services model is the winning law, delivering incredible cash flow, profitability and unmatched experiences across residential, business, Government and the communities our BSP customers serve. In conclusion, we see 2024 as a unique opportunity to grow our footprint ahead of the extraordinary funding coming in 2025. We have the platform, the people and the balance sheet to remain focused on the success of our BSP customers and long term success.

Speaker 2

Jim,

Speaker 3

let's open the call.

Speaker 2

Thank you, Michael. It's Ross.

Speaker 1

Let's open the call for Q and A now.

Operator

Thank you. We'll now be conducting the question and answer session. Thank you. And our first question today comes from the line of George Notter with Jefferies. Please proceed with your question.

Speaker 4

Hi, guys. Thanks very much. I guess I was I appreciate the press release rather the shareholder letter and all the detail on all the different stimulus programs that your customers are chasing right now. I guess the question that I have is, as I look at all these programs, RDOF, ARPA, The ARPA capital projects piece, reconnect, tribal, there's numerous state programs. It seems to me that a lot of those funding dollars are flowing now.

Speaker 4

And so I guess what I'm trying to get my head around is, Why are you seeing such a big wait for effect around bead, yet there are stimulus dollars that are available to operators today? So hoping to better understand that. And then also, I think in the letter and then on the call, you mentioned a few significant customers that They're kind of holding things up. Is this a few customers? Is it broad based?

Speaker 4

Like what's the picture you're seeing? Thanks.

Speaker 3

Thanks, George. I'll address the first one. So with regards to the funding that is flowing, yes, there are component of it. But the pause as We started to see in Q3, you definitely saw game momentum in Q4 was around the fact that this Dollar value coming from BEAT is so significant that they need to assemble a strategy on how they're going to use it or if they're going to go after And so while there is money flowing for sure, this program is so large that Every from our perspective, almost every single customer has said, I need to have a strategy to either pursue it actively and they're doing it right now or consider it and therefore it's a setup for the future.

Speaker 4

Got it. And then do you think

Speaker 5

that sorry, go ahead, guys. I was going to

Speaker 2

answer that second part of the question. You want to follow-up to what Michael said?

Speaker 4

Sure, sure. Yes, please go ahead. I'll follow-up afterwards.

Speaker 2

Sure. So regarding the Few significant customers. It is exactly that. It's a few significant customers. And when we say significant, That doesn't mean they're large, medium or small.

Speaker 2

It just means that they represented a significant amount of revenue in 2023. And as they moved into 2024, they froze their purchasing in the near term here, while they reevaluate what they want to do 2024.

Speaker 4

Got it. So it sounds like this is a few customers out of nearly a 1000 customers that you're actively seeing this wait for effect from. Is that correct? And Is it that you're anticipating the other bulk of your customers to also go into this wait for effect or is it that you're not yet seeing that?

Speaker 2

Let's distinguish this between the two factors we're talking about. There's the slowdown related to government stimulus while they work through that Decision making process that is broad based. The hold up for capital expenditure replanning is narrow. That's a few customers only and I don't anticipate it to expand beyond that.

Speaker 3

Got it. Okay.

Speaker 4

And The other question I had is, just to be clear, this is affecting the OLT business. Specifically, you're not seeing this impact on the CPE side of the hardware business, correct?

Speaker 3

As we said, our platform cloud and managed services will continue their robust growth. And so you saw that in Q4.

Speaker 2

Yes, George. So when we're talking about the government stimulus, it is affecting network builds, new network builds. So it's not affecting the existing footprint. On the few significant customers, it's both. It's both sides of it.

Speaker 2

They froze their CapEx.

Speaker 4

Got you. Okay. Okay, super. I'll pass it on. I appreciate the help.

Speaker 4

Thanks, guys.

Operator

Thank you. Our next question is from the line of Ryan Koonce with Needham and Company. Please proceed with your questions.

Speaker 6

Thanks. George hit the key ones there. In terms of your small I wanted to double click though on the small customer revenue there. It does seem to be slowing and obviously that's not a contributor to your few customers tightening. Any Commentary on the small customer sentiment going into 2024 relative to your guide for Q1?

Speaker 3

Well, I think this goes back to again the BEAM funding, right. So if we look at what their decision making is through 2024, We saw that the enhanced ACAM offering in the 3rd quarter actually got many of our customers thinking more seriously about B as an early decision factor. Then our customers who typically don't enter their budgeting process until after Thanksgiving, so they took a moment to start contemplating that as they look at 2024 and then now that it's right in front of them that is Part of their decision making process through 2024. So they are either actively applying for B right now Or they're working out their strategy to say, how am I going to apply for it? So those come into the pause in their decision making for sure.

Speaker 3

They are in fact, you talk about our small customers. They are rural America.

Speaker 6

Got it. That's helpful. And Corey, you talked about on the prepared remarks, your opportunity for further cost reduction on the hardware front. Can you Kind of tell us in general what your thoughts are there? Is this mainly about sourcing, redesigned to modern components, Kind of optics and can you kind of give us any clues there as to where your opportunities lie for cost reductions on hardware?

Speaker 2

Yes, Ryan. What we are basically saying is that we have come through the global supply chain challenges. And the only thing that really remaining are those price increases that were passed along. You don't get those back. Our vendors don't voluntarily lower their prices for you.

Speaker 2

So the only way and the only place you have leverage is really when you're going out to bid on new design wins. And so this is something that we would look to do much like we did pre pandemic. It's when the new product is released, we come out with a new design win on a new platform. We aren't going to necessarily redesign products in lieu of that, Right. So we will wait and come out with the next generation products.

Speaker 2

We do that 5, 6, 7 hardware devices a year and that's how we will go about

Operator

Our next question is from the line of Samik Chatterjee with JPMorgan. Please proceed with your questions.

Speaker 5

Hi, good morning. Thanks for the question. This is Joe Cardoso on for Samik. So first question from me is, it sounds like Cloud and managed services growth is expected to continue in the face of these pauses and delays. But can you just talk to the impact of the growth rate there from the slowdown in appliances And whether we should expect a slower growth rate in that part of the business?

Speaker 5

I guess I'm just trying to better understand the correlation between appliances and cloud and managed services And whether you expect a slower growth rate there on the temporary pauses or delays? And then I have a quick follow-up. Thanks.

Speaker 2

Yes. The managed the Platform, cloud and managed services is growing constantly. It's just at a steady rate just continuing to grow. We saw that all through the pandemic, through supply chain slowdown and it continues even today. So if you're looking at a relative mix of revenue, the slowdown is on the appliance side.

Speaker 2

So it's a lower appliance revenue, you're going to end up having a greater percentage of software in your mix. And that's why we believe we will be at the higher end of the target financial model of that 100 to 200 basis points for 2024. So there you go.

Speaker 5

Okay. I guess just my next question is, you obviously highlighted the slowdown in investments from existing customers from the government subsidies on the horizon. However, just curious if you could talk to the trends you're seeing from new customers and clarify whether those same factors are impacting your ability to onboard new customers to Calix? Or is that less of a hurdle on the new customer front? Thank you.

Speaker 5

Thanks for the question.

Speaker 3

Actually that was the point of my opening remarks and what you saw through the letter, which is we recognize 2024 or see it as unique opportunity for us in fact to expand footprint. So our platform cloud and managed services continue to differentiate us in the minds of evolving service providers who are looking at 2024 and then the tsunami of money that's coming in 2025 beyond as a decision point. They're no longer just kicking out a purchase order to continue the existing network and what they were currently doing for a strategy. They're actually looking broadly at their strategy and saying what do we have to do to actually compete and win? Do we remain a legacy network operator?

Speaker 3

Which is rife with challenges. And I am in all my conversations with CEOs and GMs, This is one of the big things as we talk to prospects who are not on the Couch platform. They're talking about the fact that building fiber network does not transition into Actually success. And in fact, it's a commoditization that's coming in broadband and they're really, really worried about it. In fact, that was I had a prospect that I was talking to before Christmas and he was emphatic.

Speaker 3

He said, the thing that keeps me up at night is the commoditization of my business, which opens it up as this for the expansion of footprint. This is the opportunity Where we can with that customer exactly, the conversation then led to, well, with what we built in this platform, in the managed services, in the cloud, We help you transition into a broadband service provider who has a diversified business of residential, small business, medium business, Government, education, all these different component parts. So you can differentiate in the marketplace and win, which means build a fiber and then fill it with customers and then drive all the upsell and cross sell. So as we look into 2024, when I said there's a unique opportunity ahead, that's explicitly what I'm talking about. This pause in decision making is not cut a PO and keep doing the same thing.

Speaker 3

It is actually look at my business model And there's only one company in this entire industry who actually has a new model that will allow them to succeed for the long term. That's why 2024 is a massive opportunity for us to expand our footprint and win in the market.

Speaker 5

Got it. Thanks, Michael. Appreciate all the color, guys. Thank you.

Operator

Thank you. Our next question is from the line of Christian Schwab with Craig Hallum.

Speaker 6

I guess my question is about when you began to see this. You guys have always been The most cautious and negative about the timing and acceleration of government programs And the fact that usually they'll end up being bigger than anticipated, but they'll take much longer to get started, All of that seemed to be extremely not all that With $42,000,000,000 now that much to think about that that could be a tremendous risk. And so between that and the significant customers kind of Is this something that truly started to trickle out after Thanksgiving and has accelerated into this conference call? I'm just kind of surprised you guys didn't call this issue before this conference call.

Speaker 3

Man, Before this conference call, okay, we had an incredible Q4. And so from a visibility point of view, you're right, we've always stated that we have Great visibility in what we're doing with customers. And the reason why we can provide you a clear explanation today

Speaker 2

is because of that visibility.

Speaker 3

And so the conversation that as I stated after Thanksgiving, they go into their budgeting cycles And almost every customer starting in Q3, but in Q4 and explicitly after the Thanksgiving is the entered budgeting cycles, Almost every customer that I spoke to, general managers and CEOs were focused on what is my plan. For Veed, it is such a large amount of money and it is right in front of them that even customers who have never pursued a dollar of broadband money ever in their history are now considering in their 2024, 2025 strategy because they can't ignore it. It's right here and it's so big. And so that in the end is the last component of this where it just became very clear.

Speaker 6

Great. No other questions. Thank you.

Operator

Thank you. Our next questions come from the line of Tim Savage with Northland Capital Markets. Please proceed with your questions.

Speaker 7

Hi, good morning. A question on the I guess trying to get a little more color on the opportunity, the share gain opportunity you're discussing Here for calendar 2024, I mean, should we be thinking more kind of in the medium and large carrier area given the size, the extent of your market share among smaller carriers. And is there a way For you to quantify maybe in terms of annual revenue or total TAM value kind of what you consider to be The size of that opportunity, what's up for grabs, if you will, and I assume that none of these Share gain potential share gains are factored into your 2024 outlook? Thanks.

Speaker 3

First of all, none of those are factored into our 2024 outlook. And we call it footprint expansion where They may be with an existing legacy box company and they're contemplating as they continue in their expansion, Can they apply new business models to that incremental footprint? So it's not in 2024 and it's really around Size of the customer, there's a wide range of them. It's all across the continuum where we're having the conversation around how do you change your business model Should address the disruption that's happening in the market and not see yourself commoditized. The best example is we have That example I referred to was this CEO that I was speaking to who is quite thoughtful, He said they've never done business with us.

Speaker 3

And he was contemplating and the conversation started about Well, PON and different things like that box shipments. And my statement to him was actually let's talk about your business, what keeps you up at night? Said I'm worried about being commoditized, which then led to which we call out in Q4, the growth driver in our business, which our platform cloud and managed services and how we can help him and his organization differentiate in the market. So that represents the opportunity in 2024. No, it's not factored into what we're doing from a numbers point in this year.

Speaker 7

I guess maybe to follow-up a little

Speaker 3

bit more. I

Speaker 7

mean, let's say you were, I don't know what you would consider to be Reasonably successful in this endeavor, but let's say you are in 2024, what could that add to the revenue run rate Calix in 2025 and going forward?

Speaker 3

Well, as Corey identified, in Q1, we consider this a low point that we will have return to a sequential growth quarter on quarter, which that will contribute to it. So Tim, I don't

Speaker 2

think we're prepared to quantify what we think the footprint gains might be.

Operator

Thank you. Our next question is from the line of Scott Searle with ROTH and KAM.

Speaker 8

Maybe to dive in on the timing, Mike. It sounds like from a beef funding standpoint, some of at least The initial awards are starting to slip out a little bit. I'm wondering if you can take us through the process and the timeframe that you start to expect to see Awards, I know there's a challenge process. So when do we start to see some of those initial awards? And then it sounds like the market then bifurcates from your customer base, customers who get awards, When the timing and the impact of that revenue stream would be, I think the early expectation was in the beginning of 2025.

Speaker 8

I'm wondering If those deployments are slipping and then for the customers who don't get B funding to keep their pedal foot on the gas fleet To deploy ahead of incoming competition, when does that start to reaccelerate?

Speaker 3

Okay. There's a lot of questions in there. So first of all, with regards to BEAT funding. So to your point, you basically netted it out that we see the funding flowing in early 2025, right? So you're going to see the second half Going through the process and then 2025 you're going to see it flowing.

Speaker 3

So in the second half of this year, what happens to the other group that you talked about, which is if I am well, I'm in my decision making phase right now. I'm deciding first of all, do I And this is the first bifurcation. Do I apply for the funding that's out there or do I not, right? So if I go into the applying for funding, The same people who do my planning and all the work that I do for new builds are going to be tied up in the deed submission process. And so they're all going to be focused on that.

Speaker 3

And the group that decides, you know what, I'm not going to go for fee funding. I've now made that decision. I'm going to then their planning folks will go into and we'll start doing the overbuilding before bead money shows up, which will be competitive. So now back to the other group. So I've applied for my B funding second half, I get my awards, there's a challenge processes.

Speaker 3

And then in 2025 that starts to flow.

Speaker 8

Got you. And Mike, just to clarify though, when you say Funding flowing, you're not talking about awards, you're actually talking about deployments that are impacting sales at that point in time. Is that correct?

Speaker 2

We think that once the awards are made, they will start sourcing their equipment in anticipation of getting those networks being built. So we would expect to see some initial orders late, late, late in the year. Now remember that feed process is very Complex. Not only do you have a challenge phase right now for a site with the service levels with the maps.

Speaker 1

And that was going to

Speaker 2

take way into the summer before they even get into the proposals where they're actually submitting bids on the network. And like we commented there, this is the state's last opportunity to really make sure that all these unserved areas are being taken care of by the feed money. So it's in the state's interest to make sure that these orphaned locations are being picked up by these service providers that are building. So there is a back and forth process where they're going to try to get those orphaned ones picked up by somebody. And then finally, each state is going to submit their awards simultaneously for all of the participants.

Speaker 2

So there's no partial awards going on, right. So it's kind of a each state will be all or nothing, right. Here it is. Here's the date. And so that process is likely to take all the way into late 2024, early 2023 depending on what states you're in.

Speaker 2

So it's going to start coming out state by state and that's when we'll start seeing it. But the bulk of the awards will likely be made very end of the year, early 2025.

Speaker 3

That nuance is really important because as you heard Corey say, the states are focused on stopping cherry picking, right, Which bluntly when I talk to customers, that's one of the things that irritates them the most is actually that those who will cherry picks areas that they want and will not go after the unserved or the underserved areas. And this process will focus on that. And that's also why we believe our customers are best placed to win because they actually care. They look at this as an exciting opportunity to expand their footprint past Where they serve and get to those places. So that makes them the best choice at a local level.

Speaker 8

Okay, very helpful. And just to I guess extrapolate that into 25%, right, your long term target for growth has been 10% to 15%. I know it's early, but is the expectation in 2025 we return to those levels? And then just real quickly on the managed services and an RPO growth that continued to be pretty healthy on that front. I think going back to connections, Smartbiz was one of the centerpieces that was gaining a lot of momentum with your customers.

Speaker 8

Wonder if you could just clarify where you're seeing the strength in terms of the RPO growth in managed services? Thanks.

Speaker 2

So in terms of 2025 revenue growth rate, yes, Scott, we think we'll return to that 10% to 15%. We'll move back into the double digits.

Speaker 3

With regards to the strong growth in Q4 of our platform cloud and managed services, Smart Biz is one of those components. But I would point to one of the biggest reasons why we think that we have this unique opportunity in 2024 It's because our existing customers are continuing to deploy at a rapid rate, which Corey with clarity has stated is going to have an impact on Our continued margin expansion, right, and these new prospects who have never spoke to us is surprising to me In the last 3 months since we last spoke, how many product companies I have spoken to who have never done business with us And are now saying back to my point that commoditization risk is finally starting to sink in and they're keeping them up at night. And it's very clear that there's only one company who has spent 13 years and $1,200,000,000 building out a platform that allows them Differentiate in their market and win and they're talking to us. So you're going to see that continued strength in platform, cloud and managed services.

Speaker 8

Great. Thank you.

Operator

Thank you. At this time, we've reached the end of our question and answer session. And I'll turn the floor back to Jim Fanucchi for closing remarks.

Speaker 1

Thank you, Rob. Kallik's leadership will participate in several events and investor events during this Q1. Information about these events including the date Times and publicly available webcast will be posted on the Trans Am Presentations page of the Investor Relations section of our website at calyx.com. Once again, I would like to thank you to I'd like to thank everyone on this call and webcast for your interest in Calix and for joining us today. This concludes our conference call.

Speaker 1

Have a great day.

Operator

Thank you to everyone who joined us today. You may now disconnect your lines at this time. And thank you for your participation.

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Key Takeaways

  • Calix delivered a record Q4 with $264.7 million in revenue and a non-GAAP gross margin of 54.1%, as supply-chain headwinds abated and disciplined expense management continued.
  • Appliance shipments will slow in early 2024 as most customers pause to strategize and apply for the $42 billion BEAD funding, leading to Q1 revenue guidance of $225–231 million.
  • Platform, cloud and managed services maintained robust growth, driving margin expansion, higher recurring revenue and setting up the company to hit the upper end of its 2024 target model.
  • Calix views 2024 as a unique opportunity to expand its footprint ahead of large-scale BEAD deployments in 2025 by helping broadband service providers differentiate from legacy network operators.
  • The balance sheet was further strengthened with $44 million of stock repurchases in Q4 and an added $100 million buyback authorization, supporting consistent double-digit free cash flow generation.
A.I. generated. May contain errors.
Earnings Conference Call
Calix Q4 2023
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