Calix(CALX) - 2019 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved flat year-over-year revenue in Q3 2019, marking a significant turn in the business, with revenue and earnings above market expectations [6][8] - The company generated cash and entered Q4 with a solid backlog of business, forecasting a return to growth [6][8] Business Line Data and Key Metrics Changes - The services business declined by 13% year-on-year, but the company expects modest revenue growth moving forward as the heavy lifting of low-margin deployment services is behind [28][29] - The mix of services is shifting towards higher differentiable value offerings, which are expected to lead to gross margin expansion [29][32] Market Data and Key Metrics Changes - The U.S. Tier 3 market has shown significant growth, with expectations for continued growth driven by small customers aggressively deploying fiber and wireless infrastructure [20][25] - The company is seeing a shift in customer demographics, moving from a focus on large customers to a broader base that includes municipalities, cable MSOs, and electric cooperatives [25][26] Company Strategy and Development Direction - The company is transforming into an all-platform provider, focusing on cloud, software, systems, and services for facilities-based CSPs [6][8] - The management is optimistic about the expansion of the addressable market and the growth of new platforms, which are expected to drive future revenue [16][22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to achieve 50% or higher gross margins in the long term as revenue grows [15][17] - The company is positioned to benefit from the secular disruption in the communications service provider marketplace, with a strong pipeline of demand [8][22] Other Important Information - The company is hosting its 2019 Connections Event, which is anticipated to be the best yet, indicating a focus on customer engagement and market presence [8] - The management highlighted the importance of aligning services with customer success and the ongoing shift towards software and platforms [29][32] Q&A Session Summary Question: Insights on margins impacted by customer and product mix - Management explained that margins are affected by product mix and a large customer with better-than-average pricing, specifically mentioning Verizon as a significant customer [11][12] Question: Revenue base from new products - Management refrained from providing specific revenue figures but indicated that new platforms are growing rapidly and are material to the business [14] Question: Outlook for Tier 3 U.S. market growth - Management noted that the Tier 3 market is experiencing growth due to aggressive small customers deploying next-generation infrastructure [20][25] Question: Services business decline and future expectations - Management expects services revenue to start increasing modestly as the low-margin deployment services are behind, with a focus on higher-value offerings [28][29] Question: Transition from legacy to new products - Management indicated that the transition involves both acquiring new customers and encouraging existing customers to adopt new platforms, without forcing the change [34][36]