Calix - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue of $220.2m rose 6.9% q/q and fell 2.7% y/y, beating S&P Global consensus by ~$13.3m; non-GAAP EPS of $0.19 beat by ~$0.06. Management cited a large customer pull-forward and broader platform/cloud/managed services strength; non-GAAP gross margin set another record at 56.2%. Q1 2025 consensus values from S&P Global marked with asterisks below.
• Q2 2025 guidance implies continued sequential growth: revenue $221–$227m, non-GAAP EPS $0.18–$0.24, and non-GAAP gross margin 55.25%–57.25%.
• KPIs were strong: RPOs $340.4m (+4% q/q, +39% y/y); current RPO $128.4m (+6% q/q, +30% y/y); DSO 30 days; non-GAAP FCF $12.9m.
• Capital return: repurchased 1.2m shares for $40m in Q1; Board added $100m to the authorization (remaining ~$62.9m at quarter-end).
• Catalyst pathway: sustained sequential growth, record margins, expanding RPOs, tariff pass-through stance, and potential BEAD tailwinds once rules finalize (management not embedding BEAD in outlook).

What Went Well and What Went Wrong

• What Went Well

  • Record margins and sequential growth: “record non-GAAP gross margin of 56.2%” with revenue up 7% q/q; RPOs +4% q/q to $340m and +39% y/y.
  • Demand breadth and take-share narrative: management emphasized competitive wins and that “we are absolutely taking share,” supported by 16 new BSP adds in Q1.
  • Balance sheet and FCF: eighth straight quarter of double-digit FCF; cash and investments at $282.3m despite $40m buyback; DSO improved to 30 days.

• What Went Wrong

  • Mix pressure in Intelligent Access: Intelligent Access revenue down 6% q/q and 32% y/y (seasonal low point), while Unlimited Subscriber grew 15% q/q and 27% y/y.
  • International softness: international was 4% of revenue, down 58% q/q and 44% y/y due to fewer Europe shipments; largest international customer ordering remains “lumpy”.
  • Large customer lumpiness: large+medium fell to 21% of revenue (from 29% in Q4), and management noted one large customer pull-forward in Q1; they do not expect it to be run-rate.

Transcript

Operator (participant)

Welcome to the Calix Q1 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nancy Fazioli, VP of Investor Relations. Thank you, Nancy. You may begin.

Nancy Fazioli (VP of Investor Relations)

Thank you, Daryl, and good morning, everyone. Thank you for joining our Q1 2025 Earnings Call. Today on the call, we have President and CEO Michael Weening, and Chief Financial Officer Cory Sindelar. As a reminder, yesterday after the market closed, Calix issued a news release, which was furnished on a Form 8-K along with our stockholder letter, and was also posted in the Investor Relations section of the Calix website. Today's conference call will be available for webcast replay in the Investor Relations section of our website. Before I turn the call over to Michael for his opening remarks, I want to remind everyone that on this call we will refer to forward-looking statements, including all statements the company will make about its future financial and operating performance, growth strategy, and market outlook, and that actual results may differ materially from those contemplated by these forward-looking statements.

Factors that could cause actual results and trends to differ materially are set forth in the Q1 2025 letter to stockholders and in the annual and quarterly reports filed with the SEC. Calix assumes no obligation to update any forward-looking statements, which speak only as of their respective dates. Also, in this conference call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in the Q1 2025 letter to stockholders. Unless otherwise stated, all financial information referenced in this call will be non-GAAP. With that, Michael, please go ahead.

Michael Weening (President and CEO)

Thank you, Nancy. As I stated throughout 2024, and I'll reiterate as we step into 2025, the industry is at a crossroads. A broadband provider must decide if they remain a speed-based network operator that risks commoditization or embrace differentiation through broadband experiences across residential, business, and municipal within the communities they serve. The Q1 of 2025 showcased the strength of our experience-based broadband business, driven by our unique appliance-based platform, cloud, and managed services model, and industry-leading customer success team. A great example of this is Windstream's Kinetic business as they launched our small business solution, SmartBiz, to differentiate and win across 18 states. At the same time, our platform continued to expand beyond the consumer and small business segments as we added a new segment, multi-dwelling units, with the February release of SmartMDU.

That said, as you are all aware, it seems yet again we face a dynamic environment, and yet again, our unique business model will ensure that Calix and our customers thrive during this time of uncertainty. Our platform enables broadband experience providers' customers to simplify operations in their go-to-market, innovate with unique market differentiating experiences, and grow for their investors, members, and the communities they serve. The dynamic environment will be defined by three components: demand, supply, and costs. While dumb box providers will look at demand as a function of capital expenditure, I will reiterate that our business model is different. We partner with our customers to leverage our platform to create demand by enabling their sales and marketing teams to reduce churn, grow revenue per subscriber, and attract new subscribers. As we look forward through 2025, we will see growing demand, and the dynamic environment will not change that.

Consumers and businesses have a growing need for broadband experiences, and Calix will help our customers meet that demand. Furthermore, subscriber demand for broadband is inelastic. As we saw in Netflix earnings last week, which they blew out and forecasted a great future, when end consumers are uncertain, they cut out disposable income items such as taking a flight or eating at a restaurant and stay home and watch a movie. If they're a hybrid worker, they will try to travel to the office less and work at home more. In each of these scenarios, broadband becomes more important, and the broadband provider with the best experience wins. In summation, demand is strong and will continue to grow through 2025. Cory, please cover supply and costs before sharing insights on our outstanding Q1 and a view on a strong Q2.

Cory Sindelar (CFO)

Thank you, Michael. To address the effects of the dynamic environment that we find ourselves in, we have one of the most talented and capable supply chain teams in the industry that learned and adapted rapidly during the pandemic-induced supply chain crisis. Furthermore, our appliance-based platform model has allowed us to reduce our active SKU count to less than 200, which further reduces the complexity of managing in these dynamic times. We have a diversified supply chain with a manufacturing presence around the world. The data and direct relationship we have with our customers, combined with our strong balance sheet, allows us to make intelligent investments in critical areas such as component inventory and incremental finished goods, thereby ensuring supply for our customers. Our costs will be affected by this dynamic environment. However, it is difficult to forecast with precision by how much.

We will do our best to minimize the impact to our customers, and to the extent we pass on these costs, it will be done strictly on a pass-through basis, meaning we will add no profit margin to these costs. Now, let's turn our attention to the Q1 results. We saw strong demand during the Q1 and delivered revenue of $220 million, which represented 7% sequential quarterly revenue growth. In addition to the continued strength from our platform, cloud, and managed services, we had a large-sized customer pull forward demand, which contributed to the overperformance in the quarter. As an indicator of strength of our platform, cloud, and managed services model, our RPOs grew 4% sequentially to $340 million and increased 39% year-over-year. Our current RPOs were $128 million, up 6% sequentially and up 30% year-over-year.

The aforementioned strength led to record non-GAAP gross margin of 56.2% in the Q1. The sequential increase related to customer mix and our BSP customers winning new subscribers as they continued the adoption of our platform. In the Q1, we added 16 new BSP customers as we continued to focus on landing new footprint. The majority of these customer wins were competitive takeaways, and we expect this trend to continue. Our balance sheet metrics remained pristine. We generated double-digit free cash flow for the eighth consecutive quarter, ending with cash and investments of $282 million, even after utilizing $40 million for share repurchases. DSO was an outstanding 30 days, down 6 days sequentially and down 10 days from the year-ago quarter. Inventory turns were 3.6. Aligned with operational discipline, management of our working capital remains a focus to enable consistent quarterly double-digit free cash flow. Moving to guidance.

For the Q2 of 2025, our revenue outlook is between $221 million and $227 million, which at the midpoint would represent a 2% sequential increase in revenue. For the Q2 of 2025, non-GAAP gross margins at the midpoint of our guidance would represent a slight increase from the Q1 and reflects our expectations regarding customer and product mix. For 2025, we anticipate annual gross margin improvement will be within our target financial model of 100 to 200 basis points. Regarding non-GAAP operating expenses, we plan to continue to hold our 2025 operating expenses flat to slightly up compared with 2024 in terms of absolute dollars, and they will continue to decline as a percentage of revenue as our revenue grows each quarter.

With our improved visibility, the strength of our U.S.-centric platform model, and increased expected free cash flow generation, the board increased our common stock repurchase program by another $100 million. Michael, back to you.

Michael Weening (President and CEO)

Thanks, Cory. After highlighting the board's decision to allocate an additional $100 million for our stock repurchase program, I believe there's nothing more to add. Nancy, let's open the call for questions.

Nancy Fazioli (VP of Investor Relations)

Daryl, we're ready to go ahead.

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first questions come from the line of Ryan Koontz with Needham & Company. Please proceed with your questions.

Ryan Koontz (Senior Analyst)

Hi, great, and congrats on a great quarter there, and guide. I wanted to ask about the—

Nancy Fazioli (VP of Investor Relations)

Ryan, could you speak up a little bit? Sorry. We're having a little hard time hearing you.

Ryan Koontz (Senior Analyst)

Is that better?

Nancy Fazioli (VP of Investor Relations)

That's better, yes.

Ryan Koontz (Senior Analyst)

All right, thanks. I wanted to ask about the macro spending environment, what you're hearing from your customers about their CAPEX plans for 2025. I'd expect that your BXPs are going to remain pretty resilient in this climate given the inelastic characteristics of broadband. Any kind of commentary you might share with us from kind of your different customer cohorts would be helpful. Thank you.

Michael Weening (President and CEO)

Thanks, Ryan. From a capital point of view, we continue to see they're investing appropriately. All of them have plans with their builds. That's the capital part of the build. The second part of capital is around consumer demand, for example, and business demand. If they win a new subscriber, then they have to make a capital investment into the home. They put a Wi-Fi system in place, and then they monetize it. From our perspective, as I stated in my opening remarks, we are uniquely positioned, unlike the dumb box vendors who really do not add any incremental value in that scenario other than shipping a box and saying, "See you later."

Our whole business model is built around how do we use marketing analytics, so insights into the consumer to not only drive upsell, cross-sell, but how do you expand out those new subscribers and win them? That is what the broadband experience provider is all about. How do I attract that new subscriber, which will then drive capital? Do we feel comfortable with that? I think that you see from the fact that in Q1, strong results, but more importantly, that we're guiding higher in Q2 is because of the fact that we absolutely believe that our business model is the winning model. As they look to monetize the networks that through the pandemic in the last couple of years they've been investing in, we are the best answer to help them win in the markets they serve.

Ryan Koontz (Senior Analyst)

That's helpful, Michael. Maybe a quick follow-up, if I could. You mentioned in your letter twice about some customer pull forwards. We saw, I think, an international customer pull forward in Q4, and now your large customer cohort here in Q1. I'm curious if this has anything to do with tariffs or if this was purely just budget timing, typical things you have in large customers.

Michael Weening (President and CEO)

Cory can answer it. It has nothing to do with tariffs. It's actually just that every quarter we see the inherent lumpiness of the business where one customer has different demands, and we move things around to help them out. Cory, any other color on that? No, it has nothing to do with tariffs.

Cory Sindelar (CFO)

Yeah, I agree. It had nothing to do with tariffs. Obviously, Q1 happened without the effect of tariffs. That said, that pull forward, we see enough strength in our business that there's no air gap behind it, no pocket. We obviously raised our guidance for Q2 sequentially by 2%. We see revenue continuing to grow off this higher base, even with that pull forward in by that large customer.

Ryan Koontz (Senior Analyst)

That's helpful. Any customer commentary about since the tariffs were enacted, what kind of behaviors they're exhibiting with regards to demand in the near term?

Michael Weening (President and CEO)

If you're talking about their demand and what they're seeing from subscribers, there is none. As I alluded to in my opening remarks, as the economy changes, let's say to the downside, we have heard the recession word in Wall Street Journal and all these other places. Let's say that happens. I keep going back to the fact that broadband is inelastic and highly resilient. I would suspect, and this is something I've talked to many CEOs about, not only suspect that we'll see ongoing demand, if not a strengthening of demand. One could just look to the pandemic and what happened when everyone stayed home. Demand went through the roof. You saw that with Netflix.

Netflix had a good quarter, but more importantly, they forecast that the year is going to be insane for them. Why? People stay home and they watch more movies. I would say that that's the exact same thing that's going to happen. Broadband will continue to expand both on the consumer and business side, which is why we felt very comfortable with raising our guidance for the year.

Cory Sindelar (CFO)

Ryan, we see no change in demand in the first part of Q2. It remains strong.

Ryan Koontz (Senior Analyst)

Great. Thanks so much.

Michael Weening (President and CEO)

Thanks for the questions.

Operator (participant)

Thank you. Our next questions come from the line of Michael Genovese with Rosenblatt Securities. Please proceed with your questions.

Michael Genovese (Senior Research Analyst)

Great, thanks. Following up on those last questions, I mean, in the past, you guys have said that you expect to grow sequentially every quarter kind of moving forward without any seasonality hitting the business again. Is that still the take? I mean, specifically, do you think in the back half of 2025 that we'll see sequential revenue growth?

Cory Sindelar (CFO)

Yes. Yes, Michael. We believe we can continue to grow sequentially from here. Even with the demand pull forward by that large customer, we can continue to grow sequentially moving forward, and particularly in the back half of 2025.

Michael Genovese (Senior Research Analyst)

Great. In terms of a 26% growth rate, I think in the past, you guys have kind of put what a normalized annual growth rate should be for you guys. Has anything changed there, or is that still the same?

Cory Sindelar (CFO)

Yeah, we would still guide you to a low double-digit growth rate for next year.

Michael Genovese (Senior Research Analyst)

Okay. Perfect. I mean, I guess we're seeing some higher tariff costs, but your gross margin continues to move up. Are we seeing any impact from the tariffs there on the gross margin right now? Just looking ahead, how important is it to you guys that sort of Taiwan and Southeast Asia get deals done? Does that matter? If those reciprocal tariffs fully go into effect, does that make a bigger difference in the future for you guys? How do we think about that?

Cory Sindelar (CFO)

Yeah. For Q1, there was no impact related to tariffs as nothing had been enacted at the time. Obviously, we have inventory on our balance sheet that kind of protects us going into Q2. In this dynamic environment, it changes almost on a daily basis. Forecasting what will happen in the future is almost impossible.

Michael Weening (President and CEO)

That is something we're going to do. As you heard Cory say, though, is that we will just pass that through with no margin.

Cory Sindelar (CFO)

Consequently, the best thing to understand is that we have a fantastic supply chain team that can react rapidly, and we will do our best to minimize those costs as we move forward. At the same time, we've got the strong balance sheet. We're going to take that balance sheet and utilize it by making investments in components and incremental finished goods, which then should help us with, obviously, supply and playing out the timing here, delay the impact of such tariffs to our customers.

Michael Genovese (Senior Research Analyst)

Okay. Great. And then just final from me. I mean, you guys have always said that in disruptions, you guys would gain ground and gain share. I am wondering if that's not what we're seeing here with this extra layer of disruption and that the kind of the cross through the chasm that you guys are doing is really going to shine through, in particular because of more disruptions in the market. What do you guys think about that?

Michael Weening (President and CEO)

I think you're spot on. Cory and I were laughing yesterday about the fact that if it's not one thing, it's another. That's why I used the word yet again, right? We had a pandemic, then we had the ongoing high interest rates, then we had questions about BEAD, then we had this, that, and the other thing. What you are seeing us is taking share. This is absolutely what we're doing. The way we take share is by educating the executive teams of our customers on where is the market going and how do they do the most important three things for any broadband business, which is reduce churn, grow revenue per subscriber, and attract new subscribers. I was on the road again way too much this quarter, which is another theme that happens every bloody quarter.

I spent a lot of time with CEOs, and that is the conversation. Not buy a dumb box, not pawn. It's actually, how do I grow my business? We are uniquely positioned. We're the only ones having that conversation with them because we're a good business partner, and that's why, unlike everybody else, we have this massive customer success army that spends every single day coaching them on how to use data and analytics to understand where the growth opportunities are, how to improve their operational efficiency through less truck rolls and all the other insights, and then how to drive NPS and build the most loyal, basic customers. You are spot on. This is just another bunch of crappy noise around us that we will plow through. Fortunately, as Cory alluded, he talked about the strong supply chain team.

It is not just a strong supply chain team. It is actually a broad Calix organization that is highly motivated, continues to win cultural awards, understands our purpose, and customers who partner with us to succeed. We are absolutely taking share.

Michael Genovese (Senior Research Analyst)

Great. Thanks very much.

Michael Weening (President and CEO)

Thanks for the questions.

Operator (participant)

Thank you. Our next questions come from the line of Samik Chatterjee with J.P. Morgan. Please proceed with your questions.

Samik Chatterjee (Managing Director and Senior Equity Analyst)

Hi. Thanks for taking my questions and congrats on the results here. Maybe if I can just start with the first one on the guidance. You had a strong 7% sequential growth in revenue in Q1. You're guiding to a modest sequential growth in Q2. If we can sort of outline what you're embedding in there for the large customer that had a pull forward in Q1, are you embedding the similar run rate to continue? I think it's $20 million plus to continue into the Q2, or is the pull forward sort of symbolic of them sort of stepping down in terms of that run rate into Q2? Maybe a side question on that front, it seems like from the customer segmentation that you have, that you are seeing that inherent lumpiness from your customers.

What is giving you the confidence of a longer-term investment cycle from them? Particularly, are they giving you more maybe forward visibility into their demand than they were in 2024? I just wanted to understand the confidence despite the lumpiness that you have in terms of those investments continuing. I have a quick follow-up. Thank you.

Michael Weening (President and CEO)

Okay. I'll just talk at the broader level. The organization, one of the things that we're able to do is partner closely with our customers, look at the data, look at their inventory levels, understand their daily demand, and actually help them forecast that effectively. We're getting better insight. As we talked about through 2024, there were some inventory changes that we had to work through as lead times went from a peak of 71, months or whatever it was down to or weeks, down to 12 to 14 weeks. We worked through that effectively with them, and we have very strong visibility on how to work through it. With regards to the segments, every quarter is lumpy.

We get the same question every quarter, which is, "Oh, one's up and the other one catastrophic, and is the other one up and the other one's down?" The reality is that we just have a lumpy business. Cory, why don't you talk about, as you said, no air gap in behind?

Cory Sindelar (CFO)

Yeah. Samik, to answer your question directly, we don't expect that large customer to have run rate moving forward. That's the pull forward. It is being backed by broadly across our business. You saw the strength in the Q1 of our small customer segment. That'll continue. I expect there will be other larger customers who will backfill that customer. That is kind of the lumpy nature of some of those large accounts. For the most part, we're seeing broad-based strength across all customer segments. That gives us confidence as we look at the back half of 2025.

Samik Chatterjee (Managing Director and Senior Equity Analyst)

Got it. Got it. Great. Maybe for my follow-up, just in terms of what's the discussion with your customers at this point related to BEAD looking like? It sounds more like the customers are not really waiting at this point to see any sort of disbursement of funds from BEAD and sort of moving ahead with their plans, but just still want to understand what you're hearing on that front and any expectations that you're seeing in terms of timing there. Thank you.

Michael Weening (President and CEO)

No, I would say on BEAD, seeing how I'm in the field with customers all the time, is that if they had BEAD plans, they're still working through those with the different government channels. If they didn't have BEAD plans, they're continuing to go forward, right? You have some insights on BEAD, Cory?

Cory Sindelar (CFO)

I would say on the front end of the curve, that front end has slowed down to some extent, waiting for the finalization of rules and the appointment of the NTIA director. The back part of the curve, they continue moving forward, right? If they were behind later in their approval cycle, they're now moving forward, gathering the data. What you'll ultimately see is more of a compressed front end, but the rest of it kind of moving through. What we understand is the rules are expected to be finalized by the end of May. This could all go. The bottom line is we aren't counting on BEAD in our numbers. When BEAD happens, whatever it is, we'll do well.

Michael Weening (President and CEO)

Which goes back to what we've been consistently saying for the last two years, which is it'll take a lot longer for it to arrive. It sure is. When it does arrive, it'll go over. It'll last longer than anticipated, and it'll be bigger than people expect.

Samik Chatterjee (Managing Director and Senior Equity Analyst)

Got it. Thank you. Thanks for taking my questions.

Michael Weening (President and CEO)

Thank you, Samik.

Operator (participant)

Thank you. Our next question has come from the line of Christian Schwab with Craig-Hallum. Please proceed with your questions.

Christian Schwab (Senior Research Analyst)

Great. I just have one question, guys. Congratulations, though, on great execution and outlook in the current environment. Understanding back to BEAD, understanding it'll be a significant tailwind eventually at some point. I got to believe you feel much better about supplying your customer base. I know supply chain, different components, particular semiconductors, who knows what may happen. You guys, like other people in the industry, increase your hardware manufacturing capabilities, you guys in particular in Michigan with Jabil on the hardware side to make products in the United States for the United States. Do you view that as a fortunate situation today?

Michael Weening (President and CEO)

I'll talk to the broader business. One of the things that Cory misspoke about on his comments was he said 200 SKUs. It's actually 150 SKUs, right? When it comes to designing out our business and what we've done through the pandemic is we use that as an opportunity to grow as a company and put ourselves into a stronger position. In fact, we continue to have an evolutionary approach to our business regularly, which is become better and better. Once again, when competitors are going to have SKUs of add a zero to it or add a zero and times it by two or three or four, we are uniquely positioned in this industry to lead and to pivot as required. At the same time, from a manufacturing diversity, we talked about our United States, as you said. I think we're in a great position. Anything to add?

Cory Sindelar (CFO)

Yeah. Christian, we're going to be very adept and move quickly. The United States certainly gives us a capacity to deal with reciprocal tariffs if that should come to pass. Ultimately, manufacturing in the United States comes at a higher cost. We will continue to optimize our supply chain as we move forward and move quickly to minimize those costs as they may occur.

Michael Genovese (Senior Research Analyst)

Great. No other questions. Thanks, guys.

Michael Weening (President and CEO)

Great day. Thanks.

Operator (participant)

Thank you. Our next question has come from the line of Tim Savageaux with Northland Capital Markets. Please proceed with your questions.

Tim Savageaux (Managing Director and Senior Research Analyst)

Hey, good morning. Congrats on the strong results and outlook. I wanted to go back to the large customer category. I know you've mentioned pull forwards here, but Verizon's been pretty open about plans to increase their fiber homes passed build rate this year. I wonder if that's playing a factor in the strength here and what you might expect out of that large customer for the year given a result. As an aside, I know it's still pretty early, any indications on what kind of opportunities Frontier might bring you guys? I have a follow-up.

Michael Weening (President and CEO)

Yes. That's the answer. Yes, Verizon continues to be a long-term customer. They invested in sole source, their fiber network to us ages ago. Was it five, six years ago or longer? They've been a great partner, and they continue to expand. As they continue to build out fiber, as others do, we will benefit from that. That close partnership has yielded great dividends, and that will continue. Anything else to say on that?

Cory Sindelar (CFO)

It is too early on Frontier. We do not have an idea of what that might look like.

Tim Savageaux (Managing Director and Senior Research Analyst)

Yeah. I figured that might be the case, but who knows? From a follow-up perspective, I'm wondering if you can talk to any opportunities, potential tailwinds coming out of the DZS bankruptcy for Calix.

Michael Weening (President and CEO)

The first thing is I'd like to express my sympathy for all of the customers who are in that situation. It's crappy, right? When you buy these products, you anticipate that you're going to be able to depreciate it over a 10- to 15-year life cycle. I do not envy any of those customers. Obviously, with Zhone going down a peculiar path, I think we all thought they would go into Chapter 11, and they did the, what I would call, rather nefarious move of going to Chapter 7 and strip mining that thing. It left customers in an awkward position because it's not even like the asset has worth anything, and you can expect to get supported. That's the first thing is I don't envy them on their situation.

With that perspective in mind, what we've been doing is speaking to a lot of companies who are in that situation and, frankly, offering how we help. I feel bad about saying the word opportunity, frankly, because of the fact that it feels like you're kicking someone when they're down. How about we are offering a helping hand, empathetic to their horrible situation, feel bad for the leaders and their investors? Because it's something that they shouldn't have to go through due to the bad actions of a bad actor. We will do everything that we can, and we have been. Yes, out of that will come some opportunity. At the same time, our focus isn't really about how to make hay there. Our focus is how to help.

Tim Savageaux (Managing Director and Senior Research Analyst)

Okay. Thanks very much.

Operator (participant)

Thank you. Our last questions will come from the line of Scott Searle with Roth Capital Partners. Please proceed with your questions.

Scott Searle (Managing Director and Senior Research Analyst)

Hey, good morning. Thanks for taking my questions. Great job on the Q1 results and the Q2 outlook. Maybe Mike, Cory, to dive in on the macro front, small customers certainly coming back in a meaningful way. It sounds like it's broad-based. Could you provide a little bit of color? Is that deeper penetration into existing footprints, or is that expanding within those footprints? Cory, I just want to clarify the comments around BEAD and growth for 2026. I think you were talking about double-digit growth without BEAD. Coming back to the dreaded BEAD question again, in terms of when that starts to ramp up, we saw a pause last year from ahead of that as customers were evaluating those build plans.

As BEAD starts to filter into the mix, whenever that is, whether it's second half of this year or 2026, do the existing programs and build cycles slow down at all, or do you expect to continue to see linearity on growth on that front and BEAD just kind of feathers in incrementally?

Michael Weening (President and CEO)

Oddly, I'm going to answer all those questions. The first one is small are not coming back. Small continue to be strong. The business is inherently lumpy. Some customers, we have to move things around from a shipping point of view through the quarter to deal with the vagaries of the business. Small businesses continue to always be strong. I would say that through 2024, what we were the customers were all strong. It was we were dealing with lead times going from 70 weeks down to 12 to 14 weeks and helping them manage through that. Now that we're well through that, demand remains strong as it was through 2024, and they will continue to grow. On BEAD in our numbers, BEAD is not in our numbers. We do not actually forecast them as growth because at this point, there's not clarity.

While we're getting closer, there's not clarity with regards to when BEAD will hit. With regards to your question on BEAD and whether or not there would be a pause before the cycles and all those things, I will go back to how I've answered that question in the past and what I just said to one of the other questions, which is if you are not going for BEAD, then you're just plowing ahead. If you are going for BEAD, we've been working with you on this for the last two years, and you've been planning that into your cycle. There is no pause in demand because you're not doing anything about it anyways. All it is is that it's an ongoing delay in when you actually feel comfortable, when you've been allocated the money and how you do it.

The reason why BEAD is not in our growth numbers is because, as we saw with Louisiana, Louisiana's paused some of the disbursement of money. There is still uncertainty. Fortunately, unlike a lot of other dumb box guys, we have not been forecasting this in our numbers. We have not pinned our hopes on it because we do not have to. We have a very strong broadband business model that is unique to this industry, and we help our customers drive demand by winning subscribers.

Scott Searle (Managing Director and Senior Research Analyst)

Great. Very helpful. Thank you.

Michael Weening (President and CEO)

Questions. I can answer in order.

Scott Searle (Managing Director and Senior Research Analyst)

Sorry. Lastly, if I could, Mike, RPOs. They continue at a really torrid pace, up 30% year-over-year, continuing to grow sequentially. You made some comments, I believe. MDU kicked off in the Q1. you have had growth in small business. I am wondering if you could kind of maybe stack rank what the biggest drivers are on that front and what the growth rate you think looks like for RPOs over the course of 2025 and beyond. Thanks.

Michael Weening (President and CEO)

As you know, with RPOs, we burn them off on a regular daily basis, and therefore, you have to backfill them. They're indicators of customers signing on through your contracts, right? With regards to stack ranking demand, I would say it goes from left to right based upon maturity. The strongest demand is continued penetration on the consumer. The second one behind it is what we're doing on small business with SmartBiz, which is our customers came to us and really wanted us to displace their Ubiquiti nightmare because that product is an IT-based product and doesn't really serve their business well. We expanded our platform with SmartBiz and made it so that they could provide incremental cyber network management and great capabilities using the existing Wi-Fi appliances and all of the existing clouds. No incremental complexity.

In fact, a radical simplification, which then led to this newest one where in November, we put out the first release, and in February, we put out what I would call the MVP release for multi-dwelling units. This is the next demand from our customers saying, "MDUs are a nightmare. Every MDU is different, whether it's the Wi-Fi footprint because I can have a triplex or a quadplex. I can have an apartment building with 600 apartments. There's every form factor on the planet. There's a pool, there's an outdoor pool. There's a parking garage. You have real complexity with regards to physical Wi-Fi challenges. On top of that, you layer in the business model challenge. The business model challenge is bulk versus every unit is a residential.

We are in the process of knocking that challenge down for our customers by radically simplifying it. Again, expanded out our software so that we can cover an MDU both from a business model point, whether it's resi or bulk, but more importantly, through or as importantly, from a Wi-Fi footprint point of view because you can take our appliances, mix and match them infinitely, and cover any physical Wi-Fi footprint imaginable with a different piece of software. That will allow our customers to do what they've always wanted to do, which is go after MDU business in a very simple way while building upon their existing small business and consumer business. That is the third one and the least mature from a market penetration point of view. That is how I would stack rank those three.

The great thing about MDU is that MDU also opens up other channels and segments from a channel point of view. Where MDUs will be served by our existing broadband customers, there are a large number of MDU companies out there who just deal with MDU, and then they will partner with broadband companies in the back end. This, to us, MDU actually represents what I would call a TAM expansion because the addressable market just got larger because we will be going on beyond broadband customers.

Scott Searle (Managing Director and Senior Research Analyst)

Great. Thanks so much.

Michael Weening (President and CEO)

Thanks for the questions.

Operator (participant)

Thank you. I would now like to turn the floor back over to Nancy Fazioli for any closing comments.

Nancy Fazioli (VP of Investor Relations)

Thank you, Daryl. Calix will participate in several investor events during the Q2. Information about these events, including dates and times and publicly available webcasts, will be posted on the events and presentation page of the Investor Relations section of calix.com. Once again, thank you to everyone on this call and webcast for your interest in Calix and for joining us. This concludes our conference call. Have a good day.

Operator (participant)

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect your lines. Have a great day.