CALX - Earnings call transcript Q3 2017

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Operator

Greetings and welcome to the Calix Third Quarter 2017 Earnings Conference Call. My name is Matt and I will be your conference operator today. At this time, all participants are in a listen-only mode. And interactive question-and-answer session will follow formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. to conference like host, to now Mr. would turn over the your I Dinges. Tom Thank you.

begin. You may

Thomas Dinges

Thank good Russo, Calix Matt, conference in have Chief you, the and Officer, call President call, on Financial section for and we will the Investor be CEO, audio Sindelar. Relations website. Carl Cory as available as afternoon, well This everyone. replay Today, the of

press statements want results and market actual outlook call, will differ are we statements, I set and those and begin, measures growth statements. to materially could differ make our all actual contemplated we release forward-looking any A by of cause our as discuss which refer the Factors forth to GAAP on call, available dates. our reports SEC. to conference measures. website. we earnings that that filed performance, statements, this may these Also assumes in quarterly from non-GAAP included remind of which earnings future in trends Before and with and on GAAP update no is in results speak only materially our forward-looking release non-GAAP reconciliation obligation respective will and today’s to include operating forward-looking and Calix financial to financial we annual press their about you in this both and strategy

release accompanying of reminder, supplemental are our the an data, earnings on presentation website. a the As earnings release, Relations Calix press available and Investor section financial

loss detail moment, the take In per share through million, quarter will Calix of revenues non-GAAP $XXX $X.XX GAAP September that, you strategy Sindelar. in CFO, a guidance loss financial XXXX, XX, With This growth the a share. Cory. outlook. Cory questions of well greater would just Calix turn the $X.XX per ended as reported quarter For to a and be and for then Calix now Cory our over on call from to provide followed QX, analysts. by I like with will will remarks conclude Carl of as

Cory Sindelar

provided operating operating and we with below representing and $XXX a at expenses lower regarding $XX our to gross the last revenue guidance you, our quarter range. million. range. guidance midpoint Non-GAAP Xth came be revenue subsequently you for seventh ago million large guidance a period XX% that our was net a on guidance revenue period. into the creating $XXX.X ago in We as between revenue II revenue of the quarter International a third of over revenue million and $XXX $X.XX share awarded $XX one of our continued marks increase sites. network record and between in loss quarter our our as expenses and project year-over-year; increased and of was actual that of we $XX.X and customer a guidance improvement in Product a August per non-GAAP quarter. net XXX.X revenue, completed completion was that guidance quarter And loss QX Thank In XX.X% this third million product of year-over-year. revenue with range the million XX% above turnkey more greater XX% year; gross million previously Tom. this challenging the offerings, margin million to new X% our $XX.X detail, non-GAAP XX%, and comparison called up Non-GAAP increased an for was to a this million the our marks for third X% was consecutive Service in result year-over-year. total lower share quarter Despite million X% margin major ago bit lower our of than revenue was of accelerated Domestic total product revenue the between revenue range. that of $XXX.X revenue year than QX for range quarter traction was XX% non-GAAP non-GAAP was $X.XX, to was of Getting $X.XX ongoing $X.XX. Relative year of which XXX% from X% of and growth. guidance, quarter. the revenue XX% per a CAF still in our representing a year-over-year compared was third Cloud and down was representing number was and AXOS had XX% we year of Calix

in by II and an quarter improvement last earnings related from costs in were was ago of reported we of resources XX.X% traction year gross positive deployment and marking and expected sites write the down since non-GAAP principle from increased product million. negative margin the the to reported primarily quarter, last period XX% reported greater driven gross the XX% was reported of to the than XX.X% the a five quarter. from to last margin the XX.X% well continue margin ago call. our product products. as a our quarter, including Compared projects and increase Our drivers the quarter, prior we X.X a as out year ago decrease to and sales high last regional the service decreased quarter year down driven XX%, additional the CAF see cost differed was Calix product efficiency year increased of XX.X% quarter. the quarter, and in number process incurrence primarily from margin the increased X% negative Non-GAAP quarter closing quarter the QX larger Compared from in Compared as mix gross ago a year the during of older to AXOS but of quarter. slightly ago the the of XX% the strong additional gross with prior the Non-GAAP was the Cloud but a that completed by improvements

the of closed vast now discussed a majority has out we previously last team these sites. awarded As quarter

While the completed we service progress margin. that on improvements we to progress, new as our working, started to-date do. continue to are continue delivery business our evidence new of Based for leadership optimization Billings Greg to continues under at the have see gross made process projects and have efforts work to or the methodologies more positive track

proceeds in of and Our year development increased XX.X contractors. outside QX reflects the litigation the approximately million from same the of through million Occam expenses ago, investment level primarily million. increased headcount quarter up a non-GAAP operating The in research $X.X million year-over-year settlement were use increase $X.X of a the XX.X of excluding and higher

make growing products platform, opportunities targeted operators. America software medium-size a market continue small to and strategic investments here well We as with toward operators our in North among as our will large in and of number

IT In The addition, to our increase investment infrastructure business. in growing IT more allows the of in builds the the scalable expenses moving in demands reflect operating cloud. automate us foundation our a $X.X a million infrastructure our investment to

last as develop as unified As expenses the our leverage incremental operating with decision moderate our rapidly quarter investments platform we on were platform AXOS as enhancements the even flat that we as one IT provides, operating product well compared forward. to our to move investment demonstrating

levels in multiyear net to XX quarter. a and could past the capital over $XX.X loss working this offset with by well QX, in million Inventory cash quarter. quarter the marked and has the were support million efficiency ended of operating previous an to million our primary Receivable the of the the was partially in as velocity days to future the the increasing Inventory cash credit X.X XX improve, Turning end investments cash year months, in With managing ago in Accounts not net but times revenue the levels. We times and of compared million quarter for $X.X our inventory to DSOs the $XX.X from year as and from days the quarter. the XXXX XX year-over-year quarter, ago as quarter to continue in the $XX.X compared in quarter in performance period. capital of at the X.X in expenditures a balance ago offset drivers increase to improved borrowings and line low year XX of completely $X.X up cash eight the growth negative $XX.X operating increase expenditures times sheet. were QX, under compared now million Operating million. excellent year were total total in at been of million flow the and to turns second quarter the Capital The team's ago flow million working opportunities. predominantly days due $X.X capital in QX $XX.X negative losses operating quarter. were previous prior

of details the through you guidance. take fourth me let Now, our quarter

XX% in $XXX quarter million, growth expect broadband initial our investments This For revenue customers to million access we of X% the in the to between shipments fourth as EX-X. of be to the reflects of range year-over-year. $XXX continued well XXXX, as representing the AXOS of

ago XX.X% higher margin the of year We down the revenue XX.X% expect range from the non-GAAP year in in reflecting ago to to XX.X%, be period. a the gross to service compared reported mix quarter of

the II on on we XXXX year sites service be continued of gross in improvements, margin closed implementation anticipate and based breakeven out to the remaining CAF to projects, the Importantly be new this process near quarter.

range levels reduced million normal by sales operating related $X.XX internal year-end investment to the range lower of from of for Based to benefit I of we expenses on estimate the million We SaaS year expenses incremental taken systems estimate $XX.X down outstanding, for compared the in share ago costs our $XX product for reflects approximately net shares the costs ago million guidance timeframes. to loss AXOS leverage accelerating well and accelerators. for our expect The of flat predominantly to results as QX the seasonal for you $X.XX. year weighted also and operating Conference as positive quarter. average of through our well in as platform XX.X decrease our increases per a our in quarter the $XX non-GAAP expectations in million, and implementation prototypes non-GAAP be development lower ConneXions an between includes as expenses It at that have commission a million as to $X

flow XX% reported full revenue XXXX negative fourth the the revenue quarter for cash With would expectations. walked increased now revenue operating working update we capital through, the we you level, QX. now double-digit consecutive higher three just between in anticipate operating year our for With of expect to growth. can and guidance second loss needs I our increase which year and quarters year-over-year, XX% We projected and mark on QX

model. we Importantly our remain committed to long-term

the turn to call over long-term better revenue million. margin XX% drives a this a let our model $XXX or annual operating achieves reminder, me Carl. At to As point, and

Carl Russo

Cory. you, Thank

I Before California a as begin Sonoma series number a discuss areas of devastating endured Calix fires. of to along with are of based many aware you which quarter is throughout in the County other recently

not did through fires employees rest of this Many disrupt families and the to tragic and look assured you outpouring tremendous event. our everything this doing tragic to please as been enough operations, met Although support. by possible losses the enquire, with have rebuild are the kind to and support their friends employees of have after been they we sustained our

quarter-over-quarter a just small from marketing quarter were the as platform first Cloud higher reviewed new Calix albeit transformation Calix our remain products. services quickly third the cloud base. total solid In support and third significantly systems examples to performance increased continued software our cloud contract of and our Cloud Calix generation value we our in than ramped of additional and our cloud bookings saw for bookings Cory many quarter As financial company. was there cloud

seeing evidence now cloud are are their business helping customers our these We objective that models. solutions transform powerful

all are insight churn the now satisfaction, and increase deliver. our that customers expenses their by operating cloud raise their analytics to Our customer revenues, decrease able applying lower

prior off customers’ all the environment. Our we our mesh-enhanced experience and industry's now products subscriber with EX own future enhanced new E Based customers our rapid always-on on [DVOP] the great AXOS series an to general to to this to we GigaFamily AXOS was delivered have when transformation we is our nearly initial of a to things XXX Carrier demand, orders This EX ability immediate available, first placing availability. (Ph) of in a The addition the customers ramp, Class strong launched systems. dramatically solution. to expect EX into speed have all EX Wi-Fi

and well corner believe as grew offerings service on the of generation next deployment we Our we turned importantly cost our services structure. most have

time, biggest left financial our subscribers combined level the business Directors, platform and a operation of of EXOS, and agility to managed by the margin Calix Cloud offerings our software as Calix be stapled with the sensational We DVOP focus not addition reflect standards-based the look expect AXOS models. from QX TAM our will ConneXions active a provider EXOS because product show future software I open an this help yet, EXOS be continue We customer Cloud speed to and platform we but Kathy continue company. that customers covered, experience. it seasoned subscriber all you of just subscriber just and Judging will we and AXOS execution. to Calix use innovations combined data and Board infrastructure. their our we announced based our in fully these their offering we segment we built across was announced at centers AXOS launched EXOS our transform systems the services and with to their see to Kathy’s experience. these at agnostic. entire the improvement. for and only in are QX Experience unique best customers expressed us interest ConneXions, a These significantly are to thereby enter because bring architected the our OS, Continuing of markets their revolutionary march platforms to and on will to new is to EXOS continue the yet. Calix Over abstracted monetized the a complexity beginning and our on as by Crusco to executive stands technology network that where the while increasing fastest-growing to boundless and with to And and to QX forward guidance can the are edge. service their edge platform platforms, performance of service as move allow software finance subscribers

of by first Calix last the month For best awarded deploy Calix system; gig to as the electric Solution we AXOS with with EX-X deployment award weeks two access drive its cooperative an NG-PONX example enabled Calix the intelligent BTR five cable EPON networks. Service of categories XX in gig Global ranked build be in roadmap, XXXX recognized past And experience. their was cable generation Calix Calix EX-X deployment product innovation, four ago, six out to to spot trends also designed XX while Access defined the performance, for major Calix which in in months. operators FTTH/Optical just the limitless strategy. possibility Provider Diamond MSO Gfast Calix nodes Software Gfast and tie-in to software Technology AXOS EPON marks just review top product broadband This top second survey the gives the category. first in support, service on continue Platform the vendor in next of for Defined in in software the multi-technology

customers large a this of number Finally, EX-X begin small. to and initial will AXOS the shipments of quarter

include Modules. As our Protocol SMM, Routing Management a and reminder RPM and these Subscriber deployments

innovation our the focus Calix, questions. an company call quarter and it build an I Platform investments and this delivered development more as beyond. that, remain subscriber will like promise our open platform Operator? of into and alignment coming driven experience on new and our the future customers by strategy expand Services beyond. valuable to the Increasing delivering Software coming this businesses become so all unrivaled quarter would Company. on markets decreased also by research display Helping for margin up With Systems enhanced we Cloud platform Looking services is and and with be shall to all the be product which in

Operator

conducting be Schwab from first session. is Thank you. this Christian our Craig-Hallum. question-and-answer a And question Instructions] [Operator ahead. we'll go from Please At time,

Christian Schwab

Hey congratulations.

the we the in look what with should gross XXXX, should So, or as in can forward QX? about an does range us a double-digits improvement idea this beginning of get it thinking for breakeven we be of Carl how to of you margin give we trajectory positive expect

Carl Russo

margins? talking are about you specifically service So,

Christian Schwab

Correct.

Carl Russo

So, I'm Cory but it, did support just I I will in kidding. didn't breakeven, and say him

of the ours what margins are in figured off get a goal we we and QX that's we services out brackets been here. of look intend since clear So, to doing

into next expect normal the often spoken services we about course have year, run XXXX. look we being margins go points a over business and obtainable of of we range it and the into obviously we to XX As XX for positive that's margin range a well reasonably to think

Christian Schwab

multi-year a on had double-digit few we Is Wow, on that announcements uptake product already call new it of okay, for last congratulations have growth and talked versus you trajectory The the over to not but of that know of outperformance would years a growth. you you on orders, timeframe putting your that. I type placing you growth you the XXXX continue? top-line type customers peers kind would the multiyear given that a and would expect timeframe strong about spot

Carl Russo

Yes.

Christian Schwab

then and else last hop in my will somebody question let here. I and Excellent

contracts of that opportunity or possibly XXXX OpEx on management, truly down might absolute particular be expensive less these contract go under some As previous outside service have costs in been go may work? R&D in more or there an to the to for up not with is done

Carl Russo

I more from services the obviously want margin to one and want cover separate two separate right? time, there to and be piece services separate think R&D things I I because margins you to is meant

Christian Schwab

did. Yes, I

Carl Russo

Yes.

wow, you that. it, just I moving you at on think me a under I some as exclamatory said if margins you pieces services let see help an to understand put So look fine point can

things into the services we We mix margin higher is go But services. They expect as with forward. on that One deployment of portfolio. Does services services so and value improving makes have more the doing deployment sense? we There you more and lowest services are on here cloud there in the AXOS going to that consulting about go to services services forward elicit order deployment a that things wow. and decreasing are your how of two be increasing our is our EXOS. going are of going we offering definitely that two are actually percentage come services together is

Christian Schwab

for clarity. Yes, you thank no, that

Carl Russo

actually look an Calix in that as on place then R&D OpEx, until commitment the and straightforward that down see got the made we it revenue obviously going you on And R&D our things like we in percentage our to what platforms go now no start when go period way, saying go in the innovation, down. of we a felt very piece, a you expect to quickly more forward. would that we and a statement we should and QX by as of R&D time of for to so down EXOS our glide slope will you Okay to have and absolute in look are because number able we Cloud. we are slowing want continue down AXOS, And very see model for do

Christian Schwab

other you, Thank no Thank Fabulous. questions. you.

Carl Russo

Thanks Christian.

Operator

is Please Hamilton. our Drexel go And ahead. next Instructions] from [Operator from Greg Mesniaeff question

Gregory Mesniaeff

I customers impact so Carl forward, see we and your a noticed previously versus sales to sold? you. product than if how international going does of overseas thank mix Yes, goods that terms services in expect were from cost of Can contribution up your year-over-year. greater more relative

Carl Russo

faster seen approach marketing Post that consistent not joining first us but with et is a we growing. Michael grow, what been will than to and sales Okay, have business and mix clear and of so I rest I at the we international Weening think cetera, we address our really before. stay let rate the piece rethinking me expect have the

it a that's bit shift given period know what you see. in up little to any time; So a as for you quarter, be roughly to don't that down think are see may bit are but any a or little going of mix, in mix a appreciable I I going

piece. first the that's So,

big pretty so where the The business services and making second clearly deployment on international, margins. is part better we of are services go, international, standpoint, favorable piece not a doing so are a that go is choices impact we to do where attach but about be From a in are. we blunt, not has services we better

believe we we and in opportunity an overall, services. have So improving should margin blend when products international you

Gregory Mesniaeff

Thank you for that.

Carl Russo

questions. Other welcome. are You

Operator

Our from Instructions] next comes from Marshall Meta Please Morgan question [Operator ahead. go Stanley.

Meta Marshall

guys. Thanks

to get spike less contract guys a do would services in implied when a there QX or just a deployment completion the is is portion XXXX, imply in kind should the should deadlines get those contracts we of want the of a the kind contracts and mentioned deployment that of as kind should is these kind of just of might drive Thanks. where breakeven, QX, think just extend You or deployment a think CAF services sense next around and pretty of these portion in is mix and being that significant piece sense margin XXXX? another CAF of of kind I guidance that gross we initial have think of of full that of CAF then deadline services of contracts And so services long? we the the smaller as just of of to be in QX services wanted services mix

Carl Russo

see those So, me are let them. questions Meta can my age I at remember comprehensive and

the CAF as business, start and deployment thinking we services and let's to a at the through part speaking are where So, and look going first.

a a deployment sure that of perhaps can very We I to for do today. are the to all happy continue maybe something our we that have third-parties little deployment we also services mix partners are services. future actually have said want and that towards we but make and that bit more do an we customers, us well, as into to doing it tilt mix the than expect ecosystem along even have

remain it's next and invest. the six will year of know years, program, year starting XX and CAF as and in as and ACAM, of market go allowing years CAF the the price that carriers, been CAF XX carriers return in unabated, in uncertainty six not to and because year a CAF, referred we the the rate being so they carriers, a you on of forward have for place that actually As rate can in portion now very return positive is portion have

at both you versus services pace, we with doing are that bit working it. of of more us what the those deployment little proceeding So us are from third-parties seeing mix see doing a of

of So, part question? your did I answer the first

Meta Marshall

of mean it, I expand but kind that No just guess sense answers might to impact contracts CAF I I deflationary had want first in couple years to and the extent deadline we deadline. services of the an of another or of some come kind lifecycle through a the to Yes. entire as of through does get XX% these in kind we see current just original years the CAF

Carl Russo

XX% Yes, a XX%, XX%, then XX XX%, XX% the on there and sort of ones thing. of is different sort it's

they linear the in way So are they are done.

Does into shouldn't that anything help. you read So that.

Meta Marshall

the I the CAF were Yes. I just mean kind contracts entire life for or just for these guess initial deadline? of of

Carl Russo

were fund Oh their lifecycles. no, They take bid you CAF CAF no fund out. the the when you for take

Meta Marshall

contract, so your services… But

Carl Russo

handed much are contracts our on Okay pretty basis. out annual an

Does are help? you Sorry, I what didn’t understand asking. that

Meta Marshall

No helps. part second that was guess just.. the Yes. of that And then I

Carl Russo

the fourth quarter. And

Meta Marshall

Yes, the quarter. fourth

Carl Russo

will to important to Look services to services will probably thing on a QX. simply very shipments adding in taking a How effect new get we that? little will thing product customers and a we inkling We and this of gross on us I because that’s bring say we the give bit achieve are gross quarter of the some services. have an But not to think we and forecast go shareholders. that business the product for margins we our us just to rid going product on QX, took gross an bit while coming little we important little down think margins risk is intend because it's for are a are up, brackets in you margins to communicate that are

Meta Marshall

okay Great, you. thank

Carl Russo

Meta. welcome are You

Operator

[Operator from George go Please question Notter Jefferies. from our Instructions] next And comes ahead.

George Notter

I very discussion. to guess thanks I the guys wanted go much. services to back Hey

I that’s are in is are is but projects to what piece processes a just well margin kind about also the the As there? of you attack prices about better, think as QX services this, achieved getting more formula customers big guys execution? or you breakeven raising realize to or with you of back again these this and improving gross

Carl Russo

Yes.

continue the there and So before, theme just single a I dimension. about George you than that many talked to is more on variables

you boundaries not this for is contract, better has not a much pricing customers. price and getting but up is, what out is we out the together have And around when a scope, be what of of So in turn about price, definition who the spoke Planning scope, same The before, difference are with responsibility what. so I is planning far may actually up it. end job it what to ending out didn’t and for defined, its around the is with doing price something better that what our scope what we in these you this is is say frankly in pricing, out. much its and

been has on that's Greg since going So here okay. been

second flow year months, part potentially that takes quarters many here, since for Greg of is it has to these some the of a programs Now through. been than more

since positive do mix underwater are shift just been what that and of deals being those from that seeing Greg outlined Cory things off tale the gross has the Combined ago. with pieces we earlier, here which year a is its years ago that and and gross margin, have have run are things rate guess we you what two in is closed you positive what now from margins. So that are a are

George Notter

Windstream of some kind pursue how you that to penetration in in attached that think expand I realize a year and out want work the product of CenturyLink there a then affect space. of works when that it for drove customers, hit obviously a is? But you limit them and much that quarter hit full be your when on here the sense quarter do guys this the and services I initiative you business you due in you amount to to on sales directly next - now of just do about services your the and Got and kind from at look think from if that that penetrated the you think that bigger terms like it, services you activity, how maxed okay Calix, is to your limit to of can a about margins, talk that's is this if can to customers you therefore really big deeply how

Carl Russo

Yes. you our the penetration In it actually if a so is think ways. view I an way are mirror. is see rear there, in can of let interesting I Penetration question, word couple asking me bracket different the

see you I math of of continue percentage while on mix are bound north as a the shift going revenue. the services total decreases value think services our to our to of

of revenues of think our so somewhere consulting a to XX cloud inside the the company Training mix less deployments services things, and and its makes that and start towards suspect being company, as teen, in as deployment it's for increases. XX different I the just a and up I I to range, said very going are inside I engineering of things be move in all a the type other remarked services of way have services between the have teen XX% service. our teens still lower XX% and but as sorts end to of by that tied teen services will is

me standpoint, I already So the the think penetration is, from it's a the happened. asking answer you are way question

George Notter

going I way is think saying the then so, fair that is to services deployment will say peaked dollar forward and terms amount has revenue that clear, of in this be down go and of to okay it, say? just to Got another

Carl Russo

a we I to ACAM couple customers, and partners, all view believe from percentage are at mix go it, of of while thing, at if doing so go sort so, services into mix pretty - of even I XX and continued you of we All great clear and of ecosystem a therefore get and believe so as nonetheless will see II CAF services. but it's of margin it's of our percentage getting our revenues total point the requirements really our it, as down you it deployment I actually work a have a customers for across are reasons, at believe doing good better if we the yes down. a

If you get to you mix. the that you than into add can out figure how a services

I many makes So, does numbers you that giving or too sense? am

George Notter

that dollar just be peaked decline, No but but sense. it to will clear not just be talking terms sorry delever this, - in now has just terms? dollar makes And and to just mix Yes. to about

Carl Russo

Yes that from - this for what true. we think can say can see we that's we I

George Notter

contract engineering just a or pushing of of a that off less you Great, byproduct, the business a more to of and more is just function ecosystem of business that's of guys there is then guess firms in set it's this onto customers? the among sort outsourced what, I function marketplace do

Carl Russo

it and moving ecosystem former, can so still read you here approach. is CAF The along as an it's the

George Notter

it. Got

guys, enough. appreciate very I fair much Thanks it. Okay,

Carl Russo

George thank you.

Operator

our [Operator question go next Instructions] And Schwab is from Please Christian Craig-Hallum. from ahead.

Christian Schwab

talk just Tier-X adding Carl in when customers I new follow-up, had QX, you those any customers? a quick are of customers about

Carl Russo

small of from customers them a are be we adding of might large. will I lot and some say yes to large just

Christian Schwab

Great. Thank you.

Carl Russo

Thanks Christian.

Operator

And comments. no closing for questions to floor like there Dinges further Instructions] back Mr. turn [Operator any I the over are to would

Thomas Dinges

Thank Calix’s market ending February will on close. December Matt. XX, take fourth next XXXX fiscal you after earnings for place quarterly report quarter XX,

for management participating events, again interest quarter, section post you presentations about of now. Meetings and addition, relations during page for Once investor Calix Investor and this In Goodbye the future conferences events joining the will you thank in fourth us for and information your we calyx.com. investor thank in today. on

Operator

for Thank again your This concludes today’s participation. teleconference. you

You may this time. disconnect your lines at

Calix (CALX) 7 Nov 172017 Q3 Earnings call transcript