Michael Genovese

Michael Genovese asked about the new disclosure numbers, specifically why the percentage of revenue from software and systems had decreased over the past year, which he found surprising given the current market. He also inquired about the high appliance gross margins and why software and services gross margins were only a few points higher, asking where software margins are expected to head over time.

Answer

CFO Cory Sindelar explained that software revenue is tied to consistent subscriber growth, while appliance revenue can fluctuate. The reacceleration of appliances in 2025 compared to 2024 caused the percentage shift, but software and services continue to grow. He noted a Q2 to Q3 downtick in software was due to an anomaly in AXOS licenses recognized immediately. Regarding margins, Sindelar stated that software margins are temporarily depressed due to dual cloud costs during the transition but are expected to surpass 70% and potentially higher, especially with more software-only revenue from Tier Ones. President and CEO Michael Weening attributed high appliance margins to the $2 billion platform investment, abstracted operating systems (AXOS), and simplified SKU count, which allows for massive scale in component buying and reduced operational complexity.

Michael Genovese inquired about the new disclosure numbers, specifically why software and services revenue as a percentage of total revenue decreased over the past year, and how appliance gross margins are so high. He also asked about the future trajectory of software and services gross margins, especially after the transition to a single cloud.

Answer

CFO Cory Sindelar explained that software revenue is tied to consistent subscriber growth, while appliance revenue can fluctuate, leading to the observed percentage shift. He noted that AXOS licenses, recognized immediately, can cause quarter-to-quarter variations. Regarding margins, Sindelar stated that software margins are temporarily depressed due to dual cloud costs but are expected to exceed 70% post-transition, potentially higher with more software-only revenue from Tier Ones. President and CEO Michael Weening attributed high appliance margins to Calix's $2 billion platform investment, abstracted operating systems (AXOS), and low SKU count, which simplifies manufacturing and reduces inventory risk.

Michael Genovese inquired about the company's ability to maintain sequential revenue growth through 2025, the normalized growth outlook for 2026, and the impact of potential tariffs on gross margins.

Answer

CFO Cory Sindelar affirmed the company's belief that it can continue to grow sequentially through 2025 and guided to a low double-digit growth rate for 2026. He noted that while future tariff impacts are hard to forecast, Calix will pass through any costs without margin. CEO Michael Weening added that market disruptions are an opportunity for Calix to gain share due to its unique partnership model focused on helping customers grow their business.

Michael Genovese of Rosenblatt Securities asked for clarification on OpEx seasonality, specifically if it would decline sequentially in Q1 after the Q4 Connections conference. He also inquired about the pipeline for large RPO deals and whether there was any political risk to BEAD funding from the upcoming election.

Answer

CFO Cory Sindelar confirmed that OpEx will see a seasonal step-down from Q4 to Q1, consistent with prior years. CEO Michael Weening noted that while large deals are lumpy, market catalysts like Amazon applying for BEAD funds create urgency for providers to adopt Calix's platform. On political risk, Weening stated they are not worried, as the BEAD legislation was bipartisan and broadband expansion is popular across all states.

Michael Genovese asked about the 400G business becoming a run-rate operation, specifically if it would reach 100,000 units per month in Q4 and maintain that level in 2026. He also questioned the confidence in 800G qualification, the expected performance of 100G in 2026, the ASP multiple between 100G and 800G, and future fundraising needs for CapEx.

Answer

CFO and Chief Strategy Officer Stefan Murray indicated that 400G is moving towards a capacity-limited run rate but won't reach maximum potential in Q4, with most Q4 data center growth from 400G. CEO Thompson Lin specified 400G capacity near 60,000 per month in Q4, targeting 110,000-120,000 by Q2 next year, supported by in-house laser capacity. Thompson Lin expressed high confidence in 800G orders within weeks, with initial volumes ramping to 100,000 per month by December and 200,000 by June next year, based on strong customer commitments. Stefan Murray confirmed 800G qualification is on track with expectations. He also noted that 800G ASP is less than 8x 100G ASP, and 100G business is expected to be flat or slightly up in 2026. Stefan Murray stated that the company would continue to raise capital for CapEx due to expanding customer demand for U.S.-based production. Thompson Lin added that discussions are underway for potential $200 million customer investments and government funding, with significant profitability expected next year to help fund expansion.

Michael Genovese asked about the 400G business becoming a run-rate business, specifically if it would reach 100,000 units per month in Q4 and maintain that level in 2026. He also questioned the confidence level for 800G product qualification and volume orders, comparing the process to prior expectations. Additionally, he inquired about the expected performance of 100G products in 2026 and the ASP multiple of 800G versus 100G, and the company's future fundraising plans given CapEx expansion.

Answer

Dr. Stefan Murray (CFO and Chief Strategy Officer, Applied Optoelectronics) clarified that 400G would not be at full capacity in Q4 but would be a meaningful contributor, with most Q4 data center growth coming from 400G. Dr. Thompson Lin (Founder, Chairman, and CEO, Applied Optoelectronics) added that 400G capacity would be close to 60,000 per month in Q4, targeting 110,000-120,000 by Q2 next year, and emphasized the importance of in-house laser capacity. Dr. Lin expressed high confidence in 800G qualification and volume orders within weeks, based on customer commitments and samples delivered. Dr. Murray projected a flat 100G business for 2026 and stated that the 800G ASP multiple over 100G is less than 8x. Regarding fundraising, Dr. Murray indicated continued capital raising to fund CapEx, while Dr. Lin mentioned discussions with major customers for potential investments and seeking support from Texas State and the U.S. government, expecting significant profitability in 2026 to fund expansion.

Michael Genovese of Rosenblatt Securities Inc. sought clarification on whether 400G and 800G qualification activities were occurring with customers beyond the primary one discussed. He also asked if the strong Q3 CATV forecast was driven by multiple customers, verified the $300M-$350M CATV revenue target for 2026, and inquired about the timeline for reaching mid-30s gross margins.

Answer

CFO and CSO Dr. Stefan Murry confirmed that qualification activities are underway with all three major tier-one customers and that the strong Q3 CATV revenue outlook is supported by more than one customer. CEO Dr. Thompson Lin clarified the $300M-$350M figure represents total potential demand in 2026 from Charter plus more than ten other customers. Regarding gross margins, Dr. Murry noted it would take a few quarters for the impact of 800G sales and CATV cost reductions to materialize. Dr. Lin projected a significant margin uptick could occur in Q2 or Q3 of 2026, with the 40% target achievable by late 2026 or early 2027.

Michael Genovese asked for more details on the retooling process for Motorola-style amplifiers, questioned the market timing for AOI's 800G products given the industry's shift to 1.6T, and inquired about alternative funding mechanisms for CapEx beyond the at-the-market (ATM) offering.

Answer

CFO and CSO Dr. Stefan Murray clarified that the 'retooling' involves shifting production focus to build up inventory of the newly qualifying Motorola-style amplifiers after producing sufficient stock of the GameMaker platform. Regarding market timing, both Dr. Murray and CEO Dr. Thompson Lin stressed that the 800G market is enormous and that key customers like Amazon are focused on 800G, not yet 1.6T in volume. On funding, Dr. Murray noted the ATM was substantially complete, while Dr. Lin added that the company expects positive operating cash flow and is exploring other options, including potential customer investments.

Michael Genovese inquired about the nature of the 'Quantum Bandwidth' cable order, the near-term datacenter demand trends, whether 400G is capacity-gated, the multi-year outlook for CapEx, and the specific qualification status of 800G products.

Answer

CFO & CSO Dr. Stefan Murry clarified that 'Quantum Bandwidth' refers to the same 1.8 GHz amplifiers driving CATV growth and that datacenter demand is proceeding as expected, with 400G ramping and 800G on track for the second half of 2025. He noted CapEx would likely remain high if demand continues. CEO Dr. Chih-Hsiang Lin added that they are 'almost there' on 800G qualification, having shipped hundreds of thousands of units for final qualification to 3-4 customers.

Michael Genovese asked about the primary drivers and sustainability of the current 400G demand, the specific transceiver technologies the company will focus on for 800G, whether the company now serves three of the top hyperscalers, and the long-term gross margin outlook as new products ramp.

Answer

Executive Stefan Murry explained that 400G demand is driven by AI network build-outs and is expected to continue growing, supported by a new customer ramp. For 800G, the company's focus is on EMLs and silicon photonics-based solutions over VCSELs. Murry confirmed having three of the top five data center customers and reiterated the long-term goal of achieving 40% non-GAAP gross margin, driven by the transition to 800G/1.6T products and improved efficiencies in the higher-margin CATV business.

Michael Genovese with Rosenblatt Securities inquired about the future role of software and AI as a growth driver for Ribbon's Cloud and Edge segment, or if it would emerge as a distinct, significant category. He also asked for a characterization of the Verizon Cloud and Edge business and the U.S. IP Optical Networks business for Q3 results and Q4 guidance, and sought to quantify the impact of the U.S. government shutdown on Q3 performance, specifically if Ribbon would have exceeded guidance without it.

Answer

CEO Bruce McClelland explained that AI is viewed as a new category with two elements: AI ops for network management spanning both product categories, and the convergence of voice and AI in the enterprise, currently reported within Cloud and Edge. He noted Verizon's revenue grew approximately 20% year-over-year in Q3, driven more by services than products, and that U.S. IP Optical business tends to be lumpy but is seeing momentum from BEAD funding. Regarding the shutdown, Mr. McClelland stated that Ribbon would have been comfortably at or above the midpoint of Q3 guidance without the impact, which significantly affected the last week of the quarter and led to the removal of most U.S. government-related sales from Q4 projections.

Michael Genovese asked about Ribbon's new software and AI initiatives, specifically whether they represent a future driver for Cloud and Edge growth or a significant new product category, and when such a category might become prominent. He also inquired about the performance of the Verizon Cloud and Edge business and the U.S. IP Optical Networks business for the third quarter and the fourth quarter outlook. Finally, he sought clarification on the impact of the U.S. government shutdown on Q3 results and Q4 projections, asking if Ribbon would have met or exceeded guidance without it.

Answer

CEO Bruce McClelland explained that the AI initiatives are viewed as a new category, encompassing AI ops for network management and the convergence of voice and AI in enterprise, bridging traditional voice networks with new AI environments. While currently reported within Cloud and Edge, it's considered a distinct area. Regarding Verizon, he noted a 20% year-over-year growth in Q3, though down sequentially from Q2's record, with Q3 being more services-focused. U.S. IP Optical business tends to be lumpy, with a focus on long-term trends, and the first BEAD funding project was a positive development. On the shutdown, Mr. McClelland confirmed that Ribbon would have comfortably been at or above the midpoint of Q3 guidance without the disruption. For Q4, the majority of new U.S. government-related sales have been prudently removed from projections, assuming delays into 2026, as federal business represented a high single-digit percentage of Cloud and Edge revenue in 2024.

Michael Genovese of Rosenblatt Securities inquired about the reasons for the Q2 gross margin miss, the sequential revenue dip expected in Q3, and the strategic rationale for maintaining two distinct business segments.

Answer

President, CEO & Director Bruce McClelland explained the gross margin was impacted by a higher mix of hardware and professional services in the Cloud and Edge segment. He noted the Q3 revenue guide reflects Q2's outperformance pulling some results forward. McClelland also highlighted the strategic synergy between the segments, citing how Ribbon's IP router is now included in Verizon's voice core modernization, creating a key differentiator.

Michael Genovese asked about the Q1 2025 guidance, specifically the impact of the Eastern European business comparison, the potential to restart that business, and the primary forward-looking drivers for the Cloud & Edge and IP Optical segments.

Answer

CEO Bruce McClelland explained that the Q1 comparison is tough primarily due to the suspension of shipments to Eastern Europe, and this will be the most difficult comparison of the year. He confirmed Ribbon is prepared to restart that business quickly if restrictions are lifted. For Cloud & Edge, the key driver is executing on large new contracts, while for IP Optical, the focus is on North American rural broadband, growth in India, and expanding in Europe.

Michael Genovese asked if any part of the business underperformed expectations, questioned the outlook for Europe in Q4, and asked if this is the best market environment ever for the Cloud & Edge business.

Answer

CEO Bruce McClelland acknowledged that total revenue was slightly below the midpoint of guidance due to a few delayed deals in Europe, but he expressed satisfaction with profitability and margin mix. For Q4, he anticipates typical seasonal strength in Europe, with the U.S. remaining the strongest region and India expecting its best quarter of the year. McClelland agreed it is a uniquely strong period for the voice infrastructure part of the Cloud & Edge business, driven by network cost-reduction initiatives, an aging workforce, and migrations to unified communications platforms.

Michael Genovese of Rosenblatt Securities inquired about the forward-looking outlook for ADTRAN's three main revenue segments and sought clarification on whether the Q2 margin pressure was driven by OpEx or gross margin.

Answer

CEO Thomas Stanton explained that the Access segment's strength was seasonal, while the Subscriber segment was impacted by supply, which is now improving. He anticipates growth in the Optical segment moving forward. Stanton confirmed that the Q2 margin pressure is due to foreign exchange headwinds on operating expenses, not a decline in gross margin, and stated that OpEx would be flat on a constant currency basis.

Michael Genovese asked for details on ADTRAN's plan to achieve a net cash position by year-end, inquiring about the roles of real estate sales, operating cash flow, inventory reduction, and potential divestitures of non-strategic business assets. He also questioned the sustainability of the telecom recovery and the company's revenue visibility for the remainder of the year in the U.S. and Europe.

Answer

CEO Thomas Stanton confirmed the goal of reaching a net cash position is achievable through a combination of expected free cash flow, inventory reduction, and asset sales, noting that the timing of property sales is the main variable. He affirmed that non-strategic assets outside the core areas of Subscriber, Fiber-to-the-Premise, and Optical are being considered for sale. Regarding the market recovery, Stanton stated that the environment and bookings have substantially improved over the last six months, but he refrained from giving full-year guidance due to limited long-term visibility.

Michael Genovese inquired about the sustainability of recent positive trends, asking about key growth drivers in North America and EMEA from both existing business and new wins. He also asked about the potential impact of recent industry M&A on market share and the importance of the BEAD program to the company's outlook.

Answer

Executive Thomas Stanton explained that growth is being driven by both existing customers ramping up post-inventory digestion and new multinational wins that will come online through 2025. He stated that near-term improvement is primarily from the existing customer base. While recent industry M&A has created opportunities, he doesn't see it materially moving the needle yet. Regarding BEAD, he described it as 'fuel to the fire,' asserting that the fundamental demand for fiber will drive deployments regardless of the program's status.

Michael Genovese of Rosenblatt Securities asked for an update on telecom business performance and whether supply issues from the prior quarter were resolved. He also questioned if the forward guidance contained extra conservatism given strong transceiver growth and macro uncertainty.

Answer

CFO Wajid Ali and President of Cloud and Networking Wupen Yuen confirmed telecom performance was as expected, with ongoing supply shortages in pumps and tunables that will likely persist for several quarters despite capacity increases. Regarding guidance, Ali acknowledged that while there is opportunity from capacity improvements, the outlook remains balanced due to macroeconomic and tariff uncertainties, though the overall trend is positive toward the $500 million quarterly target.

Michael Genovese from Rosenblatt Securities asked for clarity on long-term visibility for the telecom market versus datacom and requested details on the function of new optical switch products in the data center.

Answer

President and CEO Alan Lowe clarified that long-term visibility into 2026-27 is strong for the data center and DCI markets, but not for traditional carrier telecom. SVP and CSO Chris Coldren explained that optical switches enable more energy-efficient scaling and lower latency in large data centers, leveraging Lumentum's established ROADM technology.

Michael Genovese asked about the forward visibility for the strong telecom segment growth and how long it is expected to continue. He also followed up on the datacom side, asking for more specifics on which customer products are tied to Fabrinet's 1.6T transceiver opportunity and whether the new Amazon business would be categorized under datacom revenue.

Answer

CEO Seamus Grady expressed confidence in continued telecom growth, citing strong vectors like the Ciena win, 400ZR, and emerging 800ZR for DCI applications. He noted the current telecom strength counterbalances the datacom transition period. He specified that the 1.6T transceivers are for a customer's Blackwell Ultra product. Regarding the Amazon revenue, he explained it is currently small and in the 'other' category but the company will likely revise its revenue categorization at year-end to provide more clarity.

Michael Genovese sought clarity on the timing of the datacom recovery, whether Fabrinet's 800G results are representative of the broader market, if EML supply is a constraint, and if 1.6T presents a share gain opportunity similar to 800G.

Answer

CEO Seamus Grady declined to specify a quarter for the datacom recovery, stating they guide one quarter at a time. He noted their results are not necessarily representative of the whole market and confirmed EMLs are in short supply. He explained that the 1.6T competitive landscape is different from 800G, as he expects merchant suppliers to be ready more quickly this cycle.

Michael Genovese of Rosenblatt Securities asked if Fabrinet had won any systems-level business with its main datacom customer, re-inquired about 1.6T component constraints, and sought guidance for modeling interest income.

Answer

CEO Seamus Grady reiterated that Fabrinet's focus with its main datacom customer is on optical interconnect products, not broader systems, and re-confirmed no major component constraints are expected for 1.6T. CFO Csaba Sverha advised that for modeling interest income, falling rates could be a headwind, but this is offset by a growing cash balance, declining to provide an outlook beyond Q2.

Michael Genovese asked about tariff risks beyond China, the reason for the significant quarterly increase in inventory, and for a general update on the military and aviation business.

Answer

CEO Oleg Khaykin stated he has not seen customers pulling orders forward due to tariff concerns in other regions. CFO Ilan Daskal clarified that the inventory increase was entirely due to the inclusion of inventory from the newly acquired Inertial Labs. Khaykin described the aerospace and defense business as 'doing very well,' with the PNT (positioning, navigation, and timing) segment being a significant growth driver.

Michael Genovese from Rosenblatt Securities questioned the company's exposure to the cable market, whether order momentum is picking up, and requested an update on the 3D sensing market.

Answer

President and CEO Oleg Khaykin explained that cable operators are increasingly behaving like fiber providers, with many cable orders now being for fiber products. He sees one more cycle for hybrid coax testers. On 3D sensing, he stated the market is mature and tied to its anchor customer, but noted some early, though premature, adoption by Android players in China for high-end models, which could present a future growth opportunity.

Michael Genovese asked for an update on competitive trends against Cisco, Juniper, and HPE, and inquired about the key drivers for accelerating SaaS Annual Recurring Revenue (ARR) growth in the future.

Answer

President and CEO Ed Meyercord stated that HPE is struggling, Juniper is stagnant due to its pending acquisition, and Cisco seems less focused on enterprise networking, creating opportunities for Extreme. CFO Kevin Rhodes added that future SaaS ARR growth will be driven by strong SaaS subscription bookings, which were up 29% YoY, and the higher average selling price and attach rate of the new Platform ONE.

Michael Genovese asked for a breakdown of the market recovery by geography, specifically comparing the U.S. and EMEA, and inquired about competitive dynamics and market share gains against rivals like Cisco, Juniper, and HP.

Answer

CEO Ed Meyercord confirmed that the U.S. is leading the recovery, while EMEA is experiencing project delays due to macro factors like government budget finalizations in Germany and the U.K. He stated that Extreme is primarily taking market share from Cisco, with some wins against Juniper and HPE, driven by the company's differentiated campus fabric technology which offers superior resiliency, security, and sub-second convergence. CFO Kevin Rhodes added that declining interest rates are helping CapEx spending in North America.

Asked about the source of strong orders (web scale vs. telco), the timeline for the 10-Q filing, and details on debt maturities after the recent refinancing.

Answer

The company confirmed that its strength is broad-based, including new Tier 1 wins in Europe and metro share gains, not just from web scale customers. The 10-Q is expected to be filed in "weeks" and is not a restatement. After a $19 million payment due in September 2024, the next debt maturities are in 2027 and 2028.