Q4 2023 Calix Inc Earnings Call
Yeah.
Speaker Change: Greetings, everyone and welcome to the Calix fourth quarter 2023 earnings Conference call.
Speaker Change: At this time, all participants are in listen only mode.
Speaker Change: Question and answer session will follow the brief prepared remarks.
Speaker Change: If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference call is being recorded.
It is now my pleasure to introduce your host Jim Fanucchi, Vice President of Investor Relations.
Speaker Change: Sir Please go ahead.
Thank you Rob and good morning, everyone. Thank you for joining our fourth quarter 2023 earnings call.
Speaker Change: On the call, we have president and CEO, Michael <unk> and Chief financial.
Speaker Change: Officer Corey.
Jim Fanucchi: 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 and both of them are posted in the Investor Relations section of Calix website.
Jim Fanucchi: Today's conference call will be available for webcast replay in the Investor Relations section of our website.
Speaker Change: Before I turn the call over to Michael for his opening remarks, I want to remind everyone. On this call that we will refer to forward looking statements, including all statements that the company will make about its future financial and operating performance growth strategy and market outlook and actual results may differ materially from those contemplated by these forward looking statements.
Michael: Factors that could cause actual results and trends to differ materially are set forth in the fourth quarter 2023 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.
Michael: Also on this conference call, we will discuss both GAAP and non-GAAP financial measures a reconciliation of the GAAP to non-GAAP measures is included in the fourth quarter 2023 letter to stockholders unless otherwise stated all financial information referenced and this will be not yet.
Michael: With that it is my pleasure to turn the call over to Michael Michael. Please go ahead.
Michael: Thank you Jim ordinarily I would speak about the results we outlined in the Investor letter, where the team delivered strong Q4 with record revenue and market completing our fourth year of delivering revenue growth gross margin expansion disciplined operating expense investment and ongoing predictability. However, these are not order.
Michael: Larry Times.
Michael: 2024 represents both a challenge and a unique opportunity for calix with one constant.
Michael: Our unique platform cloud and managed services.
Can you to lead the way with robust growth as they enable our strategically aligned broadband service provider customers to simplify their operations and go to market strategy in it.
Michael: Our residential business government and communities and grow for their investors members and the communities they serve.
Michael: This strategy is enabling their success as they take market share from legacy network operators at a faster and faster pace.
Since our last Investor call, we have seen a significant broadening and the number of customers interested in competing for bead funds today nearly all our customers are either assembling and beat strategy or actively pursuing filings.
Michael: The clear reality is at the beach funds are simply too large at 42 billion and to close for any strategic minded ESP to ignore.
Michael: While they do this they slowed their new builds is beat money can be used instead of consuming their own capital and thus will slow our appliance shipments until decisions are made and funds are awarded.
Michael: At that point the winners will move ahead, and those who decide to skip the B program or did not receive funding will begin investing to ensure that the winter does not impinge on their market.
Michael: This represents a delay but also represents a unique opportunity for calix in 2024.
Michael: Before I discuss this unique opportunity I'd like to turn it over to Corey to review our disciplined execution.
Michael: In the fourth quarter Corey thank.
Thank you Michael.
Corey: We closed 2023 with another quarter of strong execution, resulting in record revenue of $264.
Corey: $7 billion.
Continued robust growth in our platform cloud and managed services drove record non-GAAP gross margin of 54, 1%.
Corey: Our supply chain has settled into a new normal where price increases from the past are difficult to undo.
Corey: We will rely on future design wins and product releases to drive down costs over time.
Corey: Much like prior to the pandemic.
Corey: Consequently, we consider the pandemic induced supply chain challenges to be behind us.
From a balance sheet perspective, we continue to see improvement component lead times during the fourth quarter and continuing to work down our purchase commitments as they decreased by $51 million from the third quarter to $176 million back to a pre pandemic level.
Overtime, we expect to see an improvement in inventory turns and a reduction in supplier deposits. These.
Corey: These reductions in working capital requirements combined with continued profitability.
Corey: Resulting consistent quarterly double digit operating and free cash flow.
Corey: I do want to offer some commentary on the inventory and component liability charges, we took in the fourth quarter as they impacted our GAAP results.
Operator: Greetings, everyone, and welcome to the Calix Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in listening mode. A question and answer session will follow the brief prepared remarks. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Corey: Over the past few years, we have provided progress checks on our transformation from a box ship company to an appliance based platform cloud and managed services company.
Operator: As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Jim Finucchi, Vice President of Investor Relations. Sir, please go ahead.
Corey: Last year, we communicated that our legacy business represented less than 10% of our fourth quarter 2022 bookings.
Corey: And that the transformation is largely complete.
Thank you, Rob. And good morning, everyone. Thank you for joining our fourth quarter 2023 earnings call. Today on the call, we have President and CEO Michael Beeney, and Chief Financial Officer Cory Sindel. As a reminder, yesterday after the market closed, Calix issued a news release, which was furnished on a Form 8K along with our stockholder letter, and both were posted in the Investor Relations section of the Calix website. Today's conference call will be available for webcast replay in the investor relations section of our website.
Corey: Over the past year, we benefited from the legacy customers moving to our platforms at a faster rate than we initially anticipated.
Corey: In the fourth quarter of 2023, we reached a point, where we could see the end of the shipments for this legacy product set.
Corey: While this transformation over the last few years to our platform cloud and managed services has been a huge positive.
Corey: We had to make purchasing decisions regarding our legacy products during the global pandemic induced supply chain prices.
Before I turn the call over to Michael for his opening remarks, I want to remind everyone on this call that we will refer to forward-looking statements, including all statements the company will make about its future financial and operating performance, growth strategy, and market outlook, and actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause actual results and trends to differ materially are set forth in the fourth-quarter 2023 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.
Corey: As a result of these circumstances, we were left with excess legacy finished good inventory and components at suppliers.
Corey: After a thorough evaluation, we took charges in the fourth quarter to effectively wind down this business.
Corey: This was the primary reason why our fourth quarter.
Corey: GAAP gross margin came in at 42, 8% and why we reported a GAAP net loss of $4 $1 million.
Corey: Yeah.
Corey: As we have said previously in.
Corey: An added benefit of our unique appliance based platform model as an industry low SKU count.
Also, on this conference call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of the gap to non-gap measures is included in the fourth quarter of the 2023 letter to Stokoe. Unless otherwise stated, all financial information referenced in this call will not be gaffed. With that, it is my pleasure to turn the call over to Michael. Michael, please go ahead.
Corey: Which is now less than 200 go forward Skus.
Corey: This low appliance based SKU count gives us.
Corey: Operating leverages as well as allowing us to better manage our inventory level and have the right inventory at the right time to meet our customers' demands.
Corey: Our operational focus enabled us to produce our third consecutive quarter of double digit free cash flow and to strengthen our balance sheet.
Ordinarily, I would speak about the results we outlined in the investor letter where the team delivered a strong key four with record revenue and margin, completing our fourth year of deliberate revenue growth, gross margin expansion, disciplined operating expense investments, and ongoing predictability. However, these are not ordinary times. 2024 represents both a challenge and a unique opportunity for Calix, with one concept. Our unique platform, cloud, and managed services continue to lead the way with robust growth as they enable our strategically aligned broadband service provider customers to simplify their operations and go-to-market strategies, innovate for residential, business, government, and communities, and grow for their investors, members, and the communities they serve. This strategy is enabling their success as they take market share from legacy network operators at a faster and faster pace. Since our last investor call, we have seen a significant broadening in the number of customers interested in competing for BEAT funds. Today, nearly all our customers are either assembling a beat strategy or actively pursuing funds. The clear reality is that the BEAT funds are simply too large, at $42 billion, and too close for any strategic-minded BSP to ignore.
Corey: Continue to make deliberate decisions with our strong balance sheet in the fourth quarter, we purchased $44 million of our common stock at an average price of $35, bringing our total utilization of the original purchase repurchase plan to $86 $4 million.
Corey: With expectations for continued double digit quarterly free cash flow generation.
Lord authorizing an additional $100 million to continue our common stock repurchase program.
Speaker Change: Now, let's turn to guidance.
Speaker Change: In addition to the ongoing decision, making process that Michael discussed affecting our appliance shipments we.
Speaker Change: We have a few significant customers pausing their purchases in early 2024.
Speaker Change: As they reevaluate their capital expenditures.
Speaker Change: As a result of these factors our first quarter of 2020 for revenue guidance is for revenue to be between $225 million and $231 million.
Speaker Change: We expect customers will make decisions regarding whether to pursue government stimulus over the course of the year as customers decide to pass on need they will begin their network builds.
This should translate into increased shipments.
Speaker Change: If they decide to pursue beat than their purchases will be delayed until the award is received.
Speaker Change: We believe there are customers all along the continuum.
While they do this, they slow their new bills as bead money could be used instead of consuming their own capital, and thus, will slow our appliance shipments until decisions are made and funds are awarded. At that point, the winners will move ahead, and those who decide to skip the BEAD program or did not receive BEAD funding will begin investing to ensure that the winner does not impinge on their market. This represents a delay but also represents a unique opportunity for Calix in 2024. Before I discuss this unique opportunity, I'd like to turn it over to Corey to review our disciplined execution in the fourth quarter. Corey?
Speaker Change: As such we expect our first quarter revenue to Mark the low point for the year.
Speaker Change: And we will grow sequentially thereafter.
Speaker Change: What is certain is the continued growth of our platform cloud and managed services revenue.
Speaker Change: As such our non-GAAP gross margin guidance for the first quarter of 2020 or is 54, 5% at the midpoint.
And would represent an increase of 40 basis points compared to the.
Speaker Change: Prior quarters.
Speaker Change: But also set us up well for achieving the high end of our target financial model of 100 to 200 basis points for 2024.
Speaker Change: Finally, our non-GAAP operating expense guidance for the first quarter of 2024 is higher than our target financial model because of the expected dip in first quarter revenue.
Thank you, Michael. We close 2023 with another quarter of strong execution, resulting in record revenue of $264.7 million. Continued robust growth in our platform cloud and managed services drove record non-GAAP ProSmart growth of 54.1%.
Speaker Change: We plan to hold our operating expense investments relatively flat during 2024, while we execute on our objective of growing footprint. Prior to the arrival of what we believe will be a significant amount of government stimulus in 2025.
Our supply chain has settled into a new normal where price increases from the past are difficult to undo. We will rely on future design wins and product releases to drive down costs over time, much like prior to the pandemic. Consequently, we consider the pandemic-induced supply chain challenge to be behind us.
In summary, Alex had an amazing year in 2023, and we are just getting started and.
Speaker Change: And to tell you more about that opportunity ahead, I will return the call back to Michael.
Michael: Thank you Corey.
Michael: Do you need calix platform cloud and managed services are enabling our BSD customers win in their markets against the legacy network operators, the insights data and operational capabilities that they provide combined with our direct sales service and success relationships give us unparalleled visibility.
From a balance sheet perspective, we continue to see improvement in component lead times during the fourth quarter and continue to work down our purchase commitments as they decreased by $51 million from the third quarter to $176 million, back to a pre-pandemic level. Over time, we expect to see an improvement in inventory terms and a reduction in supplier deposits. These reductions in working capital requirements, combined with continued profitability, will result in consistent quarterly double-digit operating and free cash flow.
Michael: <unk> into more than 1000 DSP.
BSP customers planning and execution.
Michael: This visibility makes it clear that their new network builds are going to slow in 'twenty. Four however at the same time, new subscriber additions will continue unabated on our customers' existing network infrastructure as they take market share from legacy network operators. Therefore, we are confident that in 2024.
I do want to offer some commentary on the inventory and component liability charges we took in the fourth quarter as they impacted our GAAP results. Over the past few years, we have provided progress reports on our transformation from a box ship company to an appliance-based platform cloud and managed services company. Last year, we communicated that our legacy business represented less than 10% of our fourth quarter 2022 booking and that the transformation was largely complete.
Michael: Our platform cloud and managed services will continue their robust growth, while our appliance shipments will slow for.
Michael: For four reasons. We believe this is a unique opportunity prior to the arrival of <unk> $42 billion in deed funds for new builds in 2025 and beyond.
First we are excited that the vast majority of our BSP customers are contemplating or already applying for beat funding as we believe they are best placed to win because they have spent decades servicing rural and travel community.
Over the past year, we've benefited from legacy customers moving to our platforms at a faster rate than we initially anticipated. In the fourth quarter of 2023, we reached a point where we could see the end of the shipments for this legacy product set. However, during this transformation over the last few years, we had to make purchasing decisions regarding our legacy products during the global pandemic-induced supply chain crisis. As a result of these circumstances, we were left with excess legacy finished goods inventory and components at suppliers. After a thorough evaluation, we took charges in the fourth quarter to effectively wind down this business. This was the primary reason for our fourth quarter.
Michael: We believe our DSP customers will provide the best experience to those formerly under or unserviceable, scriber going well beyond the fiber connection.
Michael: Our platform enables bsp's will supercharge residential for home office workers and use cases like the firearm education small and medium business, which are the economic lifeblood to rural America and for local governments.
Michael: Third we believe our BSD customers have demonstrated for decades that they will make the most effective use of taxpayer dollars.
Michael: They care about the communities they serve and we'll do the right thing investing taxpayer pair dollars to the greatest long term effects to improve the community.
Michael: And fourth we believe this presents calix with unique opportunity to expand our footprint in the North American market. We Havent heard almost every city every legacy box vendors speak about 2020 for the tough year, we see this year as a unique opportunity to expand our footprint for the following reason.
GAAP gross margin came in at 42.8%, and that is why we reported a GAAP net loss of $4.1 million. As we have said previously, an added benefit of our unique compliance-based platform model is an industry-low skew count, which is now less than 200 go-forward skews. This low appliance-based skew count gives us operating leverage, as well as allowing us to better manage our inventory level and have the right inventory at the right time to meet our customers' demands. Our operational focus enabled us to produce our third consecutive quarter of double-digit free cash flow and to strengthen our balance sheet. We continue to make deliberate decisions with our strong balance sheet in the fourth quarter. We purchased $44 million of our common stock at an average price of $35, bringing our total utilization of the original repurchase plan to $86.4 million, with expectations for continued double-digit quarterly free cash flow generation. The board authorizes an additional $100 million to continue our common stock repurchase program.
First we have a strong balance sheet to continue to invest and execute with discipline throughout the year.
Second we have a talented team that is motivated by the community centric purpose of our DSP customers.
Michael: It is what motivates us and has powered us to execute our customer focused strategy year in and year out.
Michael: Third service providers will be making network build decisions upon which they expect to provide for a decade or more there is not a purchasing decision rather it is a long term strategic investment decision.
Michael: He is best placed to enable evolving service providers to build networks that yield the lowest operating cost highest customer satisfaction and our environmentally sustainable which enables them to win in the markets. They serve.
Michael: Last we are uniquely positioned with our platform.
Michael: And managed services to ride the BSP disruption that is picking up momentum.
Michael: As such since last fall and into this year I have dramatically ramped up my time with customers prospects and partners as I knew no. Other view is always clearance from the front.
Now let's turn to guidance. In addition to the ongoing decision-making process that Michael discussed affecting our appliance shipments, We have a few significant customers pausing their purchases in early 2024 as they re-evaluate their capital expenditures. As a result of these factors, our first quarter of 2024 revenue guidance is for revenue to be between $225 million and $231 million. We expect customers will make decisions regarding whether to pursue government stimulus over the course of the year. As customers decide to pass on EAD, they will begin their network bill, which should translate into increased shipments. If they decide to pursue B, then their purchases will be delayed until the award is received.
Michael: And my numerous conversations with Ceos and Gms since our last earnings call and as illustrated in our frequent press releases that share our customers' ongoing success. The Cowen platform cloud and managed services model is dog winning model.
Michael: Delivering incredible cash flow profitability and unmatched experiences across residential business government and the communities are <unk> P customers here.
Michael: In conclusion, we see 2024 is a unique opportunity to grow our footprint ahead of the extraordinary funding coming in 2025.
Michael: We have the platform the people and the balance sheet to remain focused on the success of our DSP customers and long term success.
We believe there are customers all along the continuum. As such, we expect our first quarter revenue to mark the low point for the year and will grow sequentially thereafter. What is certain is the continued growth of our platform, cloud, and managed services revenue. As such, our non-GAAP gross margin guidance for the first quarter of 2024 is 54.5% at the midpoint and would represent an increase of 40 basis points compared to the prior quarter, which had also set us up well for achieving the high end of our target financial model of 100 to 200 basis points for 2024. Finally, our non-GAAP operating expense guidance for the first quarter of 2024 is higher than our target financial model because of the expected dip in first quarter revenue.
Michael: Jim Let's open the call.
Jim Fanucchi: Thank you Michael Roth, Let's open the call for Q&A now.
Jim Fanucchi: Thank you.
Jim Fanucchi: I'll be conducting the question and answer session.
Jim Fanucchi: If you'd like to ask a question at this time. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press Star two if you like to move your question from the queue.
For participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please pull for questions once again Thats star one thank you.
Speaker Change: Thank you and our first question today comes from the line of George <unk> with Jefferies. Please proceed with your question.
George: Hi, guys. Thanks, very much I guess I was I appreciate the press release are rather in the shareholder letter and all the detail on all the different stimulus programs that.
We plan to hold our operating expense investments relatively flat during 2024, while we execute on our objective of growing our footprint prior to the arrival of what we believe will be a significant amount of government stimulus in 2025. In summary, Calix had an amazing year in 2023, and we are just getting started. And to tell you more about that opportunity ahead, I will return the call to Mike. Thank you, Corey.
George: But your customers are chasing right now.
Speaker Change: Guess the question that I have is you know us.
George: They look at all of these programs art off ARPA.
George: The ARPA capital projects piece reconnect tribal there's numerous state programs. It seems to me that a lot of those funding dollars are flowing now and so I.
The unique Calix platform, cloud, and managed services are enabling our BSP customers to win in their markets against the legacy network operators. The insights, data, and operational capabilities that they provide, combined with our direct sales, service, and success relationships, give us unparalleled visibility into more than 1,000 BSP customers planning for execution. This visibility makes it clear that their new network builds are going to slow in 2020. However, at the same time, new subscriber additions will continue unabated on our customers' existing network infrastructure as they take market share from legacy network operators. Therefore, we are confident that in 2024, our platform, cloud, and managed services will continue their robust growth while our appliance shipments will continue to flow. For four reasons, we believe this is a unique opportunity prior to the arrival of $42 billion in deed funds for new bills in 2025 and beyond.
George: I guess, what I'm trying to get my head around is why are you seeing such a big weight for effect around bead yet there are stimulus dollars that are available to operators today.
George: So I'm, hoping to better understand that and then also.
I think the letter and then on the call you mentioned a few significant customers that are they're kind of holding things up is this a few customers is it broad based like what's the picture you're seeing thanks.
Speaker Change: Thanks, George I'll address the first one so with regards to the funding that is flowing yes, there are a component of it but the pause.
We are starting to see in Q3 and definitely you saw gain momentum in Q4 was around the fact that this month.
Speaker Change: Dollar value coming from beta so significant that they need to assemble a strategy on how theyre going to use it or if theyre going to go after and so while there are there is money flowing for sure.
Speaker Change: This program is so large that every you know from our perspective, almost every single customer and said I need to have a strategy to either pursue it actively and theyre doing it right now or consider it and therefore it is a setup for.
First, we are excited that the vast majority of our VSP customers are contemplating or already applying for BEAT funding as we believe they are best placed to win as they have spent decades servicing rural and tribal communities. Second, we believe our BSP customers will provide the best experience to those formerly under or unserved subscribers, going well beyond a Fiverr account. Our platform-enabled BSPs will supercharge residential for home office workers in youth cases like the farm, education, small and medium business, which are the economic lifebloods of rural America, and for local government. Third, we believe our BSD customers have demonstrated for decades that they will make the most effective use of taxpayer dollars. They care about the communities they serve and will do the right thing, investing taxpayer dollars for the greatest long-term effect to improve the community.
Speaker Change: For the future.
Speaker Change: Got it and then joy think that.
Speaker Change: Sorry go ahead guys.
Speaker Change: I was going to answer that second part of the question is do you want to follow up to what Michael said sure sure. Yeah. Please. Please go ahead.
Speaker Change: I'll follow up afterwards.
Michael Genovese: Sure. So regarding the few significant customers and it is exactly that its a few significant customers and when we say significant.
Speaker Change: That doesn't mean, they're large medium or small it just means that they represented a significant amount of revenue in 2023.
Speaker Change: And as they moved into 2024, they froze their.
Speaker Change: Purchasing in the near term here, while they reevaluate what they wanted to do for 2024.
Speaker Change: Got it so so it sounds like this is a few customers out of nearly 1000 customers that you're actively seeing this.
And fourth, we believe this presents Calix with a unique opportunity to expand our footprint in the North American market. We have heard almost every Legacy Box vendor speak about 2024 as a tough year. We see this year as a unique opportunity to expand our footprint for the following reasons. First, we have a strong balance sheet to continue to invest and execute with discipline throughout the year. Second, we have a talented team that is motivated by the community-centric purpose of our BSP customers. It is what motivates us and has powered us to execute our customer-focused strategy year in and year out. Third, service providers will be making network-build decisions upon which they expect to rely for a decade or more. This is not a purchasing decision. Rather, it's a long-term strategic investment. Calix is best placed to enable evolving service providers to build networks that yield the lowest operating costs, highest customer satisfaction, and are environmentally sustainable, which enables them to win in the markets they serve.
Speaker Change: This wait for effect from is that correct and is it that you are anticipating.
The other bulk of your customers to also go into this wait for factor or is it that you're not yet seeing that.
Speaker Change: Well, let's distinguish between the two factors we're talking about there is the slowdown related to the government's stimulus while they worked through that decision making process.
That is broad base.
Speaker Change: The holdup for capital expenditure replanting as narrow that's a few customers all the way and I don't anticipate it to expand beyond that.
Speaker Change: Got it okay.
Speaker Change:
Speaker Change: And then you know.
Speaker Change: The other question I had is just to be clear this is affecting the <unk> business.
Speaker Change: Specifically youre not seeing this impact on the CPE side of the other hardware business correct.
Speaker Change: But as we said in our platform cloud and managed services will continue their robust growth and so you saw that in Q4.
Last, we are uniquely positioned with our platform cloud and managed services to ride the BSP disruption that is picking up momentum. As such, since last fall and into this year, I've dramatically ramped up my time with customers, prospects, and partners, as I know the view is always clearest from the front. In my numerous conversations with CEOs and GMs since our last earnings call, and as illustrated in our frequent press releases that share our customers' ongoing success, the Calus Platform Cloud and Managed Services model is the winning model, delivering incredible cash flow, profitability, and unmatched experiences across residential, business, government, and the communities our BSP customers serve.
Speaker Change: Yes, George so when we when we're talking about the government stimulus is affecting network builds new network builds so it's not affecting the existing footprint.
George: Oh on the few significant customers it's both.
George: It's both sides of it they froze their capex.
Got you Okay, Okay Super I'll pass it on I appreciate the help thanks guys.
Speaker Change: Thank you.
Our next question is from the line of Ryan Koontz with Needham <unk> Company. Please proceed with your questions.
Speaker Change: Thanks.
Ryan Koontz: Yes, George the key ones there.
Ryan Koontz: In terms of your small I wanted to double click on a small customer revenue there.
It does seem to be slowing and obviously, that's not a contributor to your.
In conclusion, we see 2024 as a unique opportunity to grow our footprint ahead of the extraordinary funding coming in 2025. We have the platform, the people, and the balance sheet to remain focused on the success of our BSP customers and long-term success. Jim, let's open the call.
Ryan Koontz: Your few customers tightening any commentary on the small customer set.
Ryan Koontz: Sentiment going into 'twenty four.
Ryan Koontz: Relative to your guide for Q1.
Well I think this goes back to again, the bead funding right. So if we look at what their decision making in through 2024, and we saw that the enhanced ATM offering in the third quarter. He actually got many of our customers thinking more seriously about b is an early decision factor.
Operator: Thank you, Michael. Rob, let's open the call for Q&A. Thank you. We'll now be conducting a question and answer session. If you would like to ask a question at this time, please press star 1 from your telephone keypad, and 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. If you have just been choosing speaker equipment, it may be necessary to pick up your handset before pressing the start key.
Ryan Koontz: Then our customers, who typically don't enter their budgeting process until after Thanksgiving. So they took a moment to start contemplating that as they look at 'twenty four.
And then now that it's right in front of them that is part of their decision making process through 2024. So they are either <unk>.
Operator: One moment, please, while we poll for questions, and Kenneth Starwan. Thank you, and our first question today comes from the line of George Notter with Jeffreys. Please proceed with your question. Hi guys, thanks very much.
Ryan Koontz: <unk>.
Ryan Koontz: Applying for B, right now or they're working out their strategy to say, how am I going to apply for it.
Ryan Koontz: So those come into the pause in their decision making for sure.
George C. Notter: I guess I was, I appreciate the press release, or rather the shareholder letter and all the detail on all the different stimulus programs that your customers are chasing right now. I guess the question that I have is, you know, as I look at all these programs, ARDOF, ARPA, the ARPA Capital Projects piece, ReConnect, Tribal, there are numerous state programs. It seems to me that a lot of those funding dollars are flowing now, and so I guess what I'm trying to get my head around is, you know, why are you seeing such a big wait-for effect around BEID, yet there are stimulus dollars that are available to operators today? I'm hoping to better understand that. And then also, you know, I think, you know, in the letter and then on the call you mentioned, you know, a few significant customers that are kind of holding things up. Are these just a few customers? Is it broad-based? Like what's the bigger picture you're seeing?
Ryan Koontz: They are in fact to talk about our small customers. They are rural America.
Speaker Change: Got it.
Helpful.
Speaker Change: Corey you talked about on the prepared remarks your opportunity for further cost reduction on the hardware front.
Speaker Change: Can you can you kind of tell us in general what your thoughts are there or is this mainly about <unk>.
Speaker Change: <unk>.
Redesigned to modern components kind of optics and can you give us any clues.
Speaker Change: Clues there as to where your opportunities lie for cost reductions on hardware.
Corey: Yeah, right, what we're basically saying is that we have come through the global supply chain challenges.
Corey: And the only thing that really remaining or are those price increases that were passed along.
Corey: You don't get those back.
Corey: Our vendors don't voluntarily lowered their prices for you.
Corey: So the only way and the only place you have leverage is really when you're going out to bid on new design wins.
Thanks. Thanks, George. I'll address the first one. So with regard to the funding that is flowing, yes, there is a component of it. But the pause, as we started seeing Q3, and it definitely saw a gain of momentum in Q4, was around the fact that this dollar value coming from BID is so significant that they need to assemble a strategy on how they're going to use it, or if they're going to go after it. And so while there is money flowing, for sure, this program is so large that, from our perspective, almost every single customer has said, I need And then do you think that, Sorry, go ahead, guys. I was going to answer that second part of the question.
And so this is something that we would look to do much like we did pre pandemic.
Corey: The new product is released we would come out with a new design win on a new platform, we arent going to necessarily redesigned products.
Corey:
Corey: In Blue.
Corey: Alright, So we will wait and come out with the next generation products would do that.
Corey: 567 hardware devices, a year and Thats, how we will go about.
Corey: Pulling back those price increases.
Got it okay. Thanks, Corey that's helpful I'll pass it along.
Speaker Change: Our next question is from the line of Cemig chatter Chi with Jpmorgan. Please proceed with your question.
Speaker Change: Hi, good morning, Thanks for the question.
Speaker Change: Cardoso on for <unk>.
Cemig Chi: First question for me it sounds like cloud and managed services growth is expected to continue in the face of these pauses and delays can.
Do you want to follow up on what Michael said? Sure, sure. Yeah, please go ahead.
Cemig Chi: Can you just talk to the impacted the growth rate there from the slowdown in appliances, and whether we should expect a similar growth rate in that part of the business I guess I'm, just trying to better understand the correlation between appliances and cloud and managed services.
I'll follow up after. Sure. So regarding the few significant customers, it is exactly that. It's a few significant customers. And when we say significant, that doesn't mean they're large, medium, or small.
Cemig Chi: Whether you expect a slower growth rate there on the temporary pause in circulation and then I had a quick follow up thanks.
It just means that they represented a significant amount of revenue in 2023, and as they moved into 2024, they froze their purchasing in the near term here while they re-evaluate what they want to do. Got it. So it sounds like this is a few customers out of nearly 1,000 customers that you're actively seeing this wait-for-effect from. Is that correct?
Speaker Change: Yes, the manage the.
Platform cloud and managed services.
Speaker Change: It is growing constantly.
Just at a steady rate just continuing to grow.
Speaker Change: We saw that all through the pandemic.
Speaker Change: Supply chain slowdown.
Speaker Change: It continues even today.
Speaker Change: So if youre looking at a at a relative mix of revenue.
Speaker Change: Slowdown is on the appliance side. So it's a lower appliance revenue you're going to end up having a greater percentage of software in there.
And is it that you're anticipating the other bulk of your customers to also go into this wait for effect, or is it that you're not yet seeing that? Well, let's distinguish this between the two factors we're talking about. There's the slowdown related to government stimulus while they work through that decision-making process. That is broad-based. The holdup for capital expenditure replanning is narrow.
Speaker Change: Here in your mix.
Speaker Change: And that's why we believe we will be at the higher end of the target financial model of that 102 hundred basis points for 2024.
Speaker Change:
Speaker Change: So there you go.
Speaker Change: Okay. I guess just my next question is you're obviously you highlighted the slow down investments from existing customers from the government subsidies on the horizon.
That's just a few customers so far, and I don't anticipate it to expand beyond that. Got it. Okay. And then, you know, the other question I had is, just to be clear, this is affecting the OLT business. Specifically, you're not seeing this impact on the CPE side of the hardware business, correct? But as we said, our platform cloud advanced services will continue their robust growth, and you saw that in Q4. Yes, George.
Speaker Change: However, just curious if you could talk to the trends you're seeing from new customers and clarify whether those same factors are impacting your ability to onboard new customers to calix or is that less of a hurdle on the new customer front. Thank you answered the question.
Actually that was the point of my opening remarks, and why you saw through the letter, which is we recognize 2024 or see it as a unique opportunity for us in stock to expand footprint. So our platform cloud and managed services continue to differentiate us in the mines.
Speaker Change: Evolving service providers, who are looking at 2024, and then the tsunami of money that's coming in 2025 and beyond as it is a decision point there are no longer just taking out a purchase order to continue the existing network and what they were currently doing for our strategy there actually.
George C. Notter: So when we're talking about the government stimulus affecting network builds, new network builds, so it's not affecting the existing footprint. On the few significant customers, it's both sides of it; they froze their capex. Gotcha. Okay. Okay, super. I'll pass it on.
Ryan Koontz: I appreciate the help. Thanks, guys. Thank you. Our next question is from the line of Ryan Koontz with Medium & Company. Please proceed with your question. George hit the key ones there. In terms of your small business, I want to double-click, though, on the small customer revenue there. It does seem to be slowing.
Speaker Change: Looking broadly at their strategy and saying what do we have to do to actually compete and when do we remain a legacy network operator.
Speaker Change: <unk> is right with challenges and I am in all my conversations with Ceos and Gms. This is one of the big things that we talk to prospects who are not on the couch platform. They were talking about the fact that building fiber networks does not transitioned into actually success and in fact, it's a commoditization that's coming in Broadmoor.
Ryan Koontz: And obviously, that's not a contributor to your, a few customers tightening. Any commentary on the small customer sentiment going into 24? relative to your guide for Q1.
Speaker Change: And they're really really worried about it in fact that was had a prospect that I was talking to you before Christmas and he was emphatic you said the thing that keeps me up at night is the Commoditization of my business.
Well, I think this goes back to, again, the funding for B, right? So if we look at what their decision-making is through 2024, we saw that the enhanced ACAM offering in the third quarter actually got many of our customers thinking more seriously about B as an early decision factor, then our customers, who typically don't enter their budgeting process until after Thanksgiving. So they took a moment to start contemplating that as they looked at 24. And then, now that it's right in front of them, that will be part of their decision-making process through 2024. So they are either actively applying for B right now, or they're working out their strategy to say how I am going to apply for it. So those come into the pause in their decision-making, for sure. They are, in fact, you talk about a small one.
Which opens it up as this for the expansion of footprint. This is the opportunity where we can with that customer exactly the conversation then lead to well with what we built in this platform and the managed services in the cloud we help you transition into a broadband service provider, who has a diversified business residential small.
Speaker Change: Business medium business government education, all these days different.
Speaker Change: Component parts. So you can differentiate in the marketplace and win which means build the fiber and then fill it with customers and then drive all the upsell and cross sell so as we look into 2024, when I said, there's a unique opportunity ahead, that's explicitly what I'm talking.
Speaker Change: [noise] about this pause in decision, making is not cut apio and keep doing the same thing. It is actually look at my business model and there's only one company in this entire industry, who actually has a new model that will allow them to succeed for the long term.
They are rural America, got it, that's helpful. And Corey, you talked about in your prepared remarks your opportunity for further cost reduction on the hardware front. Can you kind of tell us in general what your thoughts are there, it's mainly about, Sourcing, redesigned to modern components, optics, can you give us any clues there as to where your opportunities lie for cost reductions on hardware? Yeah, right.
While 2024 is a massive opportunity for us to expand our footprint and win in the market.
Speaker Change: Got it thanks, Michael I appreciate all the color guys. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question is from the line of Christian Schwab with Craig Hallum. Please proceed with your question.
What we're basically saying is that we have come through the global supply chain challenges, and the only thing that is really remaining are those price increases that were passed along. You don't get those back.
Christian David Schwab: Hey, good morning, guys I just have.
My question is about when you began to see this you guys have always been.
Christian David Schwab: The most cautious in negative about.
Our vendors don't voluntarily lower their prices for you. So the only way, and the only place you have leverage, is really when you're going out to bid on new design wins. And so this is something that we would look to do, much like we did pre-pandemic. It's when a new product is released; we come out with a new design on a new platform. We aren't necessarily going to necessarily redesign products to improve them, right? So we will wait and come out with the next generation of products to do that. 5, 6, 7 hardware devices a year, and that's how we will go about clawing back those prices. Got it. Okay. Thanks, Cory. That's helpful. I'll pass.
Christian David Schwab: The timing and acceleration of government programs.
And the fact that usually they'll end up being bigger than anticipated, but they'll take much longer to get started and all of that seem to be extremely.
Christian David Schwab:
Christian David Schwab: Not all of that.
With 42 billion, though that much to think about it that could be a tremendous risk and so between that and the significant customers kind of you know is this something that the truly started to trickle out after Thanksgiving and it's accelerated into this conference call.
Speaker Change: I'm just kind of surprised you guys didn't call. This issue before this conference call.
Ryan Koontz: Our next question is from the line of Samik Chatterjee with J.P. Morgan. Hi, good morning. Thanks for the question. This is Joe Caruso on First SOMIC.
Speaker Change: Yeah.
Before this conference call. Okay, we had an incredible Q4, and so the fit from a visibility point of view you're right. We've always stated that we have great visibility in what we're doing with customers.
Samik Chatterjee: So the first question from me is, you know, it sounds like cloud and managed services growth is expected to continue in the face of these pauses and delays. But can you just talk about the impact of the growth rate there from this slowdown in appliances and whether we should expect a slower growth rate in that part of the business? I guess I'm just trying to better understand the correlation between appliances and cloud and managed services and whether you expect a slower growth rate there due to temporary pauses or delays. And then I have a quick follow-up. Thanks.
Speaker Change: And the reason why we can provide you a clear explanation today is because of that visibility and so the conversation that you know as I stated after Thanksgiving. They go into their budgeting cycles and almost every customer starting in Q3, but in Q foreign explicitly after the Thanksgiving is answered by <unk>.
Speaker Change: These cycles almost every customer that I spoke to general managers and Ceos were focused on one is mine plan for beat it is such a large amount of money and it is right in front of them that even customers who have never pursued a dollar of broadband money.
Yeah, the Platform Cloud and Managed Service business is growing constantly. It's just at a steady rate, just continuing to grow. We saw that all through the pandemic, through the supply chain slowdown, and it continues even today. So, if you're looking at a relative mix of revenue, the slowdown is on the appliance side.
Ever.
Speaker Change: And their history.
Speaker Change: Now considering in their 2020 for 2025 strategy because mechanic north it's right here and there.
Speaker Change: <unk>.
So the lower appliance revenue, you're going to end up having a greater percentage of software in your mix, and that's why we believe we will be at the higher end of the target financial model of that 100 to 200 basis points for 2024. So there you go. Okay, I guess just my next question is, you obviously highlighted the slowdown in investments from existing customers due to government subsidies on the horizon. However, I'd just curious if you could talk about the trends you're seeing from new customers and clarify whether those same factors are impacting your ability to onboard new customers to Calix, or is that less of a hurdle on the new customer front? Thank you.
Speaker Change: And so that in the end is the last component of this where it just became very clear.
Speaker Change: Great no other questions. Thank you.
Speaker Change: Thank you our next questions come from the line of Tim Savage with Northland Capital markets. Please proceed with your questions.
Tim Savage: Hi, good morning.
Tim Savage: Question on the.
Tim Savage: I guess trying to get a little more color on the opportunity the share gain opportunity you're discussing.
Tim Savage: Here for calendar 'twenty four.
Tim Savage: I mean should we be thinking.
Tim Savage: More kind of in the medium and larger carrier given the size and the extent of your market share among smaller carriers.
Thanks for the question. Actually, that was the point of my opening remarks and what you saw in the letter, which is that we recognize 2024 or see it as a unique opportunity for us, in fact, to expand our footprint. So our platform, cloud, and managed services continue to differentiate us in the minds of evolving service providers who are looking at 2024 and then the tsunami of money that's coming in 2025 and beyond as a decision point. They're no longer just kicking out a purchase order to continue the existing network and what they were currently doing as a strategy. They're actually looking broadly at their strategy and saying, "What do we have to do to actually compete and win? Do we remain a legacy network operator, which is rife with challenges?" And I am in all my conversations with CEOs and GMs.
Tim Savage: And.
Is there a way.
Tim Savage: For you to quantify maybe in terms of annual revenue or total Tam value kind of what you consider to be.
The size of that opportunity what's up for grabs.
Tim Savage: If you will and I assume.
That none of these share gain potential share gains or <unk>.
Tim Savage: Factored into your 24 outlook.
Tim Savage: Thanks.
Tim Savage: First of all none of those are factored into our 2024 outlook and we call. It footprint expansion wherever they may be with the existing legacy box company and they are contemplating as they continue their expansion.
Tim Savage: Can they apply or new business models that incremental footprint. So it's not in 2024 and it's really around.
Tim Savage: No seismic customer there's a wide range of them if not all across the continuum where were having the conversation around how do you change your business model to address the disruption that's happening in the market and not see yourself commoditize.
This is one of the big things that we talked to prospects who are not on the Calus platform about. They're talking about the fact that building a fiber network does not transition into success. And, in fact, it's commoditization that's coming in broadband, and they're really, really worried about it. In fact, I had a prospect that I was talking to before Christmas, and he was emphatic.
Tim Savage: The Best example, we have a.
Tim Savage: Example, I referred to US this CEO that I was speaking to is there was quite sizable.
Tim Savage: He said they've never done business with us.
He said, "You know, the thing that keeps me up at night is the commoditization of my business, which opens it up for the expansion of Footprint." This is the opportunity where we can, with that customer exactly, the conversation then led to, well, with what we built in this platform, in the managed services, in the cloud, we help you transition into a broadband service provider who has a diversified business of residential, small business, medium business, government, education, all these different component parts so you can differentiate in the marketplace and win, which means building the fiber and then filling it with customers and then driving all the So as we look into 2024, when I said there was a unique opportunity ahead, that's explicitly what I'm talking about. This pause in decision-making is not cut a P.O. and keep doing the same thing.
And he was contemplating in the conversation started about.
While pawn and different things like that box ship Burns in my statement that it was.
Tim Savage: Actually let's talk about your business what keeps you up at night that I'm worried about being commoditized.
Tim Savage: Led to which.
Tim Savage: Which we call out in Q4, the growth driver in our business, which is our platform cloud and managed services and how we can help him and his organization differentiate in the market. So that represents the occupancy in 2024 no. It is not factored into what we're doing from a numbers point.
Tim Savage: And this year.
Speaker Change: Well I guess, maybe to follow up a little bit more I mean.
Speaker Change: Let's say you were I don't know what you would consider to be reasonably successful in this endeavor, but.
Speaker Change: Let's say you are in 24, what could that add to the revenue run rate of calix in 'twenty, five and going forward.
It is actually, look at my business model, and there's only one company in this entire industry who actually has a new model that will allow them to succeed for the long term. That's why 2024 is a massive opportunity for us to expand our footprint and win in the market.
Speaker Change: Well as Corey identified.
Speaker Change: In Q1, we consider this a low point and that we will have.
Speaker Change: No return, we will have sequential growth quarter on quarter, which that will contribute to it.
Speaker Change: So Tim I don't think work, we're prepared to quantify what we think the footprint gains might be.
Samik Chatterjee: Thanks, Michael. Appreciate it, guys. Thank you. Thank you. Our next question is from the line of Christian Schwab with Craig Hallam. Please proceed with your question. Hey, good morning, guys.
Speaker Change: Yep.
Speaker Change: In that sense.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Next question is from the line of Scott Searle with Russom. Kim. Please proceed with your question.
Christian David Schwab: My question is about when you began to see this. You guys have always been the most cautious and negative about the timing and acceleration of government programs and the fact that, usually, they'll end up being bigger than anticipated, but they'll take much longer to get started. All of that seemed to be extremely negative.
Scott Searle: Hey, good morning, maybe to dive in on the timing Mike.
Scott Searle: It sounds like from a beef funding standpoint, some of at least the initial awards are starting to slip out a little bit I'm wondering if you can take us through the process and the timeframe that you start to expect to see awards I know, there's a challenge process. So when do we start to see some of those initial awards and then it sounds like the market didn't bifurcation.
Not all bad, with $42 billion, not all that much to think about, that could be a tremendous risk. And so between that and the significant customers, kind of, you know, is this something that truly started to trickle out after Thanksgiving and has accelerated into this conference call? I'm just kind of surprised you guys didn't address this issue before this conference call. Man!
Scott Searle: From your customer base customers, who get awards when the timing and the impact of that revenue stream would be I think the early expectation was.
Scott Searle: At the beginning of 2025 I'm wondering if those deployments are slipping and then for the customers who don't get funding to keep their.
Scott Searle: Pedal our foot on the gas to deploy ahead of incoming competition when does that start to reaccelerate.
Scott Searle: Okay.
Speaker Change: There are a lot of quiet theres a lot of questions in there. So first of all with regards to be funding.
before this conference call, okay? We had an incredible Q4. And so from a visibility point of view, you're right. We've always stated that we have great visibility into what we're doing with customers. And the reason why we can provide you with a clear explanation today is because of that visibility. And so the conversation that, as I stated, after Thanksgiving, they go into their budgeting cycles, and almost every customer started in Q3, but in Q4 and explicitly after Thanksgiving is the entry point into their budgeting cycles. Almost every customer that I spoke to, general managers, and CEOs, were focused on "what is my plan?" For Veed, it is such a large amount of money, and it is right in front of them, that even customers who have never pursued a dollar of broadband money in their history are now considering it in their 2024-2025 strategy because they can't ignore it. It's right here, and it's so big.
Speaker Change: So to your point, you're basically netted it out that we see the funding flowing in early 'twenty five right. So youre going to see the second half going through the process and then 2025, you're going to see it flowing so in the second half of this year what happens to the other group that you talked about which is if I am well I'm in my decision making.
<unk> phase right now.
Speaker Change: I'm deciding first of all <unk> and this is the first bifurcation do I apply for funding that's out there or do I not.
Speaker Change: So by going to the applying for funding the same people, who do mine planning and all the work that I do for new builds are going to be tied up in the submission process and so.
Speaker Change: So they're all going to be focused on that.
Speaker Change: And the group that decided you know what I'm not going to go for finding I'm now made that decision and I'm going to then they're planning folks will go in June we'll start doing the overbuilding before bead money shows up which will be competitive.
And so that, in the end, is the last component of this where it just became very clear. Great. No other questions.
Speaker Change: So now back to the other groups. So I've applied might be funding second half I get My awards, there's talent processes and then in 2025 that starts to flow.
Christian David Schwab: Thank you. Thank you, our next questions come from the line of Tim Savage with Northland Capital Markets. Pleased to see you. Hi, good morning.
Speaker Change: Gotcha, and Mike just to clarify that when you say funding slowly youre not talking about awards are actually talking about deployments that are impacting sales at that point in time is that correct.
A question on the, I guess trying to get a little more color on the opportunity, the shared gain opportunity you're discussing here on calendar 24. I mean, should we be thinking? more kind of in the medium and larger carrier area, given the size and extent of your market share among smaller carriers, and, you know, is there a way for you to quantify, maybe in terms of annual revenue or total TAM value, kind of what you consider to be the size of that opportunity, what's up for grabs, if you will, and I assume that none of these potential share gains are factored into your 24 outlines. First of all, none of those are factored into our 2024 outlook. And we call it footprint expansion, where we're, you know, they may be with an existing legacy box company, and they're contemplating, as they continue their expansion, how can they apply new business models to that incremental footprint. So it's not in 2024, and it's really around the size of the customer. There's a wide range of them.
We think that once the awards are made they will start sourcing their equipment in anticipation of getting those networks being built so we would expect to see some initial orders.
Speaker Change: Late late late in the year now remember that feed process is very complex not only do you have a challenge phase right now for each site with the service levels with the maps and that is going to take way into the summer before they even get into the proposals where theyre actually submitting bids.
Speaker Change: On the network.
Speaker Change: We commented there and this is the states last opportunity to really make sure that all of these unserved areas are being taken care of by the money.
So it's in the states interest to make sure that each boat orphaned locations are being picked up by this five new service providers that are building. So there is a back and back and forth process, where they're going to try to get those orphaned ones picked up by somebody.
And then finally, each state is going to submit their award simultaneously for all the all of the participants so theres no partial award going on right. So it's kind of a each state will be all or nothing right here. It is appears to date.
Speaker Change: And so that process is likely to take all the way into late 'twenty for early 'twenty, three depending on which state you're in.
It's all across the continuum where we're having the conversation around how do you change your business model to address the disruption that's happening in the market and not see yourself commodify? You know, the best example is we have a, you know, that example I referred to was this CEO that I was speaking to, who's, who's quite thoughtful. He said, "They've never done business with us."
Speaker Change: So it's going to start coming out state by state and that's when we'll start seeing it.
Speaker Change: The bulk of the orders will likely be made the very end of the year early 'twenty five and that nuance is really important because as you heard Cory say the states are focused on stopping cherry picking right, which bluntly when I talk to customers. That's one of the things that are irritates them. The most is actually that those of you who will cherry picks areas.
And he was contemplating, and the conversation started about, well, pawn and different things like that, box shift words. And my statement to him was, actually, let's talk about your business. What keeps you up at night? And he said, "I'm worried about being commoditized, which then led to, you know, which we call out in Q4, the growth driver in our business, which is our platform cloud and managed services, and how we can help him and his organization differentiate in the market. So that represents the opportunity in 2024. No, it's not factored into what we're doing from a number standpoint, and Well, I guess, maybe to follow up a little bit more... You know, let's say you were, I don't know what you would consider to be, you know, reasonably successful in this endeavor, but let's say you are in 24.
Speaker Change: They want and Walnut will not go after the unserved or underserved areas and this this process will focus on that and that's also why we believe our customers are best placed to win because they actually care. They look at this as an exciting opportunity to expand their footprint in past you know that.
Speaker Change: Where they serve and get to those places so that makes them the best choice.
Speaker Change: A local level.
Speaker Change: Okay very helpful and just to I guess extrapolate that into 'twenty five major long term towards it for growth has been 10% to 15% I.
Speaker Change: I know, it's early but is your expectation in 'twenty five we return to those levels and then just real quickly on the managed services and <unk> growth to continue to be pretty healthy on that front I think going back to connections smart business. One of the Centerpieces of is gaining a lot of momentum with your customers I'm wondering if you could just clarify where you're seeing the strength in terms of the RPM growth in managed services.
What could that add to the revenue run rate at Calix in 25 and going? Well, as Corey identified in Q1, we consider this a low point in that we will have, you know, return to sequential growth quarter on quarter, which that will contribute. So, Tim, I don't think we're prepared to quantify what we think the footprint gains might be.
Speaker Change: Thanks.
Speaker Change: So in terms of 2025 revenue growth rate, yes, Scott, we think we'll return to that 10% to 50% will move back into the double digits.
Speaker Change: With regards to the strong growth in Q4 of them our platform cloud and managed services.
Speaker Change: Smart beds is one of those components, but.
Speaker Change: I would point to one of the biggest reasons why we think that we have this unique opportunity in 2024 is because.
Thank you. Our next question is from the line of Scott Serrell with Ross MCAM. Please receive the following: Hey, good morning.
Our existing customers are continuing to deploy at a rapid rate, which Cory with clarity as stated is going to have an impact on our continued margin expansion right.
Maybe to dive in on the timing, Mike, you know, it sounds like from a BEAD funding standpoint, some of the initial awards are starting to slip out a little bit. I'm wondering if you can take us through the process and the time frame that you start to expect to see awards. I know there's a challenge process, but when do we start to see some of those initial awards? And then it sounds like the market then bifurcates from your customer base, customers who get awards, on when the timing and the impact of that revenue stream would be. I think the early expectation was for the beginning of 2025, but I'm wondering if those deployments are slipping. And then for the customers who don't get BEAD funding to keep their, you know, their pedal, you know, foot on the gas to deploy ahead of incoming competition, when does that start to rip? There are a lot of questions in there.
Speaker Change: And season, these new prospects, who I've never spoke to US is surprising to me in the last three months since we last spoke how many.
Speaker Change: Companies I have spoken to who have never done business with us and are now saying back to my point that Commoditization risk is finally, starting to sink in and they're keeping them up at night.
It's very clear that there's only one company. It was spent 13 years and $1 2 billion.
Speaker Change: Building out a platform that allows them to differentiate in their market.
Speaker Change: And they're talking to us so you're going to see that continued strength in platform cloud and managed services.
Speaker Change: Yeah.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: At this time, we've reached the end of our question and answer session now I'll turn the floor over to Jim Fanucchi for closing remarks.
So, first of all, with regard to defunding... So to your point, you basically netted it out that we see the funding flowing in early 2017, right? So you're gonna see the second half going through the process, and then 2025, you're gonna see it flowing. So in the second half of this year, what happens to the other group that you talked about, which is if I am? Well, I'm in my decision-making phase right now. I'm deciding, first of all, do I, and this is the first bifurcation, do I apply for the funding that's out there, or do I not, right? So if I go into the application process, the same people who do my planning and all the work that I do for new bills are going to be tied up in the deed submission process. And so they're all going to be focused on that. And the group that decides, you know what? I'm not going to go for defunding. I've now made that decision.
Jim Fanucchi: Thank you, Rob Kelly's leadership will participate in several events and investor events. During this first quarter information about these events, including the dates and times publicly available webcast will be posted on the presentations page of the Investor Relations section of our website at <unk> Dot com once again I would like to thank.
In Q2, I'd like to thank everyone on this call and webcast for your interest in Calix for joining US today. This concludes our conference call have a great day.
Speaker Change: Thank you to everyone who joined US today you may now disconnect. Your lines at this time and thank you for your participation.
Speaker Change: Okay.
I'm going to then they're planning folks will go into it, and we'll start doing the overbuilding before bead money shows up, which will be competitive. So now back to the other group. So I've applied for my B funding, second half, I get my awards, there's challenge processes, and then in 2025, that starts. Gotcha. And Mike, just to clarify, though, when you say funding is flowing, you're not talking about awards; you're actually talking about deployments that are impacting sales at that point in time. Is that correct? We think that once the awards are made...
They will start sourcing their equipment in anticipation of getting those networks built. So we would expect to see some initial orders late, late, late in the year. Now, remember that this process is very complex.
Not only do you have a challenge phase right now where you fight with the service level, with the map, but that's going to take way into the summer before they even get into the proposals where they're actually submitting bids on the network. And like we commented there, this is the state's last opportunity to really make sure that all these unserved areas are being taken care of by the money. So it's in the state's interest to make sure that these, quote, orphaned locations are being picked up by these service providers that are building. So there is a back and forth process where they're going to try to get those orphaned ones picked up by somebody. And then, finally, each state is going to submit its award simultaneously for all of the participants. So there's no partial awards going on, right?
So it's kind of a, each state will be all or nothing, right? Here it is, here's the date. And so that process is likely to take all the way into late 24, early 23, depending on which state you're in. So it's gonna start coming out state by state, and that's when we'll start seeing it. But the bulk of the awards will likely be made at the end of the year, early 25.
And that nuance is really important because, as you heard Corey say, the states are focused on stopping cherry picking, right? Which, bluntly, when I talk to customers, is one of the things that irritates them the most, is actually that those who will cherry pick areas that they want and will not go after the unserved or the underserved areas. And this process will focus on that. And that's also why we believe our customers are best placed to win, because they actually care. They look at this as an exciting opportunity to expand their footprint past where they serve and reach those who need it. So, that makes them the best choice at a local level. Okay, very helpful. And just to, I guess, extrapolate that into 25, right? Your long-term target for growth has been 10% to 15%. I know it's early, but it's the expectation that in 25 we will return to those levels.
And then, just real quickly, on managed services and RPO growth: it continued to be pretty healthy on that front. I think going back to connections, Smart Biz was one of the centerpieces that was gaining a lot of momentum with their customers. I wonder if you could just clarify where you're seeing the strength in terms of RPO growth and managed services. So, in terms of the 2025 revenue growth rate, yes, Scott, we think we'll return to that 10 to 15 percent. We'll move back into the double digits with regard to, you know, the strong growth in Q4 of our platform cloud and managed service. SmartBiz is one of those components, but I would point out one of the biggest reasons why we think that we have this unique opportunity in 2024 is because our existing customers are continuing to deploy at a rapid rate, which Corey, with clarity, has stated is going to have an impact on our continued margin expansion and these new prospects who have never spoken to us.
It is surprising to me, in the last three months since we last spoke, how many companies I have spoken to who have never done business with us and are now saying, back to my point, that the commoditization risk is finally starting to sink in, and it's keeping them up at night. And it's very clear that there's only one company who has spent 13 years and $1.2 billion building out a platform that allows them to differentiate in their market and win, and they're talking. So you're going to see continued strength in platform cloud and managed.
Thank you. Thank you. At this time, we've reached the end of our question and answer session, and I'll turn the floor back to Jim Finucchi for closing remarks. Thank you, Rob. CALEX leadership will participate in several events and investor events during this first quarter. Information about these events, including the date and time and publicly available webcasts, will be posted on the events and presentations page of the investor relations section of our website at CALEX.com. Once again, I would like to thank you, I'd like to thank everyone on this call via webcast for your interest in CALEX and for joining us today. This concludes our conference call. Have a great day, and thank you to everyone who joined us today. You may now disconnect your lines at this time, and thank you for your participation.