Q4 2021 Calix Inc Earnings Call

[music].

Hello, and welcome to the Calix fourth quarter 2021 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.

My pleasure to turn the call over to Tom <unk>. Please go ahead.

Thank you operator, and good morning, everyone. Thank you for joining our fourth quarter 2021 earnings call today on the call, we have chairman and CEO , Carl Russo Chief Financial Officer, Cory Sindelar, as President and Chief operating Officer Michael.

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 in 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 will 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 those forward based forward looking statements factors that could cause actual.

Results and trends to differ materially are set forth in our fourth 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 date.

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 it over to Carl Carl.

Thanks, Tom.

The calix team executed with excellence in the fourth quarter, just as they have for the entire year.

Supply chain continues to enable our customers to meet their subscriber demand and that resulted in calix, achieving our second consecutive year of greater than 25% revenue growth.

With bookings for our all platform offerings again strong in the quarter, we see the historical seasonality of our business changing.

This is clearly evident in our revenue guidance for the first quarter.

The first time in the company's history, we see revenues sequentially from.

From the fourth quarter.

Even though we provided provides the associated systems, our customer interactions are driven by our platforms, which has dramatically smoothed our order flow.

As a further indication 2021 marks the first time in our history. When we did not have a single 10% customer on an annual basis.

We expect this trend to a more linear revenue model to continue.

More importantly, even as the pandemic slows and economies around the world get back to work.

Demand for our platforms continues to steepen.

It is clear we are perfectly positioned in front of an enormous secular opportunity and we intend to continue to execute our strategy and capture it.

One example of this execution was the addition of 26 new customers in the quarter, which brought the total for the year to 131.

Marking a multiyear high.

This speaks directly to our focus unhealthy innovative broadband service providers, who have adopted our platform to succeed.

While supply constraints will persist at least through 2022, we have a high performing team that is up for the challenge.

Our focused strategy is also helping us attract talented people who are on the same mission.

To help our customers simplify their business.

<unk> subscribers and grow their value.

We look forward to seeing you next month at our Investor Day on Wednesday, the 20 <unk> in February .

With that let's open the call for questions.

Operator.

Thank you, we'll now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing star.

One one moment. Please what would you poll for questions. Our first question today is coming from George Notter from Jefferies. Your line is now live.

Hi, guys. Thanks, very much and congrats on the good results here I guess I wanted to ask about the supply chain environment obviously.

Everybody's talking about it these days.

There are other companies in the group that are talking about significant decommit sit there seeing some component suppliers are.

In the last 30 days I guess I'm wondering is from.

You guys, you're seeing those issues for from your side.

So George let me preface the answer is yes, I'm going to ask Cory to give you some details and color.

I wanted to just frame this for a moment to give you a sense for is sort of the best of times worst of times environment, because they are insignificant information out there from different folks as to what they're seeing.

Supply is absolutely heart.

No doubt about it.

And in some cases, it's actually harder to your point about deaconess.

On the other side of our equation.

Our broadband service provider customers are actually growing their subscribers and growing the services to those subscribers to what we see is subscriber demand, which is what we focus on is very robust.

If you balance those two given our model we have.

Obviously, you're focused product strategy. We also have a high value offering so we're gonna go get the supply.

But youre going to pay for it and I think if you look around the industry.

You will see that this is going on in a number of industries. Those companies that have a strong value proposition and are on the upswing are actually figuring out how to outperform.

On the supply side, but they're also.

Paying for their supply so with that Corey maybe you want us to give some details it helped Georgia understand what we're seeing.

Yeah, George you can see inside our letter that we commented that in the fourth quarter, we had some decommit it's from a supplier.

That has the effect of.

Moving so purchase price variances out of the quarter and to a future period.

It gave us a little bit of benefit on our gross margin in the fourth quarter.

And just more recently is it as early as two weeks ago, we had another decommit that we're working through now.

So, yes, we're seeing them, but we continue to work through those.

You know as we move forward.

Got it Okay, and then could you talk then about.

If I go back you guys need a decision I think to kind of keep a lid on pricing to your customers. Obviously, there's a lot of inflationary impacts here given the supply chain, you know any thoughts to going back and increasing pricing with customers and you know I understand you guys want to focus the customer converse.

Station on the value proposition and but if you look around you know these input costs keep going higher and at the same time you know it feels like everybody in the space is raising price. These days and we've even heard from some of your customers that they're raising broadband pricing, but does it make sense for you guys to revisit the price discussion.

I wanted to know who's raising broadband right alright.

George the answer is we obviously have those discussions and we have not raised prices and there's no news to report today.

Got it Okay and then the last one I wanted to ask you.

The press the shareholder letter reiterate the 5% to 10% long term sales growth guidance, but I didn't see any comment on 2022 sales growth I think previously you guys talked about the high end of the 5% to 10% range.

Any update on the sales growth for this year. Thanks a lot.

So the answer is I think you'll see us.

<unk> continued to stay at the high end of that range. Corey I don't know if you want to add any thoughts to that but I don't there's no change to the stance that we have last quarter, because that would be driven by subscriber demand and we continue to see a robust subscriber demand environment right now.

I invite you to come to the analyst day in February and maybe we'll provide an update on our long term outlook.

Great. Okay. Thank you very much guys.

That was a nice teaser to get George to Vegas.

Thank you. Our next question today is coming from Paul Silverstein from Cowen. Your line is now live.

But it's actually good to hear you say the comment about Vegas.

That's good.

Carl you came into last year, and you put up the same logic, 10% long term model statement.

And I think every quarter you increased the guidance for the year, but 5% end up doing over 25% growth for the year I recognize that you're supply constrained along with everybody else.

Shape.

Throughout the years caution reminded us about the particular challenge for Q4 presented by the extension of lead times to 52 weeks earlier last year.

But if we looked at.

Sure Matt.

In isolated out.

The impacts on your revenue growth from supply chain constraints.

What would growth look like.

Well the challenge you have is what drove book.

Look like it goes back to how we are now managing the business, Paul which is we're very focused on subscriber demand because we can see it.

As opposed to the old model, where you would respond to orders and ship product to warehouses et cetera.

I think what you're hearing us say is right now.

We're comfortable at the high end of that range from a subscriber demand standpoint, and now we're going to try and figure out on the supply how we get there.

If you're asking the question sort of going back in time, right, where you get to an old World model, where you were shipping to warehouses distributors.

Revenue would be higher because you'd be shipping more because there are people out there that are basically kind of order ahead of what their subscriber demand is.

No.

The direct answer to your question is it's not clear to us that it.

It would be higher than 10% right now.

Were continuing to model those things out.

For 2022.

So I would tell you I would stay at the high end of that range today.

And I do appreciate going back in time as we raised it but.

But actually that.

It really had a lot more to do on the supply side now just to add to that.

You heard before you talk about deaconess.

Do you have all sorts of knock on effects.

It's actually a harder thing to deal with as you might imagine that just somebody saying, we're stretching out lead times, where you have to pay more now you've got.

Our supply that plant.

And one vendor decommit as soon as you know is one vector met the other 40 vendors that met their commitments.

Good is not having met them because you need that component on the system line card or whatever do you actually make it into a SKU that has all sorts of cascading effects that made this much more challenging.

So I don't mean to pile onto the supply chain piece, the Georgia asked earlier and sort of what's implicit in your question.

But those did commits are quite corrosive.

Carl Lewis to commit.

I was curious.

They indicated that you can mix improves from high two hundreds to 440 person crews.

You just do you require just referenced two documents can you give us a sense of how that compares to.

The last 90 days a previous 90 days.

Those are too deep.

Those two up from zero or how do they compare to previous periods.

Okay.

Yeah, I would say the interesting aspect here you might remember a year ago, we had to push us to 52 week lead times.

So we're now hitting a window of Windows 52 week lead times are showing up.

And so we're just we're just at the envelope, where we placed our orders it would be interesting to see how our suppliers actually meet those orders that we've given them or not.

But to answer your question directly there's been an increase in decommissioning.

And so what does that mean that means you're going out and having to find the parts on the spot market and you are paying up for if you can get them. So you know all it does is certainly create more challenges for.

For us and.

And for me, it's really more about what are we going to see in the next 91 days because.

Because we did our bit we put the orders in now let's see if a supplier component suppliers will actually be there their deliveries.

Or is it just a matter of timing or is it also that.

But youre seeing a reduction in quantities.

I'm not sure I follow that question Paul.

Well, if I go back to a five they referenced the fact that they're seeing both.

Suppliers not delivering in the timeframe that they committed to.

Players not delivering the same quantity stay committed to and in some cases both.

Yeah, it's all it's all of the above.

Alright, you're seeing the same thing.

Yeah. So so.

Good.

Let's say for example, the fourth quarter.

It's a push out so it's a timing issue.

Right. So we didn't get the parts and the Frac timeframe that they've said they would defer it will deliver.

It's not that we arent getting the parts.

And in some cases, we're not getting the parts.

Well go ahead.

Paul.

Got it.

On the margin front.

I assume all that'd be adverse impact.

Supply chain, driven you're referencing your stockholder letter.

The model continues to shift so I think a solid up instead of continuing to ship the software.

That's been washed out and then some by the significant increase in costs.

What quarters, possibly say what gross margin would be would it be higher than the 53 point is you got through Q1.

For supply chain constraints.

Yeah, So so Paul.

Building on where we were.

Last quarter, you know last quarter, we gave you the guidance of between two 5%.

Clearly you had stepped out of a whole basis for the whole percentage point. This quarter you have to throw that into the mix. So I'd give you a range of three to six.

For this quarter.

For the fourth quarter.

Through the six percentage point impact.

Mhm.

Got it one last question from me I apologize soldiers in the call.

You know what actually I'll I'll pass it on and we'll take it offline.

Okay. Thanks, Paul.

Thank you our next caller is coming from Michael Genovese from West Park Capital. Your line is now live.

I think what I'm I guess sticking with the same topic.

And looking at it another way so it <unk>.

'twenty one the supply chain was that was not a you know a pretty.

Pizza birthday cake, and and you guys are.

Branded margins by 170 basis points year over year. So my question is.

Can you just compare and contrast, what you expect the supply chain to be like in 2022 versus 2021 what's the difference in 2022 versus.

'twenty one from your perspective and in the context of being able to expand at the high end of your one to two points of guidance per year in 2021 how should we think about 2022.

So let me, let me frame that spend that I'm going to hand, it over to Corey to take.

Take you through how cost moves through the P&L and the balance sheet.

The environment is getting more difficult.

As far as we're indicating but lets to your point the environment 2021 question it's easy.

The challenge you have in understanding the internals of what we do and how the company works is there are significant delays in between our price committing to price worrying for price getting combined support he went to I mean, it's a big long Delta T.

Tween cause and effect so Corey all yours, let's just start off with lead time. So you know, we're placing orders a day that we're going to receive next year.

Those are going to be at the higher prices today.

And so even though lets say if the all of the supply chain normalized by the middle of the year.

And it was back to equilibrium.

Did the costs, we've already committed to today are going to run through our P&L well into 2023.

Just now we're starting to see some of the price increases that were implemented in Q3.

So in the component guys increase their price in Q3.

It doesn't immediately show up in the fourth quarter. It's Gotta go get built just kind of go through inventory, it's gotta get them sold.

And that just takes a significant delay so but I think you're going to see is you're going to see the expedite fees in those.

Surcharges.

Persists throughout 2022, and well into 2023, even if we got normalization by the summer.

And that's that's a good statement not a Wednesday midnight right and you see that in the guidance for Q1.

So Mike let me just tie up the concepts that I actually started with when Paul asked the question.

The supply chain is absolutely harder.

But the deaconess etcetera are demand is robust. So we're gonna go get where we need to make sure. We're meeting that subscriber demand and so you see the linearity of our model coming through.

That's being shaped by our software platforms.

And by our focus on subscriber demand. So Q1 went up flat to up for Q4 from Q4 at the same time, we're bracketing large and then the 49 to 51 point range. So that's the best way I can give you numerically the answer to your question as well.

Yeah.

That all makes sense sounds like your answer to Paul that that that.

He did that in the fourth quarter there was.

300 to 600 basis points of gross.

Gross margin impact.

Is that Gonna do you what would you estimate that as you can tell right now to be consistent in the first quarter or more or less.

Well.

More or less the same.

Okay. That's that's good and then my other question I mean, given everything that that Karl just described with the subscribers and the business, yeah that makes sense, but but but we're also in a very very strong hardware cycle. We have been in a very strong hardware cycle. The the you know the state.

No. It's money is really going to start to flow here I guess my question. My question is how long do you think this hardware cycle, where we're where theres going to be a big chunk of hardware in the revenue mix coming out of it it's going to last and do you think that we're going to get to a point beyond that.

There were where software is a much much bigger piece of the mix and and then can you imagine.

When we get there well you can tell us a subscriber number.

Those are all my questions. Thank you.

So let me work backwards from the last one probably not.

But.

I actually I'm going to answer your question, but I actually wanted to take a moment.

Give you a sense for the value that we're seeing with our customers.

And Michael just came back from our sales kickoff.

And Michael maybe you can give an example or two.

The impact, we're having with our customers on the value side, and then I'm going to answer the rest of your question Mike.

Yeah. So.

When a piece of hardware goes into a subscriber's home.

That represents significant monetization opportunity that has never been realized in the past synergies.

Went in the.

This service provider than just monetize simply the broadband experience.

Sandy.

Right now we're in this opportunity where they can identify incremental opportunities through incremental services and so to your point, there's a nice long lifecycle on what goes on in the home that we are in the process of realizing a by enabling the broadband service provider to upsell and one.

Example, would be a customer of ours would be S. T using marketing cloud to understand their customer and then they targeted campaigns that that's at a group of customers, having significant email open rates and generally email open rates are you know, 1% to 3% you are happy with it or email open rates was third.

2% they got their first orders within 10 minutes of that of the emails hitting and 90% of that targeted list not only upgraded and added incremental services, which provide our views per month in the form of protect IQ expires protection experienced IQ, which is product.

They also identified that they needed more bandwidth and they were able to double their arm two on that list.

So the ability to go through that and identify their customers understand their needs and then drive a massive upsell is something that we're enabling through the marketing revenue edge.

Another example.

It would be a customer who.

<unk> has implemented and this is more on the cost side is implemented us from end to end. So they use our intelligent axis edge and I use the revenue I'm sure. They do everything with us on that you know the edge of the datacenter out and there are running our revenue engine inside the home and thanks to that they've seen a massive drop in there.

I'll handle times and they're in their call centers and by 30 seconds, which is significant.

But more importantly, they've had a massive jump in close rates on first call up by 60% and that just go straight to the bottom line in the form of operational profitability and then as they test it with those customers. They saw 15% increase in NPS, so that customers now in that Mitch.

Mid seventy's for NPS in an industry that historically has had an M. P S at minus six.

So the the delight by delighting your subscribers being operationally in fishing and identifying these up sell opportunities cause a huge monetization opportunity yet and so I went and I'm gonna come to your question, but it's Corey that manifests itself one of the things we have talked about not subscribers, but I don't remember rpms sequentially were up something.

Our view is that they.

They were up 20% Q3 to Q4, so you know one of our peers growing 20% on the quarter, where we grew.

A couple of points.

Sequentially on revenue so now I'll go back and tie that to your hardware question Theres No question that over the next bunch of years. There is an uplift in infrastructure built being driven by the repurposed or ARPA funds, which we've seen first.

Our dog funds, which we're seeing second and that'd be the broadband portion of the infrastructure Bill which will see third these dollars are spread out over here and we're just starting to see them. Now. So you are correct. We are gonna see quote unquote and infrastructure build or a hardware upgrade cycle.

But I wanted to give you a sense for the power of the model that's already.

Going on as we work with our subscribers.

Great. Thanks, a lot very helpful.

Thanks, Mike.

Thank you as a reminder, that star one to be placed in the question queue.

Next question today is coming from Tim Southern Hills from Northland Capital. Your line is now live.

Good morning, and.

Good morning, and congrats on the solid results and.

I look forward to seeing you in Vegas.

To follow on that last discussion a little bit and you know what we've seen I guess to date.

He has a number of compelling anecdotes.

Around.

The impact of revenue edge in particular, although not necessarily a lot of you know quantification.

Of those aggregate impact so you made a couple of interesting.

Releases, so far this year I'm talking about the network side.

So us and 225 service providers doing.

10 gig PON I imagine there are others, who are not yet up to 10 gig and that's not the entire university. So that's kind of question number one, but I guess, what I'm trying to do is relate that type of thinking on the network side that you provided us earlier in the year on to the edge side and if you can give us any more visibility in terms of.

The number of carriers deploying that or how material that business is getting free for you now.

So Joe let.

Make sure I understand so you're talking about the intelligent access what we call the intelligent axis actions the network side of what's going on in getting upgrades.

Basically I'm trying to relate what you talked about an intelligent edge.

To revenue to this more subscriber oriented stuff you talked about both.

Some of these releases right. The 225 cats fixtures PON I take to be more network focused.

Along with sort of anecdotal indications of what's happening on the subscriber focused network edge, what I'm looking for is more quantification I'm looking for a 225 equivalent.

For the subscriber side just to cut through it all.

Right. Okay. So I appreciate you're asking obviously.

If we were gonna gave it we would have.

It out let me give you at least some directional players.

M <unk>.

We've talked before about having hundreds.

Folks on our cloud.

And so you can just you can assume that the number on.

On the cloud and the revenue range is larger.

Beyond that we have not quantified that.

We quantified.

The extra S speech, and you might ask well why did you do that.

And what's driving that.

To give that number out actually is to help our customers understand that a lot of our customers are sort of still in the G. PON World and I'm wondering if the X U S World is safe.

Meanwhile, we're building 40 gig PON with N G. PON two with Verizon. So that was intended to help everybody understand that this is a maturing market. It's safe to go that was what we were doing there, but the direct answer to your question is there there are more folks on the revenue wedge in one form or another than there are in next year.

Yeah.

Great outstanding.

To follow up in.

This new model is giving you a kind of an and.

Differentiated view on demand so I know you're not talking about it in kind of the traditional fashion, but to.

Is it safe to say.

To the extent the supply situation.

Got more difficult in Q4.

Did you see.

Did the demand situation improve did you see an acceleration of the metrics that you look at for either Q4, 'twenty two or you can can you describe the kind of delta in a demand situation throughout the quarter.

Yeah. Good question, Jim and the answer is it continues to sort of curve up and so part of what you just heard Cory favorably sequentially RP.

<unk>.

20%.

As I'm sitting here in my head.

Our overall revenue line was up three and a half 4% sequentially.

And so we're definitely seeing greater growth.

As we continue to understand the value of what we're doing and what you heard Michael speak too. So I mean, I dare say coming off the sales kickoff theres a great deal of excitement.

While each of our platforms and helping our customers succeed and that is absolutely driven.

By the software.

Great. Thanks, a lot.

You May I guess.

Thank you. Our next question is coming from Chris Howe from Barrington. Your line is now live.

Good morning, everyone.

I'll go with another question here on the supply chain.

You've explained it in great detail already.

I have much okay cool formed here, but.

You mentioned the D commenced Ah there was one that just happened two weeks ago.

First can you comment on this recent decommit, how profitable was that opportunity.

And how that may impact, our gross margin quarter.

And following up on that if we look at gross margin as a whole it seems the most difficult part.

Is the are these D commence and perhaps they will.

Have gross margin have more variability from quarter to quarter.

But excluding that.

The environment remains pressured.

But are there certain factors in this environment that you're having a better handle on them and it's just these decommit that's.

We have to add an extra layer of caution.

Yeah.

So a lot of questions there, Chris and I appreciate the drill down, but I don't want you to get lost.

In secondary and tertiary.

Data points as you're modeling I think it's best to keep it at a high level.

Which is actually to go back to how I framed it with George.

There's no question that supply is getting harder and it manifests itself in different ways.

There's no question that we have robust subscriber demand that manifests itself through our broadband service providers that you heard Michael speak to.

And there's no question that we're going to pay to go get the supply and make sure we can meet that demand.

And I think as a general statement as I watch what's going on in the industry writ large.

There are folks that have a high value proposition that are figuring out how to make the revenue numbers, albeit they are under pressure on margins.

And then there are folks that are not it's me it correlates very much.

That value proposition and so we have very good visibility.

Into our customers and subscriber demand and.

What youre going to see is this constant surprise the core he's talking about.

Well a lot.

Right.

No.

The environment is what it is.

And I'm not sure I would want to break it down below that because it's almost impossible to correlate the way youre asking and I'm not sure. Even if we did it would be meaningful other than actually misleading.

So.

Does that I'll give you another question obviously, but.

There's no way for me to go tap on that one.

Okay.

That's helpful.

And I understand that.

My next question I, just wanted to follow up on the sales and marketing side just to gain some further context.

Beyond the <unk>.

The percent of revenue that we expect it to be in this upcoming quarter can you kind of describe what you're seeing in the labor market.

Could we see the labor market become more challenged.

Are you continuing to see a healthy supply of resumes.

For incoming employees and also how this how youre increasing head count.

It's tracking to your internal expectations.

So the answer to your question is I think it's a very challenging.

Labour market.

And I think we are doing well, but Michael why don't you add comments to that place.

Yeah. So we were able to win in Q4, we won another Glassdoor award, which we're really proud of them around the culture that we have.

And in the end when you come to this challenging labor market people are coming to the end of the year they get their bonuses and they're trying to decide what do I do with my correct.

When a company like ourselves has differentiated in the marketplace by building out a great culture, which starts with our employees and team members that we have today.

<unk> other people.

So we're really focused on continuing to expand our culture and make sure that we bring in these diverse people with all kinds of different opinions and as we've identified over and over again, our strategies better better never best wishes.

Constantly taking these new ideas and improving the environment that gets more people. So yes, it's hard but at the same time.

Great culture attract great people and they help us get better and we continue to go and.

The second part is that when it comes to what job that you wanted to do.

It has been shown in study after study that the people who are purpose driven are the ones who.

Our happiest.

And one of the things that's really clear again inside the couch culture, because we have a very very clear purpose that is exciting.

We're helping even the smallest broadband service provider.

Oh and operational lines of businesses and simplify it.

The lowest opex possible.

Exciting their subscribers and they are transforming their communities.

So if you're an employee that's incredibly exciting and they can see the results on a daily basis as evidenced by our press releases and the customer success stories, a couple of examples on the simplify side.

We had a customer this quarter, who shared with us that they're able to slash the alarms and their network, which can be very noisy and troublesome, 98%, which led to a 40% reduction in truck rolls, which he can't go straight to their profitability that allows you to invest in.

In their community in the form of a green.

Greater broadband services, we had another customer and he is everything that we're doing on the revenue match to massively changed their go to market strategy. So that he had a 99% take rate on their premium Wifi service, which led to a 400% increase in margin.

And when you increase the broadband service providers margin by 400%.

They again have incremental cash that they can reinvest in their community in the form of new services and new capabilities to delight their subscribers and that mission you know in the results that we're driving attracts them great employees and teammates who are helping make it happen. Thanks Michael.

Thanks for taking my questions I appreciate it.

Good stuff.

Thank you. Your next question is coming from Ryan Koontz from Needham and company. Your line is now live.

Hey, good morning, Congrats on the great results and an outlook here.

With regards to the platform transition.

Crescive numbers, there and I understand totally understand the drivers for the transition for customers, but can you just maybe some color or quantitative range and where we are in that transition now and you know what the process looks like to move customers over from the legacy model to platforms, but yeah.

Yeah. So Brian actually you are asking a question that I would give you a numerical answer for so.

As you know back in Q2, we talked about the 50 50 bookings crossover point.

Where our new what we internally we call it blue chip business, but our new all platform business.

It's greater than 50% of bookings.

Actually in Q4, it crossed over on revenue.

So on a revenue basis now.

More than 50% of the revenue is on our go forward platform business.

Does that help.

Sure. It does thank you.

And.

And on the on the pricing front as you look at your markets I know you're very focused on.

The task at hand, but if you look a little broader are you starting to see any relief in pricing pressure I know we've had a couple of a couple of years.

Tears and networking comment that the pricing environment is improving and in market for a huawei as that's moved out.

Are you seeing any impact at all in your in your pricing.

Well Great question, you know we're not.

We're not priced competitors in that way right, where we're aligned with our customers and value creation as you heard Mike will speak to having said that we are aware.

Thanks.

We're the only company that has not raised prices.

In this space and in any of the adjacent spaces.

To date.

So we are aware of that.

But from a pricing pressure standpoint, as you know the the geopolitical replacement opportunity is not something that we're chasing because it is a price based.

Buyer typically so not in the way you're not in the way Youre asking.

Sure, Okay, and just quick follow up on.

On the Verizon front any any updates there in terms of where you are in kind of penetrating accounts geographically or different applications with their their energy plant Ya.

They are building their network infrastructure. They continue to make announcements on Baron 10, 10 percentage coverage in the U S.

And that's all built on there you know one fiber intelligent edge network.

That would be the best I can do and as you know from a value proposition standpoint.

We continue to drive high value, but not necessarily the 10% customer piece.

But theyre doing just fine.

Great. Thanks, a lot.

Thanks Ryan.

Thank you as a reminder, that star one to be placed into question Q1 moment. Please while we poll for further questions.

Our next question today is coming from Christian Schwab from come from Craig Hallum. Your line is now live.

Hey, good morning, guys. So I know the decommissioned and the push outs and lack of visibility on chips is something that has kind of come to fruition in the last few weeks for everybody, but it.

As you guys look at that do you guys have a timeframe from you know that you know talky you know two broad come about when they think this situation will be fixed for you.

Well I'm not going to speak to any given vendor I'll just give you some sense for the overall market.

There isn't a person that I know of that thinks that we're gonna be fixed in this year.

So this is going to continue throughout the year.

Beyond that I mean.

[laughter].

We're working on it this quarter next quarter it maybe they weren't beyond.

What happens in 'twenty 'twenty three happens in 'twenty three but this is going to persist through the year to be clear.

Right I guess.

I mean not to be nitpicky, but we're going to have an analyst day, you know forthcoming with to be excited it person.

Hum.

But if if if.

You know if we don't have an idea of of of aggregate supply and earn a return nodes Oh.

More rational margin structure.

You know I don't want to steal the Thunder of what's going to happen in a few weeks, but can you just tell us what's your all excited about us getting together for.

Oh, I think you heard it.

From the examples that Michael was talking about.

There's a value proposition that we continue to work on with our customers and help them build much more valuable broadband service providers.

As they continue to serve their subscribers of all types residential small and medium business enterprise et cetera.

So that's what we're excited about.

I'm sure you'll be excited at the end of the day in Vegas.

Alright, great no other questions. Thanks Carl.

Thank you once again Thats star one to be placed in the question queue. Our next question is a follow up from Paul Silverstein from Cowen. Your line is now live.

Oh apologize in advance if this were already answered or if you don't want to answer them, so without big worn out.

Going back to the point about the impact of this massive amount of government broadband funds were going to wash through the system moored off cares Act.

For surgery, both such road, allowing that.

There's timing considerations I take it the infrastructure Bill you're probably going to sit down with one for a couple of years, yet, but that's said.

Working from a wrong word off started you started to see rugby cares act you've started to see revenue tied to that.

Do you have any visibility as to.

That's the quantification of that impact this year I would think.

Yes, there should be a meaningful step up from the level last year and as we get into 'twenty through should be that much greater than 24 still graders infrastructure of sorts continues is there any quantification you can provide.

I think to your point I think it's becoming meaningful problem in 2022 from ARPA.

The repurpose funds, which we've talked about which obviously we're not.

It's really built for broadband.

The states, we're allowed to repurpose their excess funds, that's actually what's flowed through first and we expect to see some of that this year, our golf has actually been much slower.

And then obviously you know the big Bad Wake is after that so I think if you go look at the shape of those curves and spread them out over time.

This is a 'twenty three 'twenty four 'twenty five 'twenty six.

In big form and I think we'll start to see some of that flowing through at a meaningful or material way in 2020 two for sure.

But it's not it's not anything like what it is in 'twenty three 'twenty four I just want to make sure I don't Miss that your expectations.

I appreciate that.

On the software application take up I. Appreciate you don't want to do granular quantification, but.

It's really given does it go without saying that.

As you have these customer testimonials.

The couple that you already cited the dramatic tick up.

That is drawn increasingly driving whole from other customers.

Again, any quantification or qualitative or quantitative color you can provide.

Well I mean qualitative you heard Michael go through a number of them. So I won't go through more at this point well be audience.

Yeah.

Alright.

Yad undergone.

Again is it.

Let me, let you respond.

Yeah.

Well beyond anecdote you you mean numerically.

Well I was hoping from numerically, but even not numerically is it given that you were seeing acceleration in the number of customers from a breadth standpoint.

That are too small.

Got it.

Yeah, Let me do it from a Korean knows the ARPA your numbers by heart over the last three quarters I mean, I think that's the best way to just sort of give me a sense for what we're starting to see and when I say starting to see starting to see so what was it this quarter what was it last quarter was a quarter before.

Yeah. So for Q4, we're looking at 125 right.

Yeah.

In Q3's, one O five.

In Q2 was 92.

So 90 to one O five 125 so.

That gives you a sense for the continued acceleration.

What we're seeing and that's the best number I can point you to you very clearly if you go look at the new customer count.

You're saying that to the point of my.

Prepared comments, it's a multi year high on new customers and obviously all the new customers. We're getting are on our forward looking platforms.

Those are the best numbers I can give you.

At this point Paul.

Alright, one last one for me and I apologize if it was already asked and answered.

You all are not coming to you. This time on it and I. Appreciate it's very channels you Barb, you and everybody else, who finished from a supply chain standpoint.

Well the historic cone hundred to 200 basis point gross margin improvement for the year that you're trying to drive.

You didn't you didn't state that through this year correct.

Correct. All we did was give guidance for Q1.

Yeah.

Alright.

I Trust you don't want to get into what the outlook is from your own margins.

Oh, Yeah, obviously.

We get a guide.

Our guidance on the next quarter.

And we've given comment obviously commentary on the supply chain challenges.

And we'll get together and Vegas as we have more visibility.

Understood one last question can.

Can you tell us relative to crossing the 50 50 threshold on all platform revenue this quarter what was the apart from revenue through Q2 1 at the time that.

Bookings Brooks Institute I'm trying to get a sense for.

For the piece of.

Oh shifts.

[laughter], obviously, Paul Thanks for asking that no I won't answer that other than just to give you. These milestones and it may be frustrating, but that's what that's why we've given out.

No worries.

Scott.

Thank you.

Thank you we've reached end of our question and answer session I'd like to turn the floor back over to Tom for any further or closing comments.

Thank you operator, Calix leadership will participate in a number of investor meetings during the first quarter of 'twenty two.

<unk>, our Investor day at the Wynn resort in Las Vegas information about these events, including dates and times for public webcast with management presentations will be posted on the events and presentations page of the Investor Relations section of Calix Dot com. Once again, thank you to everyone on this call and on the webcast for your interest in calix and for joining us today.

This concludes our conference call Goodbye for now.

Goodbye.