Q1 2021 Calix Inc Earnings Call
Greetings and welcome to the Calix first quarter 2021 earnings call.
At this time all participants are in a listen only mode of.
A question and answer session will follow the form of presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Now my pleasure to introduce Tom Dinges director of Investor Relations. Thank you you may begin.
Thank you operator, and good morning, everyone. Thank you for joining our first quarter 2021 earnings call today on the call we have CEO Carl Russo.
The financial Officer, Cory Sindelar, and President and Chief operating Officer, Michael waning.
As a reminder, yesterday after the close of market, we released our letter to stockholders in an 8-K filing as well as on the Investor Relations section of the Calix website.
This conference call will be available for audio replay on the Investor Relations section of the Calix website.
Before I turn the call over to Carl for his brief opening remarks, I want to remind you that in this call. We refer to forward looking statements, which include all statements, we make about our future financial and operating performance growth strategy and market outlook and actual results may differ materially from those contemplated by these forward looking statements factors that could cause actual results and trends to dish.
Materially are set forth in our first quarter 2021 letter to stockholders and in our annual and quarterly reports filed with the SEC Calix assumes no obligation to update any forward looking statements, which speak only as of their respective dates.
Also on this conference call, we will discuss both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in our letter to stockholders.
Unless otherwise stated on this call we will reference non-GAAP measures with that let me turn the call over to Carl Carl.
Thanks, Tom.
One year ago, we saw our business began to accelerate and we question how much of the growth was due to the work from home shift driven by the pandemic and how much from investments in our new platform offerings.
As the year progressed, we became more comfortable that the majority was due to an uplift in our all platform offerings.
While there is much work to be done.
We can now see a path to ending of the pandemic and.
And with the pandemic slowing across most of the regions we serve.
Our bookings remained strong.
And were robust this quarter.
It is clear calix platforms have been the substantial driver of our growth for the last four quarters.
In a quarter, where we again had no 10% customers.
We grew revenue by 60% year over year.
We saw strength across the business.
And our visibility continues to improve.
While the supply limitations remain our largest challenge we again outperformed in the quarter the.
Enabling us to exceed our guidance and build the inventory to support the success of our customers.
However, with silicon on lead times stretched out the 50 weeks from 30 weeks in some cases.
We expect supply to be of challenge throughout the remainder of this year and well into next year.
As we continue to invest in growing our team. We also remain focused on keeping our culture type.
This keeps us well positioned to continue the capitalized on the opportunity ahead.
We have the financial strength.
And the process maturity to execute on our mission.
To help our customers simplify their businesses.
Like the subscribers and grow their value.
With that let us open the call for questions.
Errol.
Yeah.
Thank you we will now be can definitely of the question and answer session.
We would like to ask the question. Please press star one on your telephone keypad.
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Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your questions.
Thank you. Our first question is coming from the line of George Notter with Jefferies. Please proceed with your question.
Hi, guys. Thanks, very much and congratulations on the the great results and guidance I guess I would like to start by.
If you guys have any.
The new commentary of updated commentary on the component lead times situations supply chain dynamics.
I guess I'd love to just double click on what's changed over the last three months since in your mind.
So George as I said in my prepared comments.
This remains the biggest risk on the downside to our business.
It is the struggle every day.
And we expect that to be a challenge in the second half as you remember.
Back four months ago lead times went from 30 to 52 weeks, which sort of created the debit out in the second half.
But what I'd actually like to do is.
Yes, Michael the add some color on the work that goes on and what he's seeing from his purchase of the President and Chief operating Officer, and then Furthermore, as Corey to come on afterwards, and add some color as well Michael.
Thanks Carl.
Mentioned, we outperformed in Q1.
And as we look at the future quote corridors. The focus that we used to have which was just on the big chips that would pop up and be an area, where our supply team would focus on is now shifting beyond that to all component because we're seeing some proto basins in the market that are a bit of.
Of a surprise in that it could be of Tencent chip it can be of $1000 chip and so as we go forward and we look at the supply chain, that's where all of the data on analytics and and focuses on process will pay dividends. We expect that we'll have to focus on that.
And that is no longer just of one off multiple quarter scenario, it's an industry wide challenge that we've invested in to be successful.
The long term I will say that one of the hires we're really happy about in Q1, as we added Gerry senior lender, who has run multibillion dollar of supply chain. The comes from Commscope and Arris and along with the other folks who have joined the team in Q1, and Q and Q4 last year from Gal and other large companies, we've really bulked out or.
Supply chain teams, who are able to meet this.
The challenges ahead, but we see it as something that will happen.
Every quarter over the long term and we are ready to face it.
Gordon it's Michael.
George last quarter, we mentioned that you know some significant silicon pushed out from 32 weeks to 50 weeks.
I'm just kind of highlight that even though we performed better here in the near term and then took up our second quarter guidance. It still creates a kind of the inhibitor of hold back on the half back half of this year.
Because ultimately, we just kind of skipped right over the fourth quarter we.
We continue to work that problem.
So we still think next year in the second half will be of harder supply chain challenge than the first half.
And we also think we see of this broadening as Michael said the greater.
Net of components so.
So we're seeing new challenges every day, we have to get up and continue to work the problem.
Got it and then just as a follow up on that can you talk about.
Supply chain impacts on the Q1 results.
Is there anything you can say in terms of how much revenue you werent able to ship in the quarter or also impact on gross margins in the quarter.
Yeah.
Carl Youre on mute.
I don't know Ken here Carl.
Currently yourself muted.
Okay, everyone. Please standby, while we get Carl back on the line.
Operator, Carl is dialing back in.
Okay.
Hello can you hear me now back online, yes, we can.
Okay, I'm not sure of what happened there I apologize I apologize.
So yeah, you know George when you look at the work that went on.
Our focus is on the success of our customers and.
And in actuality with all of the work that we do in the quarter, we do a very good job of actually sort of staying with our customers' demand.
No there really wasn't any pushes or pulls.
In the quarter.
And what you've seen in Q2 with the guidance is the result of the work that the team has been doing throughout Q1 and into Q2, we feel like we can supply more demand so to your point what the supply has made it difficult to do is the forecast.
I mean, we have strong demand, but our expectation setting is actually bound.
By the supply chain and the challenges that we have.
And so in the quarter, it's a good question.
Really no significant pushes or pulls them and we hope to do the same obviously in Q2.
On the margin side. It also makes things more difficult to predict as well and then this quarter it sort of caught us a little bit. So Corey maybe you want to cover that one place.
Yes sure.
Inside the quarter, we clearly over performed on the gross margin line.
And there were really two drivers for that.
First one of the drilling around product mix.
We had some lower margin systems.
That did not ship in the quarter.
I'll give you some component shortages for.
More significantly didn't reach the reported destination by the end of the quarter due to logistics delays.
These products will ship or be received in the second quarter.
The results in Q1 is that we shipped higher margin system products than we were originally anticipating inside of Q1.
The second and probably as.
Larger.
Impact on the first quarter margins.
Really had to do around.
Airfreight.
With the partnership that we've established with our customers throughout the pandemic and as well.
The performance by our supply chain team.
We were able to ship more of our inbound shipments of away from costly airfreight.
Towards Ocean based transit.
The resulting in lower than projected free costs.
We expect that we will continue to be able to move away from air freight from the second quarter.
But I would also kind of pointed out that.
We have higher transportation rates from all shipping options and that they remain elevated and we will continue to have an impact on gross margin.
With the broadening of.
Chips with longer lead times.
What we're seeing is we're going to have to move to the spot market. We're paying premiums. So we still have the struggled with ppvs.
To meet our supply of objectives and satisfy our customers.
So George our Q2 guidance reflects our best estimate at this time of all of these items on our gross margin.
Great. Thank you very much.
Thanks George.
Thank you. Our next question comes from the line of Paul Silverstein with Cowen. Please proceed with your questions.
Not to give you all of a hard time on such a good quarter, but I am confused by a number of the responses to the previous question no doubt that's my shortcoming not yours.
Without the Big one let me ask.
So you're seeing on gross margin and revenue growth were not at all impacted they would not have been better let alone much better.
But from the supply constraints, but I could swear I just sort of course that.
You could not ship.
Some products they happen to be lower gross margin, which helped your margins.
I assume you didn't ship.
The higher margin more full function products move to lower margin products.
The customers.
Hey, you're more of those higher margin products. So if that was in fact of the case I understand the benefit.
I understand the benefits of gross margin, but.
Through commonly wouldn't that have adversely impacted the revenue figure.
The revenue would have been that much better but for your inability to ship those lower margin products for which you didn't have have components.
Yeah, Let me, let me see if I can simplify a poll on I understand actually the conflation of because of the way the sentence was juxtaposed. So there's two big words for the morning.
The key the core he said that I would direct your attention back to was one of the things that actually got on the way was the freight challenges, where we actually shipped items to a customer of the customer in essence is happy with them, but they did not reach their destination in time to be recorded as <unk>.
<unk>.
And so we did everything we.
We can do.
The customer is happy, but it sort of got stuck on the freight across the black or that was one of the.
The mix issue is the core he is referring to and I will tell you that particular mix issue was or the lower margin product. So let me just intersect those two let's say of that helps you get through the confusion.
So how it got there.
It had arrived on time the revenue would have been higher for your margin would have been low.
Correct.
Okay.
Well, let me move on.
And welcome to the Suez Canal.
Okay.
Alright.
Oh.
The.
Sure.
If I try to reconcile your car.
The ability to ship against demand book.
The challenges presented by the lead times and the broad being sort of more than just your high incentives.
Youre, just doing a better job managing inventory.
Let me ask you a little bit of what accounts for your ability to ship against the man the comments about your.
As I interpreted in the buildup of inventory stocks.
I also wanted to ask you Carl you last quarter had observed at the silver lining and the Zip.
Apply constraints was that an already significant portion and a growing number of customers. We're giving you long term insight into their plans, which is not typically the case, which in churn I assume translates to much improved visibility.
Over at least the quarter two of not three.
Has that continued in terms of an increasing number of customers, providing you the visibility, giving you more confidence.
And also the question about the inventory build up relative to the extended.
Lead times.
So if you actually track the bread crumbs in your question you sort of believe it or not answered.
Part of your question in your question and so let me see if I can tie that out for you.
As we've discussed as we are increasingly success based as.
As the the.
The stickiness of our software platforms increases and delivers those outcomes for our customers.
20 years of building our relationships with these customers, we're getting a better and better view into their businesses. The envision us sort of working with them. It may or may not be orders in most cases, it's not it's more planning, but we now have a better understanding of what we're trying to run after with supply.
Then comes the second challenge, which is now trying to figure out how does the sale.
That supply so you could sort of it's sort of counterintuitive in an old world box ship business.
You wouldn't build inventories you just the shipping everything you brought in but.
But what we're able to do because of the visibility is as we are in essence chasing components on the supply chain to help our ODM players et cetera.
We're actually building inventories.
While we're also laying out the demand for the future and raising predictability.
All of those things combined.
Component supply is still going to be our number one issue.
From a predictability standpoint, so let me stop there and see if that answers your question.
And I may ask.
Sure.
In a moment here for Michael on Cory to chime in but I just want to see if that's framed it for you.
Yes, it's good enough for now I'll revisit offline.
Okay.
Thanks, Paul.
Sure.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next questions come from the line of Michael Genovese with West Park Capital. Please proceed with your question.
Great. Thanks very much.
On the conference call.
So one <unk> there was outperformance you guys beat and Youre, saying the supply chain was.
As expected so clearly to me that means you sold more license sales and sold more services to come.
Customers that already have hardware Inc.
In place and so what I'm wondering is do we have a metric I mean, it sounds like land and expand to me is what we're seeing and how are we supposed to follow the so what is the metric where we you can see this I mean, all the questions of ours are about hardware and to me. That's the least interesting part about the story so what should we be following.
To.
The land and expand.
Yeah. So welcome to the call first of all of my Thanks for coming on Board and now what you're about to hear is what everyone else on this call, it's probably already heard many times.
It is of land and expand story, but for competitive purposes, we don't break out what you would look for in the traditional software metrics of the land and expand story.
So the way we the best thing we can do is to tell you that the mix is the mix shifts youre going to see the gross margins expand and at this point literally for competitive purposes. We don't break it out there may be a point in the future of where we do that.
But yeah, there's there's nothing else I can point you to I don't know of core if you have any comments you'd like to add to that.
Yes, I think the only comment I would add is we also provide you.
Bread crumbs every quarter on some of the bullet points in terms of where youre seeing some of the growth rates around customers that we've added.
Because that kind of gives you an indication of the landing part of that land and expand equation.
And some of the the metrics around our platforms.
Right Okay.
Great. So so on the gross margin.
Have you guys ever thought about is there an upper bound do you want to put on this I mean 100 to 200 basis points of the year well into the future until we get to 70 per center.
And I mean, do we not want to talk about an upper bound.
So we've been asked if the business can be 60 per cent or above and we've answered yes.
We've also been asked is there an upper bound and the problem is we don't know.
We.
We model things.
Until the cows come home, but the different revenue streams in the business as Youll learn as we dig anymore.
So different and the margins can get quite high that it.
It's really very sensitive to the mix of the future business and we simply don't have enough runtime on the model bank.
And then last question for me is just on the last call you talked about 10% revenue growth for the year.
And you talked about.
Still hoping to deliver the one to 200 basis points, but that it was going to be a fight in the trenches.
Any updates on those comments after this quarter.
Yeah. So.
I'll just give you a quick piece on the revenue growth and then I'm going to ask <unk> to comment on the gross margin.
On the revenue growth pace, obviously, if you look at Q1 performance and Q2 guidance.
And you know.
If you simply keep the numbers, where the street of the numbers today, which by the way given what we're seeing it from the component standpoint.
I'll make a comment on other than we've got a lot of work to do in the second half of the year on components.
It would signal that we will grow this year of 15%.
And I would merely put that into over the last few quarters. We got comfortable that we could grow we could sort of at least run at this level of demand than we said we could grow at the bottom end of our range of 5% last quarter. We said, we thought we could get the 10% of now we're saying, 15% so you're seeing that progression.
We get increasingly comfortable with demand, but it's tempered by the global supply chains. So right now we look at it as a 15 per cent for this year.
We're not going to change the model from the analyst day from a year ago.
Until we're ready to change the model. So we will stand Pat on the 5% to 10% growth on the 100, the 200 per.
The point.
And the gross margin.
The core why don't you take that went on in place.
Yes.
Last quarter, you might recall that we said we would.
Thank you the challenging to get to the 100 to 200 pieces of improvement of.
For our target financial model.
But in light of our first quarter over performance on gross margin and the guidance we provided guided for the second.
We are becoming more comfortable that we will achieve our target financial.
Financial model for gross margin increase this year.
Great. Thanks, so much for answering the questions and congrats on how exciting the story is.
Mike Mike Welcome on Board, we appreciate it.
Yeah.
Thank you. Our next question is coming from the line of Ryan Koontz with Rosenblatt Securities. Please proceed with your questions.
Alright, so that the need to update their systems of bits, but.
Need them up obviously now.
So the question on on the guide and.
On the typical seasonality, obviously, the more software content here and.
Less hardware and dependence on on whether restrictions, but obviously your customers still deal with weather.
Whether in the installation of fiber and that sort of thing so how should we view.
Is there is a question is there a new seasonality in your business.
The higher software content number one and number two are you seeing.
A faster release of budgets this year or is it purely of mixing of changing customer behavior as it relates to software applications non outside plant more CPE can you kind of you know.
Share some thoughts if not.
Quantitative qualitative thoughts on the seasonality would be great. Thank you, yes, I'm going on.
I'll address the seasonality piece, but I'm going to ask Michael to chime in and.
And talk about.
Our focus on our customer success, because that's really.
In the future of what drives the so.
Ryan as you know as you've come on board at Needham.
Youre going to hear us talk about the land and expand and working with our customers to succeed we have said in the past that we expect our business to slowly, but surely lose the traditional telecom seasonality.
Obviously last year was an unusual year because of the pandemic and when exactly the opposite to that but we think this year is going to be much more representative than subsequent years of the future of this business, which is decreasing the connected to any of those things whether it's the quote unquote budget flush of the seasonality of fiber.
We are so very focused on not our market share, but our customers market share and their business outcomes and since we have a moment Michael if he wouldn't mind relating a little bit to help Brian get a sense for how powerful that is.
Sure the.
Evolution that we've seen in the Calix business model is one where we moved from in the past and what our heritage was where we started out as of a fiber company and we help them do what you mentioned the build out great fiber networks, and where as we've invested in.
Significantly over the last 11 years to build out our software and cloud platforms, we have become a business partner and the customer success organization is working really closely with our customers to identify how do they actually use the insights from the data that's in their network to understand their subscribers and the notice and then convert that into a re.
<unk> churn growth in <unk>, and the acquisition of new customers and the way that we do that is really around three things. The first is it.
Given the simple operating models that exist in the marketplace. So on the fiber side that means our platform sit on top of it we collapse the CIO and you can run it at an 80% of savings in Opex, while at the same time driving an incredible go to market with regards to the premises, which is very complex on not unlike trying of.
Work your way through of John Goll, we make out of very simple Opex model, because we help them. We do all of the integration and then they just get up and running and they run the same thing 80 per cent reduction in opex and that converts itself through things like reductions of truck rolls. The second thing that we do is we help them excite the subscribers and that's very focused.
How do you actually beat the consumer directed.
Direct to market companies like Google on an Amazon who are trying to win the home and we think the the broadband service provider is best positioned to do that and our customer success organization worked closely with them on how do they understand that subscriber how do they put great go to market and price and then how do they grow the revenue with that subscriber and then.
The last those two pieces come together simplify and X sight into our growth model and growth in value of their business and that can be to their community to their members. If they are of cooperative or to their investors if there.
A public company and so all of these things come together to drive great customer success of what you're seeing and the growth is actually an expansion of our Tam in customers, where 20 years ago, we were relevant in the section of their business, where now relevant in all sections of their business and the Best example, I can give you is GBT in Texas.
Who is built out invested over $300 million and a world class fiber network.
Fastest net flicks.
Network in the World.
They did that with all cash from from the business and then the second part they rolled out our revenue edge, which is the marketing cloud support cloud or on their call Center.
On our Giga spires, which gives us great Wifi six and allows them to have a platform in the home that puts services on top of it and those incremental services generate incremental revenue and what are the benefits to them well they've now got an NPS of plus 44 of they've seen of 25% increase in loyalty and Theyre, just one customer basket.
So on 95% adoption of the edge suite, we ran over 20 million FCC broadband performance compliant tests. This this quarter for our customers, which is unheard of.
Miles ahead of our competition.
Out of networks ran on marketing campaign and drove a 60% increase in adoption of our mobile app on the.
Last one that we press released this quarter was novato with of 99% uptake on the premium Wi Fi upsell. So these are great examples of where no longer the company and that just provides on the hardware where the company that actually helps them build them very very successful business and thats why they are selecting us more than they ever have before Carl.
So Ryan Thanks, Michael and Brian So let me just point out one items.
On the enthusiasm you hear on Michael's voice.
The enthusiasm that courses through the veins of every calix employee because of the mission is now <unk>.
<unk> our customers succeed it's a very very different energy that goes through the company it's quite exciting.
That's helpful really really awe inspiring thanks, so much.
Thank you. Our next question is come from the line of Tim Savage of with Northland Capital markets. Please proceed with your questions.
Oh, sorry, good morning. Thanks.
The first questions on the gross margin guidance.
Thank you you answered it in part from earlier on but I just wanted to follow up a little bit.
So youre looking at margins coming down on the neighborhood of 200 basis points on the similar revenue level to what extent is that mix with regard to these lower margin systems.
Creeping into Q2 versus any impact say on the pricing.
Pricing.
On chips or other type of input cost increases can you.
Try and.
Assess the relative impact of both of those or any other items on the gross yeah. Cory why don't you take that one.
Sure.
So Tim.
The.
Significant portion of the.
Q2 guidance being down relative to Q1 is the push.
Pushout of the lower gross margin systems.
There is a little bit higher ppvs.
Obviously, when you're out and buying those components you got to build those components and then the following the inventory in terms of the revenue.
So you know ppvs up a little bit more than than it was in the first quarter, but the largest component of our margin guidance relative to Q1 in terms of decline.
Is the lower margin product mix.
The challenging.
Q1 to Q2.
Got it thanks and with regard to.
Kind of the outlook for the second half of the year Youre on.
We've taken on.
Yeah.
Well, you've been taking a fairly conservative stance sort of things and doing much better but.
In terms of the second half, you're obviously forecasting of moderation revenue from the first.
I wonder if what kind of expectations you might have.
In terms of Opex in that regard.
Adding to a pretty significant uptick in Q2.
Parenthetically I'd be interested if there is of particular focus on on that spend and.
Whether you expect that to continue to creep up through the second half despite at.
At least on the operating plan of revenue is moderating.
So let me.
Let me address first the conservative nature.
Tim.
I'd like to tell you were being conservative actually we're simply trying to grapple with the.
The significant variability that's in the supply chain is that variability narrows.
Youre going to see us try and.
Narrow in essence the <unk>.
Range that we're thinking through.
The raising.
In Q2.
If you will.
From our perspective looking out.
Indicative of us having more confidence in the supply that we have laid in for Q2.
So I think what true in retrospect, the appear conservative, but what it really is.
The prudent given the variability that we've been chasing in the supply chain, so let's see what.
It looks at the end of Q2.
To that end as we plan on Opex as you know we have a model that we laid in on the analyst day.
And if you do the math, where we're not investing for ultimately in that model and we intend to hack our way.
Of that model because the opportunity is in front of us and it is large.
It's getting larger I mean, we.
We haven't spoken about art, often that's fine, but I mean, if you go to simply look at the summation of all of the plans that are being talked about in North America, It's like there's $350 billion of.
The discussion around the different broadband funding plans.
This this opportunity in front of US is not going to stop on every new network is an opportunity for us to help the.
The customer deploy of new business model that Michael spoke of earlier.
So we're kind of fight hard.
To invest slowly.
And so you just simply have to look at our model that we laid out and then look at the revenue expectations and know that that's where we're going to drive.
So that's the best way I can answer your question.
Great if I can maybe sneak one more in I'm, obviously international.
The strong point in the quarter I Wonder if you have any more color on what's driving that growth of your expectations going forward.
We didn't mention it but I was wondering if that's any.
Kind of a factor from a mix of perspective of driving margins as well.
International typically will affect margins as it is somewhat lower margin but.
On the major issue in the international as you've heard us speak throughout.
Is the refocusing of international that Michael did frankly, when he joined to get focused on the line customers and being a profitable business.
And that business is frankly, just benefiting from I think what we've seen around the world and increased demand.
I think Michael would be the first day to tell you on I'm going to ask Michael to speak a little bit about international and North America and the sequencing.
Because the opportunity in North America as large and then maybe I'll ask Cory to add some color as well Michael do you want to just give a few words on international and non core can you follow up please.
I can't hear you.
So I was trying to talk louder, while I was on mute.
On the international market for Us.
Or what Carl mentioned and it's very focused on aligned customers. So if there's a customer who understands that we help them build the business and we'll grow with them.
If they're just looking to buy.
What I call the dumb box Wi Fi dumb fiber and we're.
We're not that partner, we're a company who bilge simple networks that have the lowest the opex excites subscribers.
Then grow and that's the focus for us so whether they are international and North America.
We will be with the line customers.
Corey.
Yes.
You might also see in our 10-Q, we did a breakdown of the revenue by geography in the year over year.
We saw good growth across all of the all of the geographies in particular in Q1 of the Middle East was up.
<unk> told you that each quarter, it's lumpy it bounces around.
So on the first quarter, you had some sort of particular strength in the middle East.
Obviously, Europe would've been stronger had oh, the ship needed to its destination and Tom.
So so now we're seeing some good progress, but I'll just stress that it bounces around from quarter to quarter.
Thanks Corey.
Thanks, Tim.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next questions come from the line of Paul Silverstein with Cowen. Please proceed with your question.
Carl I'll apologize.
Misunderstood.
Response on a previous response of the question about calendar year growth outlook.
I heard you say you are looking at 15%, but I sort of I heard you on the <unk> Xpress, you're leaving at the five to 10 did I Miss here.
You did.
You may have misheard or I misspoke, but.
Let me just reiterate what I think I said, which is given our Q1 performance and our Q2 guidance.
Just leaving expectations as they are for Q3, and Q4 and again, but the supply challenges. We have obviously, we don't guide for the year, but we're making it very clear we got a big challenge out there.
If you just look at that it basically it takes us to 15% this year over last year.
Okay, that's one of them.
Yes, no absolutely and then with respect to gross margin again on.
Understood.
You guys now are saying that you think you will deliver the 100 to 200 basis point improvement target of last quarter were seeing would prove to be of challenge or the small.
That's correct.
That's exactly what Corey said, you heard that right.
Okay I'll take the Russell one thanks, so much thanks Paul.
Thank you. Our next question comes from the line of Ryan <unk> with Needham <unk> Company. Please proceed with your question.
Ryan could you check on it yourself muted.
Sure well thank you.
With regard to the model and thinking about Opex and the lifting of the pandemic also kind of combo, losing all of this going on.
How should we think about where opex is depressed today because of the less travel and other expenses and what would you know how many you know 100 basis points are we looking at on on Opex impact from pandemic, because we snapped back.
Looking out you know a few quarters.
Yes, I'm going to ask Michael to speak to the travel piece.
I wanted to I wanted to swayed you from over thinking this for the following the reason.
The call your attention back to the model that we laid out back in the analyst day on just before we all close the the company down.
In March.
Because that is what guides our investments going forward. So parsing the travel piece I'll, let Michael speak to but Brian I want to caution you we are going to pursue our opex model kind of fulsome matter of Michael got.
Got it.
Yes as Carl.
I'll mention we're in growth mode.
With regards to travel.
Look the pandemic has brought up.
The permanent changes the way that we actually do business is not going back to the way. It was before while there may be some managers, who wish that everybody would come back to the office and it was exactly the way. It was two years ago that isn't happening. There was multiple studies have been put out that says employees are going to be force back into full time officers.
There is almost 40% of them say they'd rather quit then go back to the way it used to be two years ago at the same time the productivity gains that.
People are seen by allowing on work from any of our culture, which we've had in place for five years.
All of the pandemic had no impact on US we were already doing it but they're all are seeing the benefit of it and at the same period of time people have migrated out of the big cities, because they want to of a better life and thanks to the broadband providers that we support you can actually go live in the small towns get a beautiful house have a view of the mountains would carry through.
<unk> behind you and have fiber to your house and work is if you live in downtown San Jose. So this is of great experience for these people and they're not going back.
So we see that the growth momentum will continue.
And then at the same time, our customers have changed the way they do business in the past, we would always be face to face.
But they're doing the same thing a lot of our customers are saying, hey, I'm no longer going to be in the office. All the time, therefore I can't meet you all the time I wasn't necessarily comfortable being on the video conference in the past now I am and no I don't want to come to the office because I'm actually maybe I can you put on our every day.
So it's not just how we want to engage with customers at how customers want to engage with US. It also allows us to bring a big virtual team into the meeting with the customer where in the past. If you look at the sales organization that existed at calix five years ago, or even 10 years ago there'll be a sales rep in an ASCII now you have of customer success.
Organization, you have specialists, who are data analysts and data scientists you have call center experts so bringing all of these different people together to help the customer build their business is something thats really hard to do if you want to bring five people from our side and five people from their side together. So it's just more efficient so where does trap.
We'll go on the long term.
I don't know I think that we're going to be from a travel point of view of it'll probably be 40% to 60% of of the travel that we used to do.
And what Youre going to see is our customers really embracing what the customer success organization has done at calix, which is run tons of virtual events, where we bring those customers together five or six customers together on a virtual circle of success with which Martha galley and team actually invented when we were at sales force brought it to <unk>.
Which is incredibly popular with customers around 510 customers getting together sharing their best practices and their experiences and helping each other learn and grow. So that's my answer on travel it's not the same at all and never will go back.
Got it Carl correct Michael.
As a reminder, if you would like to ask the question. Please press star one on your telephone keypad.
Our next questions come from the line of Michael Genovese with West Park Capital. Please proceed with your questions.
Alright, everybody else is doing it so I thought I'd come back to them.
So the small customers has been strong for a while when I look at the numbers for the quarter. It looks like sequentially. There was a nice change us better than seasonal change certainly for medium customers.
So two questions one on what's going on with medium customers and then to.
When our large customers can get stronger again do you think.
So let me frame this and what's going on which is we are writing and absence of wave of disruption and anytime you're creating a new market.
It's almost always true that small customers are the ones. The first see it and move to it they have lessened tertia. They also have less ability to resist those forces.
And so it sort of works its way from small to large.
The medium customers.
In large part are the ones that are being restructured and recapitalized right now so we think the medium customers.
Representing the exciting opportunity to start to move into the success mode.
The large customers will simply take longer and then our space it could be years or a decade.
So we expect it to continue to grow robustly bottom up if you will from smallest to largest.
And I'm, sorry, I can't give you any more specificity on it but that is the way it works right now.
Okay. That's the that's.
That's fair.
Last question from me just on the the taxes should we model in.
Any meaningful taxes going forward.
So of course do you want to take that place. Thanks, Mike.
Yeah.
Okay.
Yes.
That's a good question, it's one that we are.
The evaluating every quarter now.
Obviously, we've had a couple of them.
Good quarters increased profitability.
At this point in time.
Not for this year.
But I think if you start looking out the next year.
You'll probably have to put in our unaffected right.
And I would I would guide you to somewhere between 25 and 27 per cent.
Thank you.
Thanks, Mike.
Thank you there are no further questions at this time I would like to turn the call back over to Tom Dinges for any closing remarks.
Thank you operator, Calix leadership will participate in a number of investor conferences and meetings during the second quarter of 2021, including our annual meeting of stockholders on May 13th information about these events, including dates and times for public webcast of management interviews is posted on the events and presentations page of the Investor Relations section of <unk>.
Alex Dot com.
Once again, thank you to everyone on this call on on the webcast for your interest in Calix. Thank you for joining US today. This concludes our conference call Goodbye for now.
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