George Notter

George Notter asked about the current tariff situation, including recent moves and potential exemptions for transceivers, and how customer perceptions of tariffs might be influencing orders. He also inquired about the potential financial upside from recouping IEEPA tariffs, specifically the estimated amount.

Answer

Dr. Stephen Murray, CFO and Chief Strategy Officer, stated that predicting the exact tariff situation is difficult but doesn't expect dramatic changes to the current picture. He mentioned that AOI is exploring options to recoup IEEPA tariffs, noting that AOI was the importer of record for many shipments. He estimated that if all IEEPA-related tariffs could be recouped, it would be around $4.6 million from the last quarter and $7 million-$8 million for the prior year, which would be a welcome cash flow development. He also reiterated that manufacturing in the US is the long-term solution to minimize tariff impact.

George Notter asked about the current tariff situation, including the recent 15% tariff, its potential impact on transceivers, customer perceptions, and the possibility of recouping IEEPA tariffs.

Answer

Dr. Stefan Murry, CFO and Chief Strategy Officer, stated that the tariff situation is uncertain but current tariffs are in line with previous outlines. He noted that products made in the U.S. are not tariffed, and scaling U.S. manufacturing and supply chain partners is the long-term solution. He also mentioned that AOI acted as the importer of record for many IEEPA tariff shipments in 2025 and that recouping those, potentially $7 million-$8 million, would be a welcome cash flow development, though the exact amount is still being analyzed.

George Notter inquired about the specific details of the $6.6 million shipping and receiving delay for 400G transceivers at quarter-end, asking if it involved a single or multiple customers. He also sought an update on the capital expenditure plans, specifically the revised CapEx projection for Q4 2025 and an initial view on CapEx for 2026.

Answer

Dr. Stefan Murray (CFO and Chief Strategy Officer, Applied Optoelectronics) explained that the delay was with a single, new hyperscale customer due to timing issues with inventory management systems, which has since been resolved and the revenue booked in Q4. Regarding CapEx, Dr. Murray stated that Q4 CapEx would likely exceed the $150 million top end of the previous projection, but a precise number was not yet available, and 2026 CapEx plans were still being finalized but expected to be higher than 2025.

George Notter inquired about the shipping and receiving delay at the end of the quarter, asking if it involved a single or multiple customers and for more details on the nature of the delay. He also sought an update on capital expenditures for Q4 2025 and an initial view on CapEx plans for 2026.

Answer

CFO and Chief Strategy Officer Stefan Murray explained that the delay involved a single, new hyperscale customer, caused by inventory management system configuration issues that prevented revenue recognition in Q3. He clarified that products were delivered but ownership couldn't transition due to system synchronization. Stefan Murray also stated that Q4 CapEx would likely exceed the $150 million high end of the previous guidance, with 2026 CapEx expected to be higher than 2025, though precise figures are still being determined.

George Notter questioned the drivers behind the current inflection in Huawei replacement in the EU, given that current regulatory directives are recommendations rather than mandates. He also asked about Adtran's positioning to capture the estimated $1 billion annual spend opportunity from Huawei replacement in EMEA.

Answer

CEO Tom Stanton explained that while the EU directive is a recommendation, country-specific legislative actions vary, and the ongoing discussion creates pressure, making new Huawei deployments less likely for carriers. He clarified that the $1 billion figure is a rough estimate based on Huawei's EMEA earnings in Adtran's target product areas (mid-mile, regional, network, optical, access, aggregation), which was approximately $850-860 million in 2024 and is expected to decrease as Adtran gains market share.

George Notter of Wolfe Research LLC sought an update on the efforts to sell the Huntsville campus, asking if a potential buyer had withdrawn from the process.

Answer

CEO & Chairman Tom Stanton clarified that the buyer has not walked away but has been slow to close, and the deal remains active. Due to the delay, ADTRAN is now considering other offers. SVP & CFO Tim Santo added that the company is also exploring a sale-leaseback transaction on its East Tower, given its improved financial position.

George Notter asked for an update on the excess customer inventory situation, particularly in the optical business, and inquired about the timeline for recovery. He also requested an update on the company's real estate asset sales and asked about the drivers behind the recent decrease in Days Sales Outstanding (DSO).

Answer

Executive Thomas Stanton confirmed that bookings were picking up, signaling an easing of inventory issues. He noted a large European customer's inventory overhang should clear by early Q1, but orders are already resuming. He stated that real estate asset sales are progressing with multiple interested parties. CFO Uli Dopfer and Thomas Stanton attributed the DSO improvement primarily to customer mix and strong collection efforts, while noting that business linearity remains back-end loaded.

George Notter sought clarification on the number of AI Era customers, attempting to infer it from the 500 agencies deploying Axon Assistant and $750 million in bookings. He then asked about the penetration rate of AI Era plans among law enforcement agencies.

Answer

President Josh Isner clarified that Axon Assistant deployments and AI Era Plan bookings are not a one-to-one correlation, as some features can be bought standalone. COO and CFO Brittany Bagley added that Axon Assistant is a new feature within the AI Era Plan, and not all customers immediately adopt new features. Josh Isner advised looking at the per-officer, per-month pricing for the AI Era Plan in conjunction with the $750 million bookings and officer count to estimate penetration.

George Notter sought clarification on the relationship between 500 agencies deploying Axon Assistant and the $750 million in AI Era Plan bookings, questioning if this implies 500 AI Era customers. He then asked about the penetration rate of the AI Era Plan, using the 500 agencies as a proxy against the estimated 15,000 US law enforcement agencies.

Answer

CEO Rick Smith clarified that not every customer adopting Axon Assistant is automatically an AI Era customer, as some features can be bought standalone, so the numbers are not one-for-one. COO and CFO Brittany Bagley added that Axon Assistant is a new feature within the AI Era Plan, and not all customers immediately adopt new features. She advised looking at the per-officer, per-month pricing for the AI Era Plan in relation to the $750 million bookings and officer count to estimate penetration.

George Notter inquired about the Q3 bookings performance, specifically asking if the softer appearance was due to delayed contract decisions, given the expectation for AI to contribute 10% to total bookings this year. He also sought clarification on the strategic rationale behind the Prepared and Carbine acquisitions in the 911 space, their integration into Axon's ecosystem, and the competitive landscape.

Answer

President Josh Isner affirmed that bookings growth is still expected in the high 30s% year-over-year, implying a strong Q4. CEO Rick Smith elaborated on the 911 acquisitions, explaining that Prepared offers low-friction AI for call centers and Carbine replaces legacy infrastructure with cloud solutions, both leveraging AI to unify the Axon ecosystem and link callers to responders, contrasting with previous CAD strategy.

George Notter inquired about the softer bookings growth in Q3, specifically asking if delayed contract decisions impacted the 10% AI bookings contribution target, and sought clarification on the strategic rationale behind the Prepared and Carbyne acquisitions in the 911 space, considering the competitive landscape and Axon's future plans for these businesses.

Answer

President Josh Isner affirmed that Axon still expects high 30s% year-over-year bookings growth, implying a strong Q4. CEO Rick Smith elaborated on the 911 strategy, explaining that Axon's previous CAD product line exit was due to limited innovation room. He highlighted Prepared's AI capabilities for real-time data processing and autonomous handling of non-critical calls, and Carbyne's role in modernizing voice communication infrastructure, positioning Axon as a major player in linking callers to the entire Axon ecosystem.

George Notter of Wolfe Research, LLC asked for context on the $600 per-officer monthly spending metric, how it compares to prior years, and for an updated percentage of customers on the Officer Safety Plan (OSP).

Answer

President Josh Isner clarified that the $600 figure represents the high end of deals and has grown from the mid-$200s three years ago due to the addition of more products to the bundle. COO & CFO Brittany Bagley noted that while there's no new OSP metric, about 70% of customers were still on basic plans as of a few quarters ago, indicating a large upgrade opportunity.

George Notter inquired about the Q3 progress of Axon's Draft One product, asking about its impact on revenue and ARR, updates to the sales pipeline, and the final pricing for the new AI era bundle.

Answer

EVP & Chief Product Officer Joshua Isner stated that while there were some early Q3 orders for Draft One, the financial impact is still minimal as it's the "top of the first inning." He confirmed the pipeline is growing and that Draft One is the anchor for the new AI era bundle, which will be priced at $199/month. CFO Brittany Bagley added that the company's focus will shift to discussing the comprehensive AI bundle rather than Draft One as a standalone product.

George Notter inquired about the expected profile of product deferred revenue coming off Arista's balance sheet, asking if it would be in large chunks, gradual, or continue to build. He also asked how much product deferred revenue was included in the full-year 2026 revenue guidance.

Answer

Chantelle Breithaupt, Arista's Chief Financial Officer, reiterated that deferred revenue is influenced by new products, customers, and use cases like AI, with acceptance criteria ranging from 6 to 18 months. She stated that deferred balances fluctuate quarterly and are not guided, but large deployments can lead to lumpier releases. Jayshree Ullal, Arista's Chairperson and CEO, added that the timing of acceptance criteria makes precise predictions difficult.

George Notter inquired about the profile of product deferred revenue, asking if it will be released in large chunks or gradually, if it will continue to build, and how much is included in the full-year revenue guidance.

Answer

CFO Chantelle Breithaupt explained that deferred revenue includes new products, customers, and AI use cases, with acceptance criteria ranging from 6 to 18 months. She stated that deferred revenue balances fluctuate quarterly based on new additions and releases, and Arista does not provide specific guidance for it. CEO Jayshree Ullal added that predicting the exact timing of acceptance is 'super hard.'

George Notter inquired about the increasing momentum Arista is experiencing with VeloCloud, asking what specific trends or customer behaviors are driving this, especially considering the historical focus on bundled solutions.

Answer

Jayshree Ullal, CEO and Chairperson, explained that while initial focus was on bundling, many NeoClouds and smaller enterprises are now actively seeking Arista's expertise for network design and software capabilities due to internal resource constraints. She sees significant growth potential from these customers, even starting with smaller GPU clusters.

George Notter inquired about the momentum Arista Networks is seeing with VeloCloud, specifically what is driving this with its customer set, and if it indicates a shift beyond a bundle-focused approach.

Answer

Jayshree Ullal, Arista Networks' CEO and Chairperson, acknowledged initial bundling but noted that many NeoClouds worldwide are now seeking Arista's help for network design and software capabilities due to a lack of internal staff and expertise. She mentioned that smaller GPU clusters are growing, leveraging colo space and power.

George Notter of Wolfe Research asked for Arista's perspective on the competitive environment, particularly concerning NVIDIA's networking business and Celestica, and how Arista maintains its differentiation.

Answer

Chairperson & CEO Jayshree Ullal stated that while the competitive "chatter" has increased, the landscape has not fundamentally changed. She emphasized that Arista's differentiation in platform performance, features, and customer intimacy remains strong, expressing confidence in their innovative edge.

George Notter inquired about the growth drivers for the Software and Services (S&S) segment, particularly in the LMR business, focusing on cyber protection and 24/7 monitoring services. He also asked about the penetration levels of these services, including cyber and 24/7 monitoring, within the LMR, international, and enterprise markets.

Answer

EVP and CFO Jason Winkler confirmed that doing more for customers, including monitoring network performance and running networks, is a key growth driver for services. He also cited strong growth from applications, command center, and video software. EVP and CTO Mahesh Saptharishi added that managed detection and response platforms for cybersecurity saw 77% year-over-year customer growth, driven by AI-driven automation processing 1 billion security transactions daily. He noted reasonable penetration for P25 networks but significant room for growth in international and enterprise security markets.

George Notter inquired about the drivers behind the consistent low-teens growth in the Software and Services (S&S) LMR business, specifically mentioning cyber protection and 24/7 monitoring services, and the outlook for sustaining these growth rates. He also asked about the penetration levels of cyber and 24/7 monitoring services within the LMR segment of the S&S business.

Answer

Executive Vice President and CFO Jason Winkler explained that S&S growth is driven by doing more for customers, including network monitoring and management, and strong performance in applications, command center, and video software. Executive Vice President and CTO Mahesh Saptharishi added that managed detection and response platforms for cybersecurity saw 77% year-over-year customer growth, with AI-driven automation processing 1 billion security transactions daily. Mahesh also noted reasonable penetration for P25 networks in cyber, but significant opportunity in international and enterprise security markets (e.g., refineries, hospitals) and with new D-Series hardware driving longer software agreements.

George Notter from Wolfe Research asked for details on the commercial arrangement for the Agentic AI product, including its pricing model (subscription-based, cloud-managed, hybrid), and whether it would be sold à la carte or bundled. He also questioned the timing of Radware's product delivery relative to the Agentic AI market's development and the potential ramp-up speed.

Answer

President and CEO Roy Zisapel described the Agentic AI product as a hybrid, subscription-based, cloud-managed offering with multiple pricing options (per seat, yearly per agent, usage-based on tokens), noting it can be sold both à la carte and bundled. He believes the timing is excellent as enterprises move POCs to production, emphasizing the critical role of security for Agentic AI and its potential to drive other offerings.

George Notter from Jefferies inquired about the commercial arrangement for Radware's Agentic AI product, specifically its pricing model (subscription, per seat, usage-based), management (cloud-managed, hybrid), and integration with DPX. He also asked if the solution would be sold à la carte or bundled, and how the product's timing aligns with the market's transition from Agentic AI POCs to commercial deployment, including potential ramp speed.

Answer

President and CEO Roy Zisapel detailed that the Agentic AI product is a hybrid, subscription-based, cloud-managed offering with flexible pricing options, including per seat, yearly per agent, and usage-based models, with more details to be shared at Investor Day. He confirmed it can be sold both à la carte and bundled. Roy Zisapel expressed confidence in the product's timing, aligning with enterprises moving Agentic AI from POCs to production, emphasizing its critical role in security and potential to drive adoption of other Radware offerings.

George Notter of Wolfe Research LLC inquired about the early results from increased sales and marketing investments in North America, the effectiveness of splitting the sales team into 'hunters and gatherers', and the market progress of the DefensePro X product.

Answer

CEO Roy Zisapel confirmed that the North American investments are yielding positive results, with a stronger pipeline and better customer engagement. He stated the sales team reorganization has improved both new customer acquisition and existing account management. Regarding DefensePro X, Zisapel noted it will constitute 100% of new on-premise DDoS sales by Q3 and that the end-of-sale for a previous model creates a significant refresh opportunity.

George Notter of Wolfe Research LLC inquired about the early results from increased sales and marketing investments in North America, the effectiveness of splitting the sales team into 'hunters and gatherers', and the sales progress of the DefensePro X hardware.

Answer

Roy Zisapel, Co-Founder, CEO, President & Director, stated that the investments in North America are yielding positive results, including a stronger pipeline and better customer engagement. He confirmed the sales team bifurcation is working well, improving both new customer acquisition and existing account management. Zisapel also noted that as of Q3, 100% of new on-premise DDoS sales will be DefensePro X, with the end-of-sale of an older platform creating a significant refresh opportunity.

George Notter from Jefferies inquired about the DefensePro X upgrade cycle, asking about the current shipping mix, future end-of-life plans for the older platform, and whether Radware's cloud scrubbing centers are also being upgraded.

Answer

President and CEO Roy Zisapel explained that the DefensePro X refresh is driven by superior security algorithms and a higher subscription content. He confirmed that 60-70% of the older line is now end-of-sale, which has accelerated adoption. Zisapel also stated that Radware's cloud infrastructure is continuously upgraded with the latest technology. While this is a CapEx replacement, the enhanced capabilities enable significant competitive wins, such as a recent multi-million dollar deal with a major U.S. communications provider.

George Notter asked about Coherent's manufacturing capabilities beyond Indium Phosphide, specifically concerning transceiver supply in Malaysia and Vietnam, and the telecom business. He inquired about utilization rates, the need for capacity expansion, and the company's approach to outsourcing.

Answer

CEO Jim Anderson confirmed rapid capacity expansion across the board, including a new facility in Penang, Malaysia, and plans to build transceivers in Vietnam, as well as expanding DCI and telecom product capacity. He stated that Coherent is open to outsourcing if it doesn't provide a technical or cost benefit to keep manufacturing in-house, reserving insourcing for technically beneficial and cost-advantageous items like 6-inch Indium Phosphide.

George Notter asked about Coherent's manufacturing capacity for transceivers in Malaysia and Vietnam, including utilization rates, expansion needs, and the strategy for outsourcing.

Answer

CEO Jim Anderson confirmed rapid capacity expansion for transceiver assembly and test (new facility in Malaysia, Vietnam production) and DCI/telecom products. He stated that outsourcing is considered if it doesn't provide technical or cost benefits, while insourcing focuses on areas like six-inch Indium Phosphide for competitive advantage.

George Notter questioned the potential incremental revenue from the expanded Apple relationship, whether the contract provides more certainty, Coherent's market share in 3D sensing, and how the capital investment for the Sherman facility is being handled.

Answer

CEO Jim Anderson described the multi-year agreement with Apple as an expansion for a new generation of VCSELs, with revenue expected in the second half of calendar 2026. He emphasized the deal's role in ensuring the long-term utilization of the Sherman, TX plant. Anderson deferred on providing specific market share details until closer to the ramp and indicated that Coherent would contribute a "little bit of incremental capital" to support the business.

George Notter of Jefferies asked about the potential impact of tariffs on Coherent's Chinese manufacturing, possible mitigation strategies, and whether recent strength could be attributed to customers pulling forward demand ahead of tariffs.

Answer

CEO James Anderson responded that the company does not expect a significant impact from tariffs in the current quarter, and any expected effects are already factored into the guidance. He highlighted Coherent's resilient supply chain, with geographic diversity and strategic vertical integration, as key mitigation strengths. Anderson also stated that the company saw no indications of demand pull-forward from customers in Q2.

George Notter inquired about Lumentum's supply chain strategy, specifically regarding manufacturing consolidation in the Nava facility in Thailand, the potential for outsourcing more production given high demand, and overall factory capacity. He also asked about the extent of Long-Term Agreements (LTAs) across the telecom business, transceivers, and other components, beyond just EML supply.

Answer

President and CEO Michael Hurlston acknowledged that factory capacity is a significant challenge, in addition to fab capacity. He stated that Lumentum is actively pivoting towards greater reliance on contract manufacturers (CMs) and has hired a new leader for backend operations to accelerate this strategy. Regarding LTAs, Michael Hurlston confirmed they are being implemented across other product lines, including telecom, despite some historical resistance from customers, allowing Lumentum to prioritize partners who commit to these agreements.

George Notter inquired about Lumentum's supply strategy, specifically regarding manufacturing capacity at the Nava facility in Thailand and the potential for increased outsourcing to meet tremendous demand. In a follow-up, he asked if Long-Term Agreements (LTAs) are being implemented across other product lines beyond EML supply, such as telecom and transceivers, to manage asymmetric supply and demand.

Answer

Michael Hurlston, President and CEO, acknowledged factory capacity as a significant challenge alongside fab capacity. He stated that Lumentum is pivoting towards more contract manufacturing, optimizing floor space in China for high-value SKUs, and actively exploring partnerships with contract manufacturers to accelerate ramps. Regarding LTAs, Michael Hurlston confirmed that they are being implemented in other product lines, including telecom, to manage supply and demand, noting that while some customers have been problematic, Lumentum is working towards reasonable compromises and will prioritize partners who collaborate effectively.

George Notter asked for details on the manufacturing capacity expansion in Thailand and requested an update on the company's portfolio rationalization efforts.

Answer

President and CEO Michael Hurlston explained that a new building in Thailand is being outfitted to meet hyperscaler demand and provide manufacturing flexibility. He also confirmed that portfolio management is an ongoing process to sharpen focus on the core cloud and networking business, with more details to be shared on subsequent calls.

George Notter questioned the status of the product transition with Lumentum's largest transceiver customer and asked for an update on the milestones and gating factors for ramping the two newly won cloud provider customers.

Answer

President and CEO Alan Lowe explained that the product transition with their largest customer is an ongoing process with a pipeline of new products ramping now and in coming quarters. For the new customers, he noted that one began shipping in December and is growing, while the ramp for the other, set to begin in fiscal Q4, is gated by the time required for extensive qualification testing. He also hinted at progress with a potential fourth and fifth customer.

George Notter inquired about new customer opportunities on the telecom side, specifically whether they involve OEMs shifting existing business or new product categories, and if Fabrinet is involved in Nokia's optical manufacturing capacity expansion. He also asked for a timeline on when transceiver designs for hyperscalers and other merchant vendors might translate into meaningful revenue.

Answer

Seamus Grady, Chairman and CEO, highlighted a strong pipeline of new opportunities, including Datacom for hyperscalers and merchant vendors, additional telecom systems wins, further penetration of existing customers, and new Fabrinet customers. He emphasized Fabrinet's winning formula of superior technology, quality, responsiveness, and competitive costs as a pure contract manufacturer. Mr. Grady estimated that transceiver designs for hyperscalers and merchant vendors are 'quarters away' from becoming meaningful revenue, having been in development for about 18 months.

George Notter inquired about new customer opportunities in the telecom sector, specifically whether Fabrinet is winning business from existing OEMs or entering new product categories, and if they are involved in Nokia's optical manufacturing capacity expansion. He also asked for a timeline on when transceiver designs for hyperscalers and other merchant vendors might translate into meaningful revenue.

Answer

Seamus Grady, Chairman and CEO, highlighted a strong pipeline of new opportunities with both new and existing customers, including Datacom opportunities (transceivers for hyperscalers and merchant vendors) and telecom opportunities (additional systems wins and deeper penetration of existing customers, plus new Fabrinet customers). He emphasized Fabrinet's competitive advantages as a pure contract manufacturer. Regarding the timeline for transceiver designs for hyperscalers/merchant vendors, Mr. Grady indicated it would be 'quarters away' rather than 'years away,' noting they have been working on it for 18 months.

George Notter asked about the reduced share repurchase activity in the quarter, questioning if it was related to capital allocation towards manufacturing expansion. He also sought an update on the Building 10 expansion, specifically if the plans for the several hundred thousand square feet of incremental space remained consistent with three months prior.

Answer

Csaba Sverha, EVP and CFO, explained that share repurchases were driven by a 10b5-1 Plan, which is automated based on price tiers, and the company did not participate in the open market last quarter. He reiterated that the primary capital allocation strategy remains investing in future growth, including working capital and capital expenditures for Building 10. Mr. Sverha confirmed that Building 10 is a 2 million sq ft facility expected to add approximately $2.4 billion in revenue, and the plan to accelerate a portion of the building for completion by the June quarter remains unchanged from three months ago.

George Notter asked about the low share repurchase activity in the quarter, questioning if it was due to capital allocation towards manufacturing expansion. He also sought an update on the Building 10 expansion, specifically if the scope and timeline remained as envisioned three months prior.

Answer

EVP and CFO Csaba Szverha explained that share repurchases were executed via a 10b5-1 plan, not open market activity, and the primary capital allocation strategy remains investing in future growth, including working capital and CapEx for Building 10. Mr. Szverha confirmed that Building 10 is a 2 million sq ft facility, expected to add approximately $2.4 billion in future revenue, with a portion accelerated for completion by the June quarter, consistent with previous plans.

George Notter asked about the vesting triggers for the Amazon warrants and the associated contra-revenue recognition, and also inquired about the potential long-term revenue scale of the new HPC business with Amazon.

Answer

CFO Csaba Sverha explained that the initial warrant tranche vested in Q3 upon contract signing, with future vesting tied to revenue thresholds, which were not met in Q4. CEO Seamus Grady described the HPC opportunity as significant, representing a major TAM expansion, and confirmed it will begin ramping in fiscal Q1, leading to its classification as a new reporting segment.

George Notter asked if potential tariffs are creating incremental business opportunities for Fabrinet and whether this could lead to market share gains. He also questioned the potential lead time for any such manufacturing moves.

Answer

CEO Seamus Grady responded that since Fabrinet's facilities are not in China, the company sees no negative impact from tariffs and views them as a potential positive opportunity if customers decide to move production. He clarified that any such benefit would likely materialize in months or quarters, not years, given Fabrinet's ability to transfer complex products quickly.

George Notter of Jefferies questioned the key milestones required to ramp 1.6-terabit transceiver revenue and asked about any potential component constraints, such as EMLs, that could affect the ramp.

Answer

CEO Seamus Grady identified the primary catalyst for the 1.6T ramp as the customer's Blackwell platform shipping in greater quantities. He expressed confidence that significant component constraints are not expected, crediting the customer's thorough work in securing ample supply and alternative sources.

George Notter asked for a breakdown of the software and services segment, specifically how much is attributable to services versus software, and the proportion of recurring versus perpetual software revenue. He also inquired about the timing of revenue ramp and monetization for the Agent Workforce Cloud and the third-generation platform.

Answer

CFO Cory Sindelar declined to provide a further breakdown of services but confirmed it's a small component and not a growth driver. He stated that the large majority of software revenue is recurring, with perpetual AXOS licenses causing some quarterly fluctuation. President and CEO Michael Weening explained that the Agent Workforce Cloud's revenue ramp will accelerate in Q2 2026 and onwards, following the completion of the platform migration by the end of Q1. He highlighted the significant customer value from automating micro-segmentation and custom campaigns, which were previously capacity-constrained.

George Notter asked for clarification on the breakdown of Calix's software and services revenue, specifically how much of it is attributable to services, referencing a historical $10-$11 million per quarter figure from 2022. He also inquired about the proportion of recurring versus perpetual software revenue. Finally, he asked about the timing of the revenue ramp and monetization for the Agent Workforce Cloud, following its platform rollout.

Answer

CFO Cory Sindelar stated that Calix would not provide a further breakdown, but services are a small component, as Calix is primarily a software and cloud company. He added that the large majority of software revenue is recurring, though it can fluctuate quarter-to-quarter due to AXOS licenses. President and CEO Michael Weening explained that with the platform rollout nearing completion by the end of Q1, a rapid ramp-up of Agent Workforce capabilities and customer value is expected from Q2 onwards. He provided an example of a customer who signed an AI contract to leverage agents for sophisticated micro-segmentation and targeted marketing, which was previously a barrier due to capacity constraints.

George Notter inquired about the end-subscriber benefits of AgenTeq AI, as the discussion focused on service provider operations. He also asked if the strong hardware quarter was influenced by customers pulling forward orders due to tariff concerns.

Answer

CEO Michael Weening explained that the first component of the new platform is a mobile app that serves as a brand portal for end subscribers, where AI will deliver enhanced cybersecurity and performance analysis. He firmly stated there was no pull-forward of orders related to tariffs, emphasizing that Calix works with customers to manage inventory to meet subscriber demand.

George Notter asked about the dynamics behind the higher tax rate guidance for 2025, inferring it might be due to strong international growth. He also asked if the recent RPO strength was related to the large new customer wins mentioned in the previous two quarters.

Answer

CFO Cory Sindelar explained the higher tax rate is not due to disproportionate international growth but rather the runoff of certain tax credits, leading to a more normalized rate. CEO Michael Weening clarified that unlike the prior two quarters, the Q4 RPO strength was not driven by a single large contract but was broad-based across many medium-sized deals, which he viewed as a significant positive.

George Notter asked if the $1.7 billion CapEx includes specific expenditures for the Meta project, how much capital expansion cost is ascribed to customers versus Corning, and if price increases are part of the strategy for other optical customers.

Answer

EVP and CFO Ed Schlesinger confirmed some 2026 CapEx is for the Meta deal, but details of specific agreements and customer payment offsets are not disclosed. Chairman and CEO Wendell Weeks added that the CapEx plan integrates all anticipated customer agreements and clarified that for longstanding carrier customers, Corning will continue to serve them, with long-term agreements assuring revenue streams for rapidly scaling dedicated capacity.

George Notter asked if the $1.7 billion CapEx includes specific investments for the Meta project and how the cost and risk are shared between Corning and its customers. He also inquired if price increases are part of the strategy for other optical customers not signing similar long-term contracts.

Answer

EVP and CFO Ed Schlesinger confirmed that some 2026 CapEx is for the Meta deal, and Corning uses various tools like upfront payments or take-or-pay mechanisms to de-risk investments, though specific details are not disclosed. Chairman and CEO Wendell Weeks added that the CapEx plan integrates all anticipated customer agreements. For other longstanding carrier customers, the focus is on continued service, not price increases related to these specific product sets, but rather securing revenue streams for dedicated capacity.

George Notter asked about supply constraints in the Optical Communications business, specifically regarding OEM glass sales and efforts to expand capacity. He also inquired about current lead times for Optical Communications products.

Answer

Chairman and Chief Executive Officer Wendell Weeks confirmed that demand for Corning's products is tight relative to supply, leading to ongoing discussions with customers about manufacturing platform profiles, de-risking investments, and securing commitments/funding for future capacity. He noted that lead times vary by SKU, but customers consistently seek faster delivery, indicating tight conditions, despite Corning meeting unplanned growth and attracting new customers.

George Notter asked about the current capacity utilization at recently expanded optical facilities and whether there is still excess capacity. He also inquired about lead times for next-generation data center and high-density fiber products.

Answer

CEO Wendell Weeks responded that there is still an opportunity to increase utilization, which will drive incremental margins. He specified that tightness is most pronounced for the newest products. He clarified that for core components, the focus is less on lead times and more on the rate of converting existing manufacturing platforms to produce the new, high-demand products.

George Notter asked about the current capacity utilization of Corning's optical manufacturing facilities and inquired about the lead times for next-generation products for data centers and long-haul networks.

Answer

Chairman & CEO Wendell Weeks explained that while there is still room to increase overall utilization, tightness is concentrated in the newest products. He clarified that for these new components, the focus is less on lead times and more on the rate of ramping production and modifying existing manufacturing platforms to meet the strong demand.

George Notter of Jefferies asked how Corning achieved a favorable 120 yen hedge rate and requested a year-on-year comparison for Q1 guidance on an apples-to-apples basis using the new rate.

Answer

EVP and CFO Ed Schlesinger explained that the company utilized a variety of low-cost hedging tools, leveraging its extensive experience. He declined to recast prior periods, stating that the combination of recent price increases in the Display segment and the new 120 yen rate is designed to achieve the same level of profitability, making a direct restatement unnecessary from their perspective.

George Notter asked for color on customer conversations regarding Display price increases, given that hedges were still in place, and inquired about the new hedge rate for 2025.

Answer

CEO Wendell Weeks explained that the price increases are about appropriately sharing the currency benefits customers receive from the weaker yen, with the goal of stabilizing Corning's U.S. dollar net income. While acknowledging such conversations are always challenging, he confirmed they were successful. He declined to share the new hedge rate, stating it will be disclosed after commercial agreements are finalized.

George Notter inquired about the aftermath of the security breach, specifically if F5 had seen any evidence of customer breaches, the ongoing provision of patches for BIG-IP software, any disruptions to field and sales organizations, and the financial impact on Q1 results.

Answer

François Locoh-Donou, President and CEO of F5, stated that F5 was not aware of any customers reporting breaches as a result of their security incident, attributing this to a successful collective response from customers, partners, and F5. He highlighted rapid mobilization of development and support teams, leading to minimal demand disruption and over 50% of customers now on the latest software release (up from 15% a year ago). Cooper Werner, EVP and CFO, confirmed no noticeable financial impact, with normal velocity in pipeline generation and close rates throughout the quarter, and a strong pipeline build for Q2.

George Notter sought an update on the security breach, asking if F5 had seen evidence of customer breaches, if patches for BIG-IP software were ongoing, and about any disruptions to sales or financial impacts in the December quarter.

Answer

François Locoh-Donou, President and CEO, confirmed no reported customer breaches and deemed the collective response successful, with rapid mobilization of F5 teams and customer action leading to minimal demand disruption. He noted that over 50% of customers are now on the latest software release, up from 15% a year ago, and F5 continues to enhance its security posture. Cooper Werner, EVP and CFO, added that there was no noticeable financial impact, with normal sales velocity and strong pipeline build through the quarter.

George Notter asked how F5 sized the potential impact from the security breach and for details on how many customers were affected, whether configuration information was taken, and if specific customer issues could be pointed to.

Answer

Cooper Werner (EVP and CFO, F5) explained that the impact assessment involved a granular approach, profiling revenue streams for resilience (e.g., recurring revenue like services, SaaS, subscription renewals are highly resilient) versus vulnerability (e.g., new projects, competitive takeouts). He also considered historical peer incidents and feedback from sales teams. François Locoh-Donou (President and CEO, F5) clarified that the impact was primarily on BIG-IP customers, recommending upgrades to all. A small percentage of customers experienced data exfiltration, and F5 has identified and provided data packages to them, with initial feedback indicating the data was not sensitive. No impact on CRM or support systems was observed.

George Notter inquired about F5's methodology for sizing the potential impact from the security breach and asked for details on the number of customers affected, specifically regarding configuration information taken or any specific customer issues.

Answer

Cooper Werner, EVP and CFO, detailed the sizing approach, which involved granular profiling of revenue streams (recurring vs. new projects), historical peer analysis, and sales team feedback. François Locoh-Donou, President and CEO, stated that BIG-IP customers were impacted, with all recommended to upgrade, and a small percentage experienced data exfiltration, though initial feedback indicated non-sensitive data. He confirmed no impact on F5 Distributed Cloud Services or NGINX environments.

George Notter requested an update on F5's newer products, asking about the general availability, pricing, and potential of the NVIDIA DPU product, as well as initial customer feedback on the AI Gateway platform.

Answer

CEO François Locoh-Donou confirmed the NVIDIA DPU solution is generally available and in promising customer proofs of concept, with the main opportunity expected as AI workloads move to inferencing. He added that the AI Gateway is also in early stages with over a dozen POCs, positioning F5 to address the emerging need for Layer 7 security and delivery for AI tokens.

George Notter from Wolfe Research asked about Ciena's supply-side strategies to meet demand, specifically identifying bottlenecks such as chip fabrication, contract manufacturing, or optical parts, and what actions are being taken to alleviate these constraints. He also requested current lead times.

Answer

CFO Marc Graff detailed a 50% increase in CapEx for capacity to support demand into late 2026 and 2027, identifying photonics and optical parts as key constraints. Executive Advisor Scott McFeely emphasized Ciena's early insight into demand due to strong cloud provider relationships and vertical integration, which allowed for earlier engagement with component suppliers. CEO Gary Smith noted that lead times vary by product area, generally extended for optical infrastructure, but expressed confidence in meeting the 24% growth midpoint for FY26 due to prior capacity investments, with efforts ongoing to reduce lead times by late 2026/2027.

George Notter from Wolfe Research asked about Ciena's supply-side strategies to meet demand, specifically identifying bottlenecks such as chip fabrication, contract manufacturing, or optical parts, and what actions are being taken to alleviate these constraints. He also requested current lead times.

Answer

CFO Marc Graff detailed a 50% increase in CapEx for capacity to support demand into late 2026 and 2027, identifying photonics and optical parts as key constraints. Executive Advisor Scott McFeely emphasized Ciena's early insight into demand due to strong cloud provider relationships and vertical integration, which allowed for earlier engagement with component suppliers. CEO Gary Smith noted that lead times vary by product area, generally extended for optical infrastructure, but expressed confidence in meeting the 24% growth midpoint for FY26 due to prior capacity investments, with efforts ongoing to reduce lead times by late 2026/2027.

George Notter questioned if the fiscal 2025 gross margin guidance of 42-44% implies the heaviest-ever mix of new systems, given it's below the FY24 adjusted rate. He also asked about the drivers behind a sequential decline in headcount.

Answer

CFO Jim Moylan confirmed that fiscal 2025 will see the heaviest concentration of line system sales Ciena has ever experienced, particularly in the first half, as its RLS platform becomes an industry standard. He explained the headcount reduction resulted from a mid-year adjustment to lower OpEx, which involved terminations and reduced hiring. While headcount won't grow significantly, FY25 OpEx will rise due to the reinstatement of full incentive compensation and merit increases.

George Notter questioned the recent dip in direct webscale revenue despite a strong AI narrative and asked for more details on the mentioned interconnect opportunities inside the data center.

Answer

CFO Jim Moylan explained that webscaler business is project-driven, leading to natural ebbs and flows, and that a single quarter is not a trend. He also highlighted the significant increase in MOFN deals as another avenue of webscaler-driven growth. Executive Adviser Scott McFeely described the inside-the-data-center opportunity as a longer-term play, driven by the need for higher-performing optics to connect GPUs over longer distances as data rates and power constraints increase, potentially requiring coherent WAN technologies.

George Notter of Wolfe Research LLC inquired about the significance of the British Telecom (BT) win, its potential relation to previously mentioned large deals, its backlog status, and the progress of converting GenAI proofs-of-concept (POCs) into production contracts.

Answer

President and CEO Shuky Sheffer clarified that the BT deal is a significant, incremental project to modernize the commerce domain for a former BT acquisition and was signed after the quarter's end, thus it is not yet in the backlog. He also confirmed that four GenAI POCs were converted into commercial deals during the quarter. CFO and COO Tamar Rapaport-Dagim added that other significant deals were signed, including one with a major US operator, demonstrating a mix of deal sizes in the pipeline.

George Notter from Jefferies asked about the drivers behind the significant project pipeline mentioned by management and questioned if there has been a tangible change in the market environment for closing deals compared to previous quarters.

Answer

Joshua Sheffer, President and CEO, confirmed that Amdocs has a very rich and mature deal pipeline across all geographies and growth areas. However, he was cautious about declaring a definitive change in the market, stating he could provide a better assessment in the next quarter but that the current pipeline is encouraging.

George Notter from Wolfe Research asked about the ongoing CapEx and working capital obligations for the CCS business until the sale closes, and also questioned the customer concentration within the RemainCo business.

Answer

CFO Kyle Lorentzen stated that while specific figures would not be provided, CommScope is required to support the CCS business, and these costs are factored into the 2025 cash flow guidance. Regarding concentration, he acknowledged that the A&S business has higher customer concentration than the Ruckus business but did not provide percentages, noting it is a managed aspect of the business.

George Notter of Wolfe Research asked about the specific CapEx and working capital obligations for the CCS business prior to the deal's closing and questioned the level of customer concentration in the RemainCo business.

Answer

EVP & CFO Kyle Lorentzen explained that while specific figures would not be provided, the company is required to support the CCS business, and these costs are factored into the 2025 cash flow guidance. Regarding concentration, he acknowledged that the A&S business has higher customer concentration than the Ruckus business, but did not provide percentages.

George Notter from Wolfe Research LLC asked for more details on Harmonic's strategy to mitigate tariffs, particularly concerning its node manufacturing in Malaysia. He questioned what offsets were available and the potential P&L impact of a significant tariff.

Answer

CFO Walter Jankovic explained that the Q3 guidance already incorporates the announced tariff changes, including the 25% rate for Malaysia, with an expected impact of less than $1 million on the broadband business. He attributed the low impact to product exemptions and operational adjustments. He also mentioned that the company is proactively exploring long-term options like near-shoring.

George Notter of Jefferies LLC asked for clarification on the 'ecosystem challenges' cited as a factor in the 2025 outlook, specifically whether it related to amplifier availability or integration with operator back-office systems.

Answer

President and CEO Nimrod Ben-Natan confirmed that the ecosystem dependency primarily refers to components like FDX amplifiers. He stated that while current deployments can proceed in fiber-deep markets, broader rollouts will become dependent on amplifier availability and maturity sometime in 2025. He clarified that integration with back-office networks is not a significant issue.

George Notter from Jefferies requested a quantification of the duty drawback's impact on gross margin. He also asked what drove the sequential margin improvement, given Splunk's presence in the previous quarter, suggesting product mix as a likely factor.

Answer

CFO Scott Herren quantified the one-time duty drawback benefit as contributing between 0.5 and 1.0 percentage point to the Q1 gross margin improvement. He confirmed that beyond this, favorable product mix, including Splunk, and significant cost-out achievements by the supply chain and product teams were key drivers. He guided for full-year gross margins to settle into the 68% to 69% range.

George Notter asked if the CX and payments businesses still meet the 'Rule of 40' criteria, inquired about the revenue percentage from non-cable/telco verticals, and sought clarification on the revenue contribution from recent M&A.

Answer

CEO Brian Shepherd confirmed the CX business continues to perform strongly and meets the Rule of 40, while the payments business is expected to return to double-digit growth after a temporary slowdown. He noted revenue diversification is progressing well, at around 29% for the quarter. CFO Hai Tran specified that M&A contributed roughly $6 million in revenue for Q3.

George Notter asked about the progress and likelihood of a successful sale of the terrestrial and wireless business, given past attempts. He also requested details on the revenue and cost structure, including headcount, associated with the recently closed Basingstoke facility.

Answer

CEO John Ratigan described the terrestrial and wireless business as a high-performing, undervalued asset, stating a sale is the best way to unlock its value, but he could not comment on the process's status or probability of success. He estimated the Basingstoke facility had about 100 employees before its closure. CFO Mike Bondi added that while not providing a specific number, the closure will curtail a significant loss and meaningfully improve the bottom line. He confirmed the remaining headcount at the facility is now under five.

Asked if the announced content provider wins are incremental to existing business. He also sought to clarify if these wins are firm, contracted pieces of business with specified volumes that are already in the backlog.

Answer

The company stated that the major wins (ICE7 subsea, hyperscaler OLS, 800-gig pluggable) are indeed incremental. They clarified that these are design or RFP wins, not hard-coded contracts with guaranteed volumes in the backlog. The dollar values represent the potential based on customer forecasts provided during negotiations, against which purchase orders will be issued over time.

Asked for the current sales mix of ICE-X and vertically integrated products, the status of vertically integrating the GX platform, and the future outlook for the vertical integration mix.

Answer

The company provided the current mix (ICE-X under 30%, vertical integration at 57%). The first vertically integrated GX systems are shipping in the current quarter, with customer testing underway. The vertical integration mix is expected to grow from over 60% towards 70% over time.

George Notter from Jefferies LLC inquired about the long-term gross margin structure of the business once it normalizes, beyond the current year's forecast. He also asked for clarification on whether the quarter's bad debt expense was included in the non-GAAP results.

Answer

CFO Jacob Sayer stated that approximately 40% is a reasonable gross margin modeling rate for the current year. CEO Morgan Kurk added that while the historical target was closer to 50%, a more realistic long-term goal is north of 45%, driven by the government and enterprise business mix. Morgan Kurk also confirmed that the bad debt expense of about $600,000 was included in the non-GAAP figures.

Inquired about the CEO's broader strategic plan for the company, including product strategy and differentiation, and asked for more details on the competitive environment in the enterprise segment.

Answer

The CEO's strategy remains consistent with the previous quarter, focusing on improving internal operations, consolidating product platforms (especially in Point-to-Multi-Point), and enhancing the go-to-market strategy for the enterprise business. The competitive environment in enterprise is characterized by an oversupply in the channel, which is now correcting itself as inventory levels decrease and lead times shorten, with underlying end-user demand remaining stable.

Requested a breakdown of gross margin puts and takes, specifically the impact from high-cost inventory and E&O charges. He also asked for more detail on the drivers of the strong services gross margin and if there were any one-time items.

Answer

Gross margin is benefiting from normalized logistics costs, but is still impacted by high-cost inventory bleeding through and increased inventory carrying charges (including E&O). The strong services gross margin was driven by both SaaS revenue growth and operational efficiencies in the core maintenance business. Management confirmed there were no significant one-time items and that the margin level is a good baseline for future directional improvement.

Asked for a clarification on the backlog and RPO metrics and inquired about the specific options the company is considering for refinancing its convertible debt.

Answer

The executive provided the specific figures: RPO was $194 million and hardware backlog was $14 million. Regarding the debt, the primary strategy is to improve operational performance to grow EBITDA, which will create more refinancing options. Ideally, they would use cash flow to pay off a portion of the low-coupon debt at maturity, while higher EBITDA could make other instruments like term loans available.