Q1 2024 Earnings Summary
- Strong Platform and Managed Services Adoption: Calix continues to expand its Cloud and Managed Services business, as evidenced by record non-GAAP gross margins and several significant new customer wins, including its largest Cloud deal in company history.
- Resilient Small Customer Base: Despite delays from medium and large customers, the small business segment remains robust, with executives noting that these customers continue to invest and grow, which supports overall revenue stability and margin expansion.
- Long-Term Growth Opportunity from BEAD Funding: Calix is well-positioned to benefit from the forthcoming BEAD government funds in early 2025, leveraging its longstanding customer relationships and funding consult program to capture a significant share of the market opportunity.
- Delayed Capital Spending by Medium and Large Customers: Executives noted that medium and large customer segments are experiencing delays in capital decision-making, with revenue from these segments declining significantly (from $77 million in Q4 to around $43 million in Q1 and anticipated to drop further in Q2).
- Struggling Appliance Business: The appliance business remains challenged as large customers reassess their CapEx plans, which could continue to weigh on overall revenue despite growth in other segments.
- Uncertainty Around BEAD Funding Rollout: There is significant uncertainty regarding the timing and magnitude of BEAD funding, with executives forecasting only trickles of revenue starting in early 2025 and concerns over potential delays, which could impact future revenue growth.
-
Growth Outlook
Q: FY25 target growth rate – 20% or higher?
A: Management reiterated that they are comfortable with a 20% growth target, consistent with the past four years, and are not raising guidance beyond that for now. -
BEAD Timing
Q: When will BEAD funds start flowing?
A: They expect revenue from the BEAD program to begin in early 2025, with funds ramping up later despite potential delays in the process. -
Customer Segments
Q: What's the outlook for medium and large customers?
A: Although medium and large customers are experiencing paused spending and delays, management expects this segment to bottom in Q2 while the stable, smaller customer base continues to perform well. -
Large Customer Recovery
Q: How long for large customer revenue recovery?
A: Management declined to specify a timeline for the recovery of the two large customers moving from approximately $20M to $70M, noting that recovery will eventually occur but without a clear schedule. -
Operating Expense Duration
Q: How long will high OpEx persist?
A: They plan to continue the current level of operating expense investments to capture long-term growth opportunities, accepting that higher costs will remain in the near term. -
BEAD Small-Customer Confidence
Q: Will small customers benefit in BEAD?
A: Management is confident that all segments, including small customers—which represent around 80% of revenues—will successfully access BEAD funds, supported by regulatory initiatives targeting rural areas. -
Product Mix Impact
Q: How should we view the current product mix?
A: The evolving mix between Intelligent Access Edge (new network gains) and Revenue Edge (existing business) is seen as a balanced approach that supports margins amid changing customer spend. -
Green Shoots & Share Gain
Q: Are green shoots evident amid customer pauses?
A: Management highlighted a significant pipeline uptick and landmark deals as clear green shoots and share-gain signals, reinforcing their long-term growth confidence.
Research analysts covering Calix Inc.