Calix - Earnings Call - Q1 2021

Transcript

Speaker 0

Greetings, and welcome to the Calyxt First Quarter twenty twenty one Earnings Call. It is now my pleasure to introduce Tom Dinges, Director of Investor Relations. Thank you. You may begin.

Speaker 1

Thank you, operator, and good morning, everyone. Thank you for joining our first quarter twenty twenty one earnings call. Today on the call, we have CEO, Carl Russo Chief Financial Officer, Cory Sindelar and President and Chief Operating Officer, Michael Leaning. As a reminder, yesterday after the close of market, we released our letter to stockholders in an eight ks filing as well as on the Investor Relations section of the Calix website. This conference call will be available for audio replay in the Investor Relations section of the Calyxt website.

Before I turn the call over to Karl for his brief opening remarks, I want to remind you that in this call, we refer to forward looking statements, which include all statements we make about our future financial and operating performance, growth strategy and market outlook, and actual results may differ materially from those contemplated by these forward looking statements. Factors that could cause actual results and trends to differ materially are set forth in our first quarter twenty twenty one letter to stockholders and in our annual and quarterly reports filed with the SEC. Calyxt assumes no obligation to update any forward looking statements, which speak only as of their respective dates. Also on this conference call, we will discuss both GAAP and non GAAP financial measures. Reconciliation of GAAP to non GAAP measures is included in our letter to stockholders.

Unless otherwise stated on this call, we will reference non GAAP measures. With that, let me turn the call over to Karl. Karl?

Speaker 0

Thanks, Tom. One year ago, we saw our business begin to accelerate and we questioned how much of the growth was due to the work from home shift driven by the pandemic and how much from investments in our new platform offerings. As the year progressed, we became more comfortable that the majority was due to an uplift in our all platform offerings. While there is much work to be done, we can now see a path to ending the pandemic. And with the pandemic slowing across most of the regions we serve, our bookings remain strong and were robust this quarter.

It is clear Calix platforms have been the substantial driver of our growth for the last four quarters. In a quarter where we again had no 10% customers, we grew revenue by 60% year over year. We saw strength across the business and our visibility continues to improve. While supply limitations remain our largest challenge, we again outperformed in the quarter enabling us to exceed our guidance and build inventory to support the success of our customers. However, with silicon lead times stretched out to fifty weeks from thirty weeks in some cases, we expect supply to be a challenge throughout the remainder of this year and well into next year.

As we continue to invest in growing our team, we also remain focused on keeping our culture tight. This keeps us well positioned to continue to capitalize on the opportunity ahead. We have the financial strength and the process maturity to execute on our mission to help our customers simplify their businesses, excite their subscribers and grow their value. With that, let us open the call for questions. Daryl?

Thank you. We will now be conducting a question and answer session. Thank you. Our first questions come from the line of George Notter with Jefferies. Congratulations

Speaker 2

on the great results and guidance. I guess I would like to start by seeing if you guys have any new commentary or updated commentary on the component lead time situation, supply chain dynamics. I guess I'd love to just double click on what's changed over the last three months in your mind.

Speaker 0

George, as I said in my prepared comments, this remains the biggest risk on the downside to our business. It is a struggle every day and we expect it to be a challenge in the second half. As you remember back some four months ago, lead times went from thirty to fifty two weeks, which sort of created a divot out in the second half. But what I'd actually like to do is ask Michael to add some color on the work that goes on and what he's seeing from his purchase, the President and Chief Operating Officer. And then furthermore, ask Cory to come on afterwards and add some color as well.

Michael?

Speaker 3

Thanks, Carl. As we mentioned, we outperformed in Q1. And as we look at the future quarters, the focus that we used to have, which was just on the big chips that would pop up and be an area where our supply team would focus on, is now shifting beyond that to all components because we're seeing some perturbations in the market that are a bit of a surprise in that it could be a $00 chip, it can be $1,000 chip. And so as we go forward and we look at the supply chain, that's where all the data and analytics and focuses on process will pay dividends. We expect that we'll have to focus on that and that is no longer just a one off multiple quarter scenario.

It's an industry wide challenge that we've invested in to be successful over the long term. I will say that one of the hires we're really happy about in Q1 is we added Jerry Cederland, who has run multibillion dollar supply chain. He comes from CommScope and ARIS. And along with the other folks who have joined the team in Q1 and Q4 last year from Dell and other large companies, we've really bulked out our supply chain team, so we're able to meet this the challenges ahead. But we see it as something that will happen every quarter over the long term and we're ready to face it.

Speaker 4

Corey, it's Michael. George, last quarter we mentioned that some significant silicon pushed out from thirty two weeks to fifty weeks. Just kind of highlight that even though we performed better here in the near term and took up our second quarter guidance, it still creates a kind of a dividend or hold back in the half back half of this year because ultimately we just kind of skipped right over the fourth quarter. We continue to work that problem. So we still think next the second half will be a harder supply chain challenge than the first half.

And we also think we see this broadening, as Michael said, to a greater set of components. So we're seeing new challenges every day. We have to get up and continue to work the problem.

Speaker 3

Got it. And then just as

Speaker 2

a follow-up on that, can you talk about supply chain impacts on the Q1 results? Is there anything you can say in terms of how much revenue you weren't able to ship in the quarter or also impact on gross margins in the quarter?

Speaker 3

Karl, you're on mute.

Speaker 4

I don't know. Can't hear Carl.

Speaker 0

Karl, are you self muted? Okay. Everyone please standby while we get Karl back on the line.

Speaker 3

Operator, Carl is dialing back in.

Speaker 0

Okay. You hear

Speaker 2

me now?

Speaker 0

Yes, we can. Okay. Not sure what happened there. I apologize. George, when you look at the work that went on, our focus is on the success of our customers.

And in actuality, with all the work that we do in the quarter, we do a very good job of actually sort of staying with our customers' demand. So there really wasn't any pushes or pulls in the quarter. And what you've seen in Q2 with the guidance is the result of the work that the team has been doing throughout Q1 and into Q2. We feel like we can supply more demand. So to your point, what the supply has made it difficult to do is to forecast out.

I mean, have strong demand, but our expectation setting is actually bound by the supply chain and the challenges that we have. And so in the quarter, it's a good question. There's really no significant pushes or pulls and we hope to do the same obviously in Q2. On the margin side, it also makes things more difficult to predict as well. And in this quarter, it sort of caught us a little bit.

So Corey, maybe you want to cover that one, please.

Speaker 4

Yes, sure. Inside the quarter, we clearly overperformed on the gross margin line, and there were really two drivers for that. First one was really around product mix. We had some lower margin systems that did not ship in the quarter due to some component shortages or and more significantly didn't reach their ported destination by the end of the quarter due to logistics delays. These products will ship or be received in the second quarter.

The result in q one is that we shipped higher margin system products than we originally anticipated inside of q one. The second and probably as, you know, larger impact on the first quarter margins really had to do around tariff rate. With the partnership that we've established with our customers throughout the pandemic and as well as the outperformance by our supply chain team. We are able to ship more of our inbound shipments away from costly airfreight towards ocean based transit, resulting in lower than projected freight costs. We expect that we'll continue to be able to move away from airfreight in the second quarter.

Speaker 1

But I would also kind of point out that

Speaker 4

we have higher transportation rates from all shipping options and that they remain elevated and will continue to have an impact on gross margin. With the broadening of chips with longer lead times, what we're seeing is we're going to have to move to the spot market. We're paying premiums. So we still have to struggle with PPVs to meet our supply objectives and satisfy our customers. So George, our Q2 guidance reflects our best estimate at this time of all these items on our gross margin.

Speaker 3

Great. Thank you very much.

Speaker 0

Thanks, George. Thank you. Our next questions come from the line of Paul Silverstein with Cowen. Please proceed with your questions.

Speaker 5

Not to give you all a hard time on such a good quarter, but I am confused by a number of the responses to the previous question. No doubt that's my shortcoming, not yours. But with that big wind up, let me ask, so you're saying gross margin and revenue growth were not at all impacted. They would not have been better, let alone much better, but for the supply constraints. But I could swear I just heard Corey say that you could not ship some products.

They happened to be lower gross margin, which helped your margins. But I assume you didn't ship higher margin, more full function products, move the lower margin products. And I assume your customers can pay you more for those higher margin products. So if that was in fact the case, I understand the benefit to gross margin, but concomitantly wouldn't that have adversely impacted your revenue? Would you say your revenue would have been that much better but for your inability to ship those lower margin products for which you didn't have components?

Speaker 0

Yes. Let me see if I can simplify it, Paul. And I understand actually the conflation because of the way the sentence was juxtaposed. So there's two big words for the morning. The key that Corey said that I would direct your attention back to was one of the things that actually got in the way was the freight challenges where we actually shipped items to a customer.

The customer in essence is happy with them, but they did not reach their destination in time to be recorded as revenue. And so we did everything we could do. The customer is happy, but it sort of got stuck in the freight across the placard. That was one of the mix issues that Corey is referring to. And I will tell you that particular mix issue was a lower margin product.

So let me just intersect those two and see if that helps you get through the confusion.

Speaker 5

So if it had got there if it had arrived in time, your revenue would have been higher, but your margin would have been lower?

Speaker 0

Correct. Okay. Let me move on. And welcome to the Suez Canal.

Speaker 5

So it's not if I try to reconcile your ability to ship against demand, but the challenges presented by the fifty week lead times and the broadening to more than just your high incentives. You're just doing a better job managing inventory and that's let me ask you a little bit of a way. What accounts for your ability to ship against demand, the comments about your as I interpreted them, your buildup of inventory stocks? And I also want to ask you, Karl, you last quarter had observed that the silver lining and the supply constraints was at an already significant portion and a growing number of customers were giving you long term insight into their plans, which is not typically the case, which in turn, I assume, translates to much improved visibility over at least a quarter or two, if not three. Has that continued in terms of increasing number of customers providing visibility and giving you more confidence?

And also the question about the inventory buildup relative to the extended lead times?

Speaker 0

So if you actually track the breadcrumbs in your question, you sort of, believe it or not answered part of your question in your question. And so let me see if I can tie that out for you. As we've discussed, as we are increasingly success based, as the stickiness of our software platforms increases and delivers those outcomes for our customers. Twenty years of building relationships with these customers, we're getting a better and better view into their businesses. So envision us sort of working with them.

It may or may not be orders. In most cases, it's not. It's more planning. But we now have a better understanding of what we're trying to run after with supply. Then comes the second challenge, which is now trying to figure out how to fulfill that supply.

So you could sort of it's sort of counterintuitive. In an old world box ship business, you wouldn't build inventories, you'd just be shipping everything you brought in. But what we're able to do because of the visibility is as we are in essence chasing components in the supply chain to help our ODM players, etcetera, we're actually building inventories while we're also laying out the demand for the future and raising predictability. All those things combined, component supply is still going to be our number one issue from a predictability standpoint. So let me stop there and see if that answers your question.

And I may ask in a moment here for Michael and Corey to chime in, but I just want to see if that frames it for you.

Speaker 5

Yes, it's good enough for now. I'll revisit offline. Okay.

Speaker 0

Thanks, Paul. Our next questions come from the line of Michael Genovese with Westpark Capital. Please proceed with your question.

Speaker 6

Great. Thanks very much. Good to be on the conference call. So 1Q, there was outperformance you guys beat and you're saying the supply chain was about as expected. So clearly to me that means you sold more licenses and sold more services to customers that already have hardware in place.

And so what I'm wondering is do we have a metric? I mean it sounds like land and expand to me is what we're seeing. And how are we supposed to follow this? Like what is the metric to where we can see this? I mean all the questions so far are about hardware.

And to me that's the least interesting part about the story. So what should we be following to track land and expand?

Speaker 0

Yes. So welcome to the call. First of all, Mike, thanks for coming on board. And now what you're about to hear is what everyone else on this call has probably already heard many times. It is a land and expand story, but for competitive purposes, we don't break out what you would look for in the traditional software metrics of a land and expand story.

So the way we the best thing we can do is to tell you that the mix as the mix shifts, you're going to see the gross margins expand. And at this point, literally for competitive purposes, we don't break it out. There may be a point in the future where we do that, But there's nothing else I can point you to. I don't know, Corey, if you have any comments you'd like to add to that?

Speaker 4

Yes. I think the only comment I would add is we also provide you breadcrumbs every quarter on some of the bullet points in terms of where you're seeing some of the growth rates around customers that we've added because that kind of gives you an indication of the landing part of that land and expand equation and some of the metrics around our platforms.

Speaker 6

Okay. Great. So on this gross margin, have you guys ever thought about is there an upward bound you want to put on this? I mean 100 to 200 basis points into the year well into the future until we get to 70% or do we not want to talk about an upper bound?

Speaker 0

So we've been asked if the business can be 60% or above and we've answered yes. We've also been asked, is there an upper bound and the problem is we don't know. Obviously, we've modeled things until the cows come home. But the different revenue streams in the business as you'll learn as we dig in more are so different and the margins can get quite high that it's really very sensitive to the mix of the future business and we simply don't have enough run time on the model, Mike.

Speaker 6

Great. And then last question for me is just on the last call you talked about 10% revenue growth for the year and you talked about still hoping to deliver the 100 to 200 basis points, but that it was going to be a fight in the trenches. Any updates to those comments after this quarter?

Speaker 0

Yes. So I'll just give you a quick piece on the revenue growth and then I'm going to ask Corey to comment on the gross margin. On the revenue growth piece, obviously if you look at Q1 performance and Q2 guidance and if you simply keep the numbers where the Street have the numbers today, which by the way given what we're seeing from the component standpoint, I'll make no comment on other than we've got a lot of work to do in the second half this year on components. It would signal that we will grow this year 15%. And I would merely put that into over the last few quarters, we got comfortable that we could grow, we could sort of at least run at this level of demand.

Then we said we could grow at the bottom end of our range at 5%. Last quarter, we said we thought we could get to 10% and now we're saying 15%. So you're seeing this progression as we get increasingly comfortable with demand, but it's tempered by the global supply chains. So right now we look at it as a 15% for this year. We're not going to go change the model from the Analyst Day from a year ago until we're ready to change the model.

So we'll stand pat on the 5% to 10% growth. On the 100 to 200 points in gross margin, Corey, why don't you take that one on please?

Speaker 4

Yes. Last quarter you might recall that we said we would think it'd be challenging to get to the 100 to 200 paces of improvement for our target financial model. But in light of our first quarter overperformance on gross margin and the guidance we provided for the second, we are becoming more comfortable that we will achieve our target financial model for gross margin increase this year.

Speaker 6

Thanks so much for answering the questions and congrats on how exciting the story is.

Speaker 0

Mike, welcome aboard. We appreciate it. Thank you. Our next questions come from the line of Ryan Kuntz with Rosenblatt Securities. Please proceed with your questions.

Right. So they need to

Speaker 7

update their systems a bit, but need them up obviously now. So question on the guide and this typical seasonality, obviously, there's more software content here and less hardware and dependence on weather restrictions. But obviously, your customers still deal with weather and installation of fiber and that sort of thing. So how should we view there question, is there a new seasonality in your business with the higher software content? Number one.

And number two, are you seeing a faster release of budgets this year? Or is it purely a mix and a change in customer behavior as it relates to software applications, non outside plant, more CPE? Can you kind of share some thoughts, if not quantitative, qualitative thoughts on seasonality? Would be great. Thank you.

Speaker 0

Yes. I'm going to I'll address the seasonality piece, but I'm going to ask Michael to chime in and talk about our focus on our customer success because that's really in the future what drives this. So Ryan, as you come on board at Needham, you're going to hear us talk about the land and expand and working with our customers to succeed. We have said in the past that we expect our business to slowly but surely lose the traditional telecom seasonality. Obviously, last year was an unusual year because of the pandemic and went exactly the opposite to that.

But we think this year is going to be much more representative in subsequent years of the future of this business, which is decreasingly connected to any of those things, whether it's the budget flush or the seasonality of fiber because we are so very focused on not our market share, but our customers' market share and their business outcomes. And since we have a moment, Michael, if you wouldn't mind relating a little bit to help Ryan get a sense for how powerful that is.

Speaker 3

Sure. The evolution that we've seen in the Calix business model is one where we moved from in the past and what our heritage was, where we started out as a fiber company and we helped them do what you mentioned, build out great fiber networks. And whereas we've invested significantly over the last eleven years to build out our software and cloud platforms, we've become a business partner. And the customer success organization is working really closely with our customers to identify how do they actually use the insights and the data that's in their network to understand their subscribers and then convert that into a reduction in churn, growth in ARPU and the acquisition of new customers. And the way that we do that is really around three things.

The first is we give them the simplest operating models that exist in the marketplace. So on the fiber side, that means our platform sit on top of it, we collapse the CO and you can run it at an 80% savings in OpEx while at the same time driving an incredible go to market with regards to the premises, which is very complex on not unlike trying to work your way through a jungle. We make that a very simple OpEx model because we help them. We do all the integration and then they just get up and running and they run the same thing, 80% reduction in OpEx and that converts itself through things like reductions of truck rolls. The second thing that we do is we help them excite their subscribers.

And that's very focused on how do you actually beat the consumer direct to market companies like Google and Amazon who are trying to win the home. And we think the broadband service provider is best positioned to do that. And our customer success organization works closely with them on how do they understand that subscriber, how do they put great go to markets in place and then how do they grow the revenue with that subscriber. And then last, those two pieces come together, simplify and excite into our growth model and growth in value of their business and that can be to their community, to their members if they're a cooperative or to their investors if they're a public company. And so all these things come together to drive great customer success.

So what you're seeing in the growth is actually an expansion of our TAM in customers where twenty years ago we were relevant in a section of their business, we're now relevant in all sections of their business. And the best example I can give you is GBTC in Texas, who has built out, invested over $300,000,000 in a world class fiber network that's the fastest Netflix network in the world. And they did that with all cash from the business. And then at the second part, they rolled out our Revenue Edge, which is the Marketing Cloud, Support Cloud to run their call center and our Gig Aspires, which gives great WiFi six and allows them to have a platform in the home that puts services on top of it. And those incremental services generate incremental revenue.

And what are the benefits to them? Well, they've now got an NPS of plus 44. They've seen a 25% increase in loyalty. And they're just one customer. Bascom saw a 95% adoption of the Edge suite.

We ran over 20,000,000 FCC broadband performance compliance tests this quarter for our customers, which is unheard of. We're miles ahead of our competition. Strata Networks ran a marketing campaign and drove a 60% increase in adoption of their mobile app. And the last one that we press released this quarter was Novato with a 99% uptake on their premium WiFi upsell. So these are great examples of we're no longer the company that just provides them the hardware.

We're the company that actually helps them build a very, very successful business and that's why they're selecting us more than they ever have before.

Speaker 0

Paul? Ryan thanks, Michael. And Ryan, so let me just point out one item. The enthusiasm you hear in Michael's voice is the enthusiasm that courses through the veins of every Calyxt employee because the mission is now helping our customers succeed. It's a very, very different energy that goes through the company.

It's quite exciting. That's helpful. Really, really inspiring. Thanks so much. Thank you.

Our next questions come from the line of Tim Savagea with Northland Capital Markets. First

Speaker 8

question is on the gross margin guidance. And I think you answered it in part earlier on, but I just want to follow-up a little bit. So you're looking at margins coming down in the neighborhood of 200 basis points on a similar revenue level. To what extent is that mix with regard to these lower margin systems creeping into Q2 versus any impact, say, on pricing on chips or other type of input cost increases? Can you try and assess the relative impact of both of those or any other items on the gross margin?

Speaker 0

Yes. Corey, why don't you take that one?

Speaker 4

Sure. So Tim, the significant portion of the Q2 guidance being down relative to Q1 is the push out of those lower gross margin systems. There is a little bit higher PPVs. Obviously, when you're out and buying those components, you got to go build those components and it follows the inventory in terms of revenue. PPV is up a little bit more than it was in the first quarter.

But the largest component of our margin guidance relative to Q1 in terms of decline is the lower margin product mix that we've deferred from Q1 to Q2.

Speaker 8

Got it. And with regard to the outlook for the second half of the year, well, you've been taking a fairly conservative stance toward things and doing much better. But in terms of the second half, you're obviously forecasting a moderation in revenue from the first. I wonder what kind of expectations you might have in terms of OpEx in that regard. You're guiding to a pretty significant uptick in Q2.

Parenthetically, I'd be interested if there's a particular focus on that spend and whether you expect that to continue to creep up through the second half despite at least an operating plan of revenues moderating?

Speaker 0

So let me address first the conservative nature, Tim. I'd like to tell you we're being conservative. Actually, we're simply trying to grapple with the significant variability that's in the supply chain. As that variability narrows, you're going to see us try and narrow in essence the range that we're thinking through. The raising in Q2, if you will, from our perspective looking out is indicative of us having more confidence in the supply that we have laid in for Q2.

So I think what you'll in retrospect, they appear conservative, but what it really is, is I think prudent given the variability that we've been chasing in the supply chain. So let's see what how it looks at the end of Q2. To that end, as we plan OpEx, as you know, we have a model that we laid in on the Analyst Day. And if you do the math, we're not investing fulsomely in that model. And we intend to hack our way up that model because the opportunity is in front of us and it is large.

It's getting larger. I mean, we haven't spoken about RDOF and that's fine. But I mean, if you go simply look at the summation of all the plans that are being talked about in North America, it's like there's $350,000,000,000 of discussion around different broadband funding plans. This opportunity in front of us is not going to stop and every new network is an opportunity for us to help the customer deploy a new business model that Michael spoke of earlier. So we are going to fight hard to invest fully.

And so you just simply have to look at our model that we laid out and then look at the revenue expectations and know that that's where we're going to drive. So that's the best way I can answer your question.

Speaker 8

Great. If I can maybe sneak one more in. Obviously, was a strong point in the quarter. I wonder if you have any more color on what's driving that growth or your expectations going forward. And we didn't mention it, but I was wondering if that's any factor from a mix perspective driving margins as well.

Speaker 0

International typically will affect margins as it is somewhat lower margin. But the major issue in international, as you've heard us speak throughout, is the refocusing of international that Michael did frankly when he joined to get it focused on aligned customers and being a profitable business. And that business is frankly just benefiting from, I think, what we've seen around the world and increased demand. I think Michael will be the first to tell you and I'm going to ask Michael to speak a little bit about international and North America and the sequencing because the opportunity in North America is large. Then maybe I'll ask Corey to add some color as well.

Michael, do you want to just give a few words on international and then Corey, can you follow-up please?

Speaker 4

Michael, can't hear you.

Speaker 3

So I was trying to talk louder while I was

Speaker 4

on mute.

Speaker 3

The international markets for us are what Karl mentioned, and it's very focused on aligned customers. So if there's a customer who understands that we help them build a business, then we'll grow with them. If they're just looking to buy what I call dumb box, dumb WiFi, dumb fiber, we're not that partner. We're a company who builds simple networks that have the lowest OpEx, excite subscribers and then grow. And that's the focus for us.

So whether they're international or North America, we'll be with aligned customers. Corey?

Speaker 4

Yes. You might also see in our 10 Q, we did a breakdown of the revenue by geography. Year over year, we saw good growth across all geographies. Of In particular, in Q1, The Middle East was up. I told you that each quarter it's lumpy, it bounces around.

And so in the first quarter, it's had some particular strength in The Middle East. Obviously, would have been stronger had the ship needed to its destination in time. So no, we're seeing some good progress, but I'll just stress that it bounces around from quarter to quarter.

Speaker 0

Our next question comes from the line of Paul Silverstein with Cowen. Please proceed with your question.

Speaker 5

Carl, again, I apologize if I misunderstood. But in response in a previous response to the question about calendar year growth outlook, I heard you say you're looking at 15%, but I thought I heard you in the very next press say you're moving at 5% to 10 Did I miss you?

Speaker 0

Is You did. You may have misheard or I misspoke, but what I let me just reiterate what I think I said, which is given our Q1 performance and our Q2 guidance, just leaving expectations as they are for Q3 and Q4. And again, with the supply challenges we have, obviously we don't guide for the year, but we're making it very clear. We've got a big challenge out there. If you just look at that, it basically takes us to 15% this year over last year.

That's really clear. Did that

Speaker 5

make sense? Yes, no, absolutely. Then with respect to gross margin, again, apologize if I misunderstood, but you guys now are saying that you think you will deliver the 100 to 200 basis point improvement target that you last quarter were saying would prove to be a challenge or that's not That's correct.

Speaker 0

No, that's exactly what Cory said, Paul. You heard that right.

Speaker 5

Okay. I'll take the rest offline. Thanks so much.

Speaker 0

Thanks, Paul. Thank you. Our next questions come from the line of Ryan Fuchs with Needham and Company. Please proceed with your question. Ryan, could you check if you're self muted?

Speaker 7

Sure was. Thank you. With regard to the model and thinking about OpEx and the lifting of the pandemic also kind of convoluting all this going on, How should we think about where OpEx is depressed today because of less travel and other expenses? And what would you how many 100 basis points are we looking at on OpEx impact from pandemic as we snap back looking out a few quarters?

Speaker 0

Yes. I'm going to ask Michael to speak to the travel piece, but I want to dissuade you from overthinking this for the following reason. I will call your attention back to the model that we laid out back in the Analyst Day just before we all closed the company down in March because that is what guides our investments going forward. So parsing the travel piece, I'll let Michael speak to you. But Ryan, I want to caution you, we are going to pursue our OpEx model in a fulsome manner.

Michael? Yes.

Speaker 3

As Carl mentioned, we're in growth mode. With regards to travel, look, the pandemic has brought about permanent changes. The way that we actually do business is not going back to the way it was before. While there may be some managers who wish that everybody would come back to the office and it was exactly the way it was two years ago, that isn't happening. There was multiple studies have been put out that says employees are going to be forced back into full time offices.

There's almost forty percent of them say they'd rather quit than go back to the way it used to be two years ago. At the same time, the productivity gains that people are seeing by allowing a work from anywhere culture, which we've had in place for five years, so the pandemic had no impact on us, we were already doing it, but they're all seeing the benefit of it. And at the same time, people have migrated out of the big cities because they want to have a better life. And thanks to the broadband providers that we support, you can actually go live in these small towns, get a beautiful house, have a view of the mountains with cherry trees behind you and have fiber to your house and work as if you live in Downtown San Jose. So this is a great experience for these people and they're not going back.

So we see that the growth momentum will continue. And then at the same time, our customers have changed the way they do business. In the past, we would always be face to face, but they're doing the same thing. A lot of our customers are saying, hey, I'm no longer going to be

Speaker 0

in the office all the

Speaker 3

time, therefore I can't meet you all the time. I wasn't necessarily comfortable being on a video conference in the past. Now I am. And no, I don't want to come to the office because I'm actually maybe I commute an hour every day. And so it's not just how we want to engage with customers, it's how customers want to engage with us.

It also allows us to bring a big virtual team into the meeting with the customer, where in the past, if you look at the sales organization that existed at Calix five years ago or even ten years ago, there'll be a sales rep and an SE. Now you have a customer success organization, you have specialists who are data analysts and data scientists, you have call center experts. So bringing all these different people together to help the customer build their business is something that's really hard to do if you want to bring five people from our side and five people from their side together. So it's just more efficient. So where does travel go in the long term?

I don't know. I think that we're going to be well, from a travel point of view, it will probably be 40% to 60% of the travel that we used to do. And what you're going to see is our customers really embracing what the customer success organization has done at Calix, which is run tons of virtual events where we bring those customers together, five or six customers together on a virtual circle of success with which Martha Galley and team actually invented when we were at Salesforce and have brought it to Calix, which is incredibly popular with customers around five, ten customers getting together, sharing their best practices and their experiences and helping each other learn and grow. So that's my answer on travel. It's not the same at all and never will go back.

Got it. Thanks, Michael.

Speaker 0

Our next questions come from the line of Michael Genovese with Westpark Capital. Please proceed with your questions.

Speaker 6

All right. Everybody else is doing it, so I thought I'd come back too. So small customers have been strong for a while. When I look at the numbers for the quarter, it looks like sequentially there was a nice change better than seasonal change certainly for medium customers. So two questions.

One, what's going on with medium customers? And then two, when are large customers going to get strong again, do you think?

Speaker 0

So let me frame this in what's going on, which is we are riding in essence a wave of disruption. And anytime you're creating a new market, it's almost always true that small customers are the ones that first see it and move to it. They have less inertia. They also have less ability to resist those forces. And so it sort of works its way from small to large.

Medium customers in large part are the ones that are being restructured and recapitalized right now. So we think the medium customers represent an exciting opportunity to start to move into a success mode. Large customers will simply take longer and in our space, it could be years or a decade. So we expect it to continue to grow robustly bottom up, if you will, from smallest to largest. And I'm sorry, can't give you any more specificity on it, but that is the way it works right now.

Speaker 6

Okay. That's fair. Last question for me, just on the taxes, should we model in any meaningful taxes going forward?

Speaker 0

So Corey, you want take that please? Thanks, Mike.

Speaker 6

Thank you.

Speaker 4

Yes. That's a good question. It's one that we are evaluating every quarter now. Obviously, we've had a couple of good quarters increased profitability. At this point in time, not for this year, but I think if you start looking out to next year, you'll probably have to put in an effective rate.

And I would guide you to somewhere between 2527%.

Speaker 0

You. Thanks, Mike. Thank you. There are no further questions at this time. I would like to turn the call back over to Tom Dinges for any closing remarks.

Speaker 1

Thank you, operator. Calix leadership will participate in a number of investor conferences and meetings during the 2021, including our annual meeting of stockholders on May 13. Information about these events, including dates and times for public webcasts of management interviews, is posted on the events and pre and presentations page of the investor relations section of calix.com. Once again, thank you to everyone on this call and on the webcast for your interest in Calyx. Thank you for joining us today.

This concludes our conference call. Goodbye for now.

Speaker 0

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.