Q3 2023 Calix Inc Earnings Call
Greetings, everyone and welcome to the Calix third quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the brief prepared remarks, if anyone should require operator assistance. During this conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded and is now my pleasure to introduce your host Jim Fanucchi, Vice President of Investor Relations. Sir. Please go ahead.
Thank you Kat and good morning, everyone. Thank you for joining our third quarter 'twenty to 'twenty three earnings call today on the call, we have president and CEO , Michael Bailey and Chief Financial Officer, as a reminder, yesterday after the market close Alex issued a news release, which was furnished on a form 8-K.
Along with our stockholder letter, which was also posted in the Investor Relations section of the Calix website today's conference call will be available for webcast replay in the Investor Relations section of our website.
Before I turn the call over to Michael for his opening remarks, I want to remind everyone. On this call. We will refer to forward looking statements, including all statements that the company will make about its future financial 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 differ materially are set forth in the third quarter 2020 three letter to stockholders and in the 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 the third quarter of 2023 letter to stockholders unless otherwise stated all financial information referenced in this call will be non-GAAP with that it's my pleasure to turn the call over to Mike Mike.
Please go ahead. Thank you Jim in the third quarter of 2023, the Calix team continued our track record.
<unk> financial performance across for measurable objectives that we've outlined for investors first deliberate revenue growth continued as we achieved our 10th consecutive quarter of sequential growth while delivering record revenues are.
Our demand frontier remains strong as broadband service providers and we called BSP.
We need to recognize that buildings five or just not enough speed as a go to market strategy will not win in the long term.
Our connection to our customer success and innovation Congress held last week, we focused on how DSP can transform their business with the grow your community playbook, which is their recipe for success as they take on the legacy and consumer Giants.
Clearly lays out how it BSP can leverage the calix platform and managed services to simplify which yields the highest margin and fastest time to market exercise, which creates the subscriber experience is making you hold the highest net promoter scores and grow for their investors for their members if they are.
And for the communities they serve.
Second gross margin expansion continues with our fifth consecutive quarter of margin growth, while we delivered record gross margin and strategically aligned ESG has continued to expand their use of the catalyst platform and managed services to achieve their business and financial goals.
Third we executed disciplined operating expense management following the model outlined at the Investor letter and continue to invest ultimately to take advantage of the once in a generation growth opportunity.
Fourth <unk>.
Ongoing predictability continues as we met or exceeded the guidance that we laid out for investors in July .
In the third quarter I continued to invest a significant amount of time meeting with customers prospects partners and team members I've just returned from our most successful connexions ever attendance set a new record at almost 3000 attendees.
Excitement in the room was palpable as calix is perfectly positioned to be the catalyst for the biggest disruption our industry has ever seen our Michigan and the disruption. We are enabling is evidenced on the main stage, which you can see on the videos at college Dot com.
Tom maybe fiber shared how they are cooperative leverage Alex platform and managed services to beat the industry's norm of a new broadband provider by seven years to get to cash flow positive.
She was cash flow positive in June and began generating seven figure monthly profits in year three in.
In addition, we launched Barclays two weeks, our employees and subscribers to protect children cyber bullying and deployed smart town to cover nine football fields, where the return on investment that was significantly higher than traditional advertising.
It is easy to see why their net promoter score is 91.
Hunter Communications shared their journey serving businesses.
Serving the entire community by leveraging the <unk> platform and managed services, such as smart home and smart business, our platform and managed services have enabled <unk> to lead their market with average online reviews and 4.8 out of five when competitors are as low as $1 one exceeding 30.
And take rates, you only 18 months and growing revenue by 300% and EBITDA by 400%.
United Fiber founded in 1937 is an electric cooperative sharing how by leveraging the unique counts by broadband platform and growing managed services portfolio a transformed their and economics.
The broadband revenue has enabled them to freeze electric rate increases since 2015 and returned 9 million members. They were told it would take 12 years to achieve cash flow positive and they did it before we have continued that success growing to starting 2000 subscribers across 45 key.
Through the quarter or Brad broadband platform continued to enhance our partner ecosystem that enables BSP.
Most notably we announced a significant expansion of our partnership through joint roadmap with N I S T.
Oh, it has to be SaaS and solutions provider to rural broadband and electric cooperatives.
Our ongoing focus on our purpose driven culture, which is constantly evolving to meet the needs of our team members customers and partners remains a focal point and a key driver on why people want to join cows.
Any investor letter you highlighted that the industry continues to acknowledge our culture and products through awards, such as the best Tech culture from TMC and Calix marketing by winning a technology award for superior marketing insights and analysis.
It remains a great time to be part of the balance sheet as we continue to embrace the notion of constant improvement through our better better never best mindset.
The calix team again executed well across the board and.
And we delivered our 10th consecutive quarter of sequential revenue growth.
With record quarterly revenue of 263 $8 million.
We also saw our fifth consecutive quarter of gross margin expansion.
With non-GAAP gross margin of 53, 8%.
An increase of 100 basis points from last quarter.
This improvement in gross margin was due to the continued expansion of our platform and managed services plus.
Plus a small product shifts to intelligent access edge from revenue edge.
And the sell through of the lower amount of systems with accessibly priced components.
I'm also pleased to deliver to deliver that we delivered our second consecutive quarter of double digit free cash flow.
As we have said previously the added benefit of our platform model because they low SKU count.
And component Fungibility between skews.
This allows us to better manage our inventory levels and have the right inventory at the right time to meet our customers demand.
During the third quarter, we continued we.
We saw continued improvement in component lead times, and our purchase commitments decreased by $27 million from the second quarter to $227 million.
This is down $143 million after peaking at a year ago.
At $370 million.
As component lead times continue to normalize we expect to see further reduction in purchase commitments and improvement in inventory turns and a reduction in supplier deposits.
These reductions in working capital requirements combined with sequential revenue growth.
<unk> gross margin.
And disciplined Opex investment will result in significantly more free cash flow.
We expect to continue to generate double digit quarterly free cash flow.
And more than $100 million of free cash flow in 2024.
Further enhancing our already pristine balance sheet.
Back to you Michael.
Corey.
With our unique platform and managed services model and a clear ability to innovate at a pace that has never been seen before in this industry. We remain excited about the opportunity ahead for calix and are strategically aligned BSP customers and partners.
They are leveraging our end to end partner platform clouds and growing ecosystem of managed services.
Liver offerings across residential business education, and the communities they serve.
<unk> market share and subscriber satisfaction, thereby delivering high margins and cash flows that are the envy of the industry backed by our unique broadband platform and managed services model and unmatched financial strength. We are uniquely positioned ahead of the tens of billions of stimulus dollars.
As expected to positively impact the market over the many years to come.
This is a once in a generation opportunity and we are just getting started Jim let's open the call for questions. Thanks, Michael Yes, we're ready to open the call for Q&A.
Okay.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Information tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, while we poll, while we poll for questions. Please.
Our first question comes from George Notter from Jefferies. George Please proceed.
Hi, guys, thanks very much.
Wanted to ask.
About customer inventories in the shareholder letter I think you guys mentioned the.
The revenue edge products were down about 6% sequentially.
Can you talk about you know how much I think this is actually the third quarter in a row, where you guys have been bleeding down those inventories, but can you talk about how much inventory is left out there and then also when might you exhaust that that customer inventory in terms of your your attempts to bleed that down thanks.
Hey, George Thanks for the call for the question.
Sure. This is a function of.
Lead times right. So as lead times continue to come in not only for us and our vendors, but for our customers.
<unk> to be managed out there they're buffers.
And we've been seeing this from the beginning of the pandemic, we've been using the information that we have.
Help them with those inventory decisions.
And so we did all of this while continuing our sequential growth in a predictable fashion.
We'll just continue to do it it's hard to say where that will level out.
Clearly you know, they're getting further along with managing to an appropriate buffer level given the inside the lead times that we're currently giving them.
Got it and then.
Do you have a sense for how much that inventory might be could you talk about it in terms of weeks or months of inventory.
What sense do you have for how much is out there.
So George it's a matter of their comfort level of where where do they level out at.
And so I think this is one of those adjusting thing to happen over time.
Coming out of the.
The.
Pandemic induced supply chain crisis, they clearly had more inventory than they want that.
And as they get more supply certainty, we're going to adjust that down over time.
So I can certainly understand why investors are sensitive to this issue.
So theres a lots of other companies out there reporting challenges.
But nothing has changed in our business to continue to use the information that we have available to us and manage these buffers and continue to meet their subscriber demand.
Is it.
Just a follow on on that is it possible to give us a sense for where your lead times are now.
In terms of weeks or months in terms of.
Product deliveries.
Yeah. Our stated lead times are between 12 and 14 weeks.
Great Okay.
Then I guess I can assume from the you know the dynamic you guys are seeing I assumed the rate of consumption.
Obviously, you guys see when customers operationalize products in the network, but I guess the question here I assume the consumption or offer.
People operationalize and products in the network I seem that consumption is greater than your revenue run rate right now.
The conjunction we even on a weekly basis keeps going up every single week, so that they have been growing up there right.
Usage like deployment faster and faster every single week and Thats a factor of them winning.
So as we continue to help those customers win in their markets and if you watched connections youll see a myriad.
Customers presenting on stage and what they talked about was not the legacy mindset or homes passed or the legacy mindset get to 20 or 25% market share. They all talked about they are going to get to 60, 70, 80% market share and grow.
One customer who was up on stage that.
There are currently 32000 subscribers in their target over the next 18 months was to go to 50000 and so those are the factors that we're focused on not burning down inventory, but actually significantly growing their their penetration in their market their dominance of their markets and then that will just take care of it.
So.
Which is what is doing because it goes up every week.
Great. Thank you very much.
Okay.
Yeah.
Our next question comes from Ryan Koontz from Needham <unk> Company Ryan. Please proceed.
Okay.
Hi, good morning, Thanks for the question.
First of all housekeeping did you have any 10% customers in the quarter and within the.
The larger customer steps the medium and large.
How would you.
Explain kind of the spread of customers in there, but you obviously have two large customers one in each segment are they still pretty dominant within those segments.
Thank you.
Hey, Ryan Thank you.
So to your first question no we do not have any 10% customers inside the quarter.
And the <unk>.
Distribution of our large and medium sized customers is consistent with prior quarters.
We saw continued strength in each of those customers into the third quarter.
Yeah.
Okay, that's super helpful and as far as this mix shift you talked about.
The.
I told you access.
How should investors think about that in terms of that mix shift is that primarily inventory driven and it gives you greater footprint in the in your customer base as you see a mix shift toward access.
Yeah, right. So remember when we talked last quarter, we talked about how we anticipated a shift into the intelligent access edge.
Customers finish their seasonal network builds.
And obviously you know.
How we're managing our business that means we're going to have the opportunity there to manage customer buffers on the.
Revenue website. So that's exactly what played out the way we thought it would and as we look forward to the fourth quarter.
On a reverse back the other way that seasonality will come back out and you'll see that revenue edge picked back up relative to Q3 again as we say every single quarter I Wouldnt read anything into mix right.
It goes up and down and mix is flat right. It goes up and down based upon customer requirements. There are nothing that you can read into mix that are indicative of the future because of the fact that it's just moving back and forth as we ship more to one customer who needs more of this in another one needs more of that.
One started.
In our southern Lea.
And therefore I can go through the winter and other ones can because they are in Minnesota. So are in Canada. So nothing should be read into the mix in any way shape or form and then with regards to the inventory issues, Mike can talk about the dsos.
If theres a question with regards to inventory issues go look at the Dsos Greg Horne.
Yes, correct.
Thanks, Great sense alright, thanks, Thank you.
Thanks Raj did Michael Thank you.
Our next question comes from some weak chatter G from J P. Morgan Cemig. Please proceed.
If I look across that platform expansion this quarter, we're seeing a bit of a slowdown on a relative basis when compared to your strong execution prior quarters, I guess, how or how are you or should we I guess I'd be thinking about that is it more related to timing or are you seeing more prudent customer behavior in the current backdrop, just curious to hear your thoughts on that front and then maybe if I could just.
Please my second one on the managed services front that continues to Hum along as you think about your nine offerings, where are you seeing the most traction today and then as you think about the recent additions in the form of bids in town how have those been tracking thanks for the question guys.
Yeah.
Right.
The first one on revenue.
There is there is something thats out in the marketplace and that's the broadband stimulus and so we've been through many broadband stimulus programs for the last couple of decades.
We're a 24 year old company, who is as I said on stage that connection founded in the United States and over those 24 years, we did broadband stimulus connect America Fund connect America Fund, two which was a surprise the rural digital opportunity fund.
And now there's two programs that are key to our customers and they are in the market. The first one is can the alternative connect America cost model say that quickly five times, which is an opex subsidy and is around a $20 billion program.
<unk>, which we've all talked about it which is a capex incentive that dwarfs all four previous programs around 42 billion both.
Both of these programs has significant fine print and this is really important because this is what our customers are working through right now with all defined credit.
They're looking for which is right for them because they've been told very clearly that they cannot participate in bulk.
And if that's the case, having been through this before our customers are going through this period of evaluation on how they're going to take advantage of these programs and this time around it's much more complex with massively larger dollars in play.
So as we go through this we are managing the business on the conservative side, 1% to 4% on continued sequential growth as is the case for our platform model for the next few quarters until we see that government funds flowing.
Clearly they are in a tsunami of funds coming into this space in the near future and look at those two programs <unk> 20 billion.
At 42 billion and our customers just need to work through that the good thing is we're right in the cycle.
We've got over 450 consoles, which are how do you engage with investors. How do you understand government funding how do you participate in that funding we help our customers do their submissions were right beside them. So as fast as it can happen, we will be right there to make it happen.
And now as for the managed services as I said in my opening remarks, if you watch the connections sessions online youll see the excitement as we rapidly expand our business model.
Across the entire business as we believe platform managed services growth will continue unabated.
It's massive case and so for us to your question on Smart town and smart bed. They actually went into production with customers in August the.
The excitement around smart based practice as incredible as our customers look at this as a high margin opportunity to grow their business and in most cases they have.
No offering for this segment because people are taking enterprise class products scaling it down to the Baker and that just doesn't work. So they look at this as a massive opportunity to grow margin and add value to that small business and on the smart town side customer after customer after customer is realizing how incredible and opportunity.
That is to support their community and the big announcement that we made a connection that we made it so as part of their base licensing model that they can also expand smart talent and create a secure network for all first responders, which honestly I would think thats one of the few things must be flawed.
On stage, but as soon as I said that there was a massive around a round of applause because they care about their communities initiative. We're excited so how am I with regards to a growth trajectory well in essence, both of those products became saleable in August and there. They are flying them all I have to do in house.
The connection.
Say to a customer on smart is it allows you not to buy in this other product and which I will go a name and I can guarantee you would get a fist bump because they all want to not buy it they want to buy us and so great trajectory ahead.
Thank you Michael I appreciate all the color thanks, guys.
Great question. Thanks.
Our next question comes from Michael Genovese from Rosenblatt Securities. Michael. Please proceed.
Good morning.
I guess that if can we talk about RPE OS and you know.
What's your expectation for Reacceleration of year over year growth in our P. O as when we could see that end and what would drive that would it be.
Adding more cloud customers or renewal of these three year contracts I'm just comments on Rps that would be helpful. Thanks.
Thanks, Mike.
So like we said in prior calls.
No.
If we go back and look at the last two years.
And we try to analyze those trends.
Theres not a lot.
Our from Q1 Q2 and three.
But you can infer is that your fourth quarter is the strongest quarter.
So is.
So that's a function of two things we think.
They've got largely due to the excitement coming off of connections.
And the timing of when their fiscal calendars are budgets are being set begins with the calendar year.
It was a combination of those two things. So if you go back in time, you tend to see a nice big bump in the fourth quarter. We have no reason to believe that won't continue here in this year.
Certainly after all of the level of excitement that we saw at connections.
And we certainly have more things on the truck to sell so.
That's about all we can say about that Mike.
Okay could you talk a little bit more about or talk a little bit about the sort of.
Rebranding of the cloud products I mean, I noticed the names were changed was there is there anything else behind that or just just different names.
No.
No.
Well as we announced on main stage, we announced why we did it and the reason why we did it is because one of the things that our customer said choices that marketing cloud as to same calling it marketing cloud is to eliminate.
And they were right because the marketing cloud infers that youre, just selling something to somebody right. When in fact, what we're doing with marketing cloud marketing cloud is the new name indicates it's the engagement engine isn't engagement engine around all interactions and this is.
Really important as we evolve into more customer journeys in a customer journey incorporates all the different elements from that you know acquiring the customer at the very beginning to retaining the customer and then as you're growing.
And also through that lifecycle through that entire journey, our lifecycle, ensuring that at all at all times you are engaged with them around what's happening. So for example, let's say.
Excavator knocks out rips up your fiber because they cut up a lot right that is where engagement cloud will become engaged.
It will actually run as a campaign send a text message to the customer and they'll say hey, we're at.
For 30 minutes, because an excavator ripped up the fiber, which happens shockingly a lot all of the signs.
And it's all around how do you engage with that customer at the other part of it and this is the big shift is that one of the things we've been talking with customers and I'm a huge believer in this is that when you are doing good things for an end subscriber.
<unk> things and just hoping that they know you do good things is it really bad strategy, you actually have to constantly remind them. So cory with my customer I would say hey, Corey This is Mike.
Stop cyber bullying attack, we saw with bark. We stopped this many viruses this much fishing all these different things.
You had these speed youre doing all this kind of stops before it takes a glance as you guys never even knew you were doing that for me so that in the future. If a if a bad thing happens consider it youre, making goodwill investments in the bank.
And that is a bad thing happens whenever you're withdrawing from that bank account, but there is a huge balance dropped Rob and the customer is less apt to be angry IU return because they've been reminded nonstop for four years that you are just their experience has been incredible. So that's the mentality that last part is really the key element around why we did it and call it.
Jason.
On the service cloud if.
We just moved it from support which again suggests that it's just a call center supporting scenario, where we really think of it as much more than just support it's actually everything we're doing around field service dispatching, but also having the technician do upsell cross sell where in their home. So how do you service the customer end to end.
Versus just supporting them if they have a one time problem. So no naming was calm.
Consciously debated over two years with which is about as painful as going to the dentist, but we finally got to the right name with our customers and internally and Thats why we aligned it to an embedded frankly better reflects the future of those clubs.
Great that's helpful and I have but I don't mind I hope you all might have a couple more questions.
Hopefully quick.
Got it.
Great. So I mean could you I havent heard.
Any type of reiteration of the the forward guide for 2024 on this call. So I wanted to ask about.
The expectations for growth in 2024.
Yes.
Michael said in his last response that we believe for next year.
We're going to manage this business given the.
And decision by our customers around government funding.
To the lower end of 1% to 4%.
Sequential quarterly growth, so we're going to be targeting 1% to 4% sequential growth that's the target for next year.
And but the key thing from US is youre going to see you're going to see sequential growth.
Alright, that's it that's the guidance for each quarter is 1% to 4% sequentially.
Okay, Great and then last question is I'm, just you gave us the lead times now.
What were they before Covid and all the supply chain issues were they so much an hour or are they different.
Now there are about 16, but they range between 10 and <unk>.
Private pandemic they range between 10, and 16 weeks, depending on the component like the components of our included in it. So you had some simpler chipsets you have more complex chipset. So it was in around the range that we're currently in some of our lead time for inventory purchases. So.
It was it was a little bit tighter window than that Mike.
Okay.
Great. Thanks, so much.
Our next question comes from Tim <unk> from Northland Capital markets. Kim. Please proceed.
Okay.
Yes.
Yeah.
Hi, good morning.
Dan.
I asked this question in the context of both Q4 and given your.
Comments, there about expectations for next year <unk> seen some nice sequential increases in gross margin, thus far this year, including in Q3.
Despite some pretty modest.
Sequential growth and despite weakness in revenue.
I don't know if that really matters from a mixed standpoint, but.
As you look in Q4, you've got that kind of flattening out a bit and I wonder.
Since we're talking about 24.
What sort of gross margin trajectory.
You might expect to go along with that so a couple of different questions about both Q4 dynamics on gross margin and <unk>.
Next year and to what extent that's impacted by the level of revenue growth.
Yes.
Yeah. So so.
The scenario, we outlined last quarter is playing out the way we expected.
So we saw.
Higher gross margins in the third quarter, driven by continued expansion of our platform and managed services.
That shift problem revenue edge to intelligent exercise as they finished up their network builds.
And bleeding off some of that.
Components that we paid on the spot market. So we're getting to the end of that in the fourth quarter. Those same dynamics are at work.
We see continued adoption of our software platforms.
That will help on the on the margin line.
We will see a shift backwards back to revenue edge away from intelligent access edge as that seasonality dissipate.
And then we're going to see the continued run off of those excess components.
So we're going to be you know, we obviously took the guidance up a little bit.
For the fourth quarter.
So those one time charges will now behind us in the rearview mirror as we exited the year that obviously sets us up at a higher base going into 2024.
And so for 2024, we're going to reaffirm our long term target model of 100 to 200 basis points on a higher base coming out of 2020.
Yes.
Okay. Thanks very much.
Jim.
There we go.
Our next question comes from Greg Mason from West Park capital.
Greg. Please proceed.
Thank you. Thank you for taking my question.
Given the visibility you have on the fourth quarter and <unk> 24.
And given the shift that we've started to see from the smaller customer base to the midsized customer base do you see that trend continuing into the fourth quarter into 2024, and assuming it does how does that alter the.
The pricing and the competitive dynamics of of your products in the marketplace. Thanks.
So it does indeed and yes. It will continue all these disruption start from small work your way up to the larger customers.
Said that for many many years now and Youre going to continue to see that trend.
We're going to continue to see the the medium segment grow disconnect girl from customers that finally move up into that category from this model.
And the ones that are existing they are going to continue to grow in and we may see some further expansion in terms of other tier two.
Adopting the model as we move forward, but I wanted to be really clear from a philosophy point of view.
<unk> really clear, we don't chase revenue.
We do not.
So we are our goals as a leadership team on behalf of our investors are to grow margin and drive cash flow.
Because those are the outcome of that.
<unk> value in this market and it became really clear between who are the winners and losers in the part of the platform market will make our investors aware.
And so while we won't be doing is sacrificing margins to win revenue.
Now what we do right from the get go everything has been focused on finding strategically aligned broadband service providers.
Understand the value of our platform and are willing to pay for it because they make a shed load more money when they use our platform.
And so what's going to happen and this is already happening is that those bigger customers are starting to see if they watched main stage and saw United fiber Tombigbee Fiverr Allo. All these other companies talking about how they are achieving market share is north of 60%.
NPS is that would make apple jealous and huge margins that allow them to be cash flow positive at a third of the time that others can't and so they start to realize that what is the difference between me as a big company in the Calix customer one thing, they're using our platform and that platform gift.
<unk> some in the market and so as they start to hurt from our customers, bringing them aim they'll start to realize that they need to actually align.
Or die.
So that's where we're going to go.
Yes.
Thank you for that.
Our next question comes from Scott Searle from Roth and Mackay.
Scott. Please proceed hey, good.
Good morning, Thanks for taking my questions and nice quarter in a difficult macro backdrop.
Hey, Mike.
Mike.
Maybe to dive in on some of the managed services side. It seems like there is finally momentum building.
Some of the potentially larger opportunities specifically smart is which has been incubating for awhile seems to have a lot higher revenue opportunity attached to it and the recently announced smart MDU as well it seems like its pretty intriguing.
In terms of you guys.
I was wondering if you can provide.
A little bit more color in terms of.
How we should think about success within those marketplaces, how does that ramp up and what does that business model really look like as we get out into mid 2024 in the back half of next year.
Well, so smart business has taken off like Crazy and the reason why is because it did yes.
Our customers were the ones who identified this opportunity the way that they were dealing with small businesses as they really had went at it in two ways. One they did nothing other than provide a wireless router and a connection.
Very little value for small business or two they were taking enterprise class technologies that are very complex and require an ICU organization installing them into the small business, which meant that first of all they make no margin. It was like crappy hardware margins for them as a resale of hardware into the Baker, but more importantly, when.
When that hardware went down and Baker didn't have an it organization.
Significant operating cost because they would have to support it. So there's been this significant gap in the marketplace and so we closed it and yes, you're right as I mentioned around smart business now that it went into production in August and our and our $23 three release, which is the second week of August .
It went into production and our every single customer is like Super stocks, because they are like you've just you've nailed a massive gap in the market.
And we have as I announced that connection we have a number of small expansions that allow them to do things like cover Marina covering an RV park those different things, it's pretty great and then on an ASP side, yes, it's significantly higher.
So that's a great growth opportunity, but the way that we deal with that higher Asps, if you'll remember when we talked to you is that we think about the the opportunity which is 10, one and $10 a month and then we blend that into the one to $10 because.
All businesses in a market are going to be between 5% and 10% of the subscribers. So that's the first one on smart count, but smart count as like Park I would say bark will have a significant momentum in smart talent because those are our customers doing the right things for the community and what they do.
Drag as everything else because the customer realizes that we are uniquely positioned them to position their brand up against the legacy giant in a way that no. One else is so for example, with smartphone. They go they go when they sit down with the mayor and say you know and and the superintendent of schools and say, let's make sure that children can roam around.
Town and have broadband and close the digital divide whenever they do hallmark Oh by the way Mr. Mayer, our misses mayor would you like it showed that.
The first responders, who have an iPhone that youre paying a mobile carrier for a lot of data charges would you actually like them to be on a secured network and let their laptop you're on a secured network. So that you can have this opportunity to offload that produce your caused partner with us and that builds a great relationship with the community.
And I was very blunt on stage the way a customer describe what we're doing with first responders and the reason why our leadership key instantaneously decided to include that as part of their.
There are ongoing subscription charges with us as opposed to an incremental charge with with first responders is because we do believe that will save lives and the story of the customer sat wise and a lot of Rural America. There is no <unk> cell cell phone service as we know logically.
To install a cellphone tower whether it's.
And in a large city or in rural America costs. The same amount is 250 to $400000 per tower right and so if you go putting in a small town of two or 3000 people, it's not going to reach out to that farm and so what happens is the story. He told was we are frequently will have an ambulance for a police officer drive down the <unk>.
St. Louis cell phone service and they're trying to find someone who crashed their motor by cycle in a dish or they're driving up to a farm for a 911 call save a life because someone having a heart attack and they have no cell phone service. They have to go and grab the landline installing it and what's going to happen with our customers when they turn this on.
And so if you think about the significant magnitude of those those changes that we implemented it represents a huge opportunity for our customers to basically eliminate the big Solace Giants, who do not care about Rural America.
So, yes, I'm pretty damn excited.
Okay, and maybe to just follow up on my second question in terms of the outlook. It sounds like you're continuing to reiterate the long term guidance of 10% to 15%, albeit towards the lower end of that range in 24, where I think consensus expectations on or in combination with improvements on the gross margin of another 100 to 200.
[noise] basis also a higher number in 2023 than originally expected.
On top of that I'm hearing you talk more and more about beat whereas historically I think the company.
Ted indicated he looks so big on government programs are unreliable, the timing can slip et cetera, but it seems like that's coming more and more into the conversation more visible now given where these programs are in terms of deploying the capital and it sounds like with 450 consult you guys have a significant exposure on that front. So I guess in terms of looking at <unk>.
24, and going into 'twenty five.
It sounds like we should be looking for an inflection as we get into late 'twenty four 'twenty five as you start to get more visibility on the bead front and then the other programs in terms of subsidies and rolls out so am I thinking about that the wrong way or how should we be thinking about that longer term picture.
By the way you literally took the words out of my model, So you're thinking about it exactly right. So we were managing the business on the conservative side to the one 1% to 4% sequential growth.
Quarter on quarter on quarter, as we work with our customers as they make that complex decision do they do a cam or be it as an either or and this has led to a lot of conversations and as you say there is a tsunami of money coming.
And we're deeply embedded with our customers as I also stated we did four we've already done 450 consultations on funding and a cam and be helping our customers understand which is a decision they should make and how do they go after that $65 billion worth of funding, which is I can't see any other word but.
Tsunami, that's coming down the path. So your statement is seeing an inflection point in the latter part of 2020 for early part of 2025.
Perfectly stated and that's exactly how you should think.
Meanwhile, we will continue to manage through it at a conservative level through 'twenty four as our customers make those make those decisions.
And off we go.
Yeah.
Great. Thanks, so much.
Yeah.
This concludes our question and answer session I would like to turn the floor back over to Jim Fanucchi for closing comments.
Thank you Ken.
Catholics leadership will participate in several investor events during the fourth quarter, both in person and virtually information about these events, including the dates and times and publicly available webcast will be posted on the events and presentations page of our website at <unk> Dot com. Once again. Thank you everyone on this call and webcast for your interest in <unk>.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Hum.
Hum.
[music] Mhm mhm.
Hum.
Hum.
[music].
Yeah.
Uh huh.