Annual General Meeting Transcript - CALX 2026-05-14

Michael Weening, CEO

thanks everyone for coming we really appreciate you joining us here on investor day 2026 at this incredible time in our company and also in the industry so that was the video that we showed at connections back in october when we were actually on this path to where do we go from a company and how do we actually transform our customers business and that's what we're going to talk about today because now it's real and it was accomplished on in the end of march so for today today, what we're going to walk through is a number of things. First, we're going to walk through our mission in the future. Where is Kallax going to go and what's the opportunity ahead? Then we're going to go through that opportunity and identify what do we see as the advantage for our company? What's the platform innovation that we can deliver to the industry? And then John is going to come up and he's going to talk about how do we accelerate customer success? Because as we said to our investors day in, day out, our success is predicated on the success of our customers. When they add a subscriber, we win. When they reduce churn, we win. And it's all about how do we invest to help them do that at a faster pace. Then we're going to go to a customer panel. We're very fortunate to have four incredible customers who partner with us on how we innovate and how we change markets. They're going to be sitting up here, and we're going to walk through the different elements of how they run their businesses and how we're partnering to drive their success. We'll then have Corey come up and do the financial model, and we'll close with a leadership Q&A where you'll have the opportunity to ask us questions. And so that's the agenda for today. So let's start. The mission and our future. On March 26, something big happened with our company. It's something we've been working towards for two and a half years, which is the launch of Calix 3.0, which is our next platform. And I, two weeks from now, will actually finish my 10th year at Calix. And we've been on this journey, and nothing worthwhile is easy. And the journey started back prior to 2017. I joined in 2016, and we started out with a recognition that the company that we were is not the company we needed to be. This was founded with our chairman, and he talked about this. How do we transition ourselves from a hardware-only company? If you go back to where we started, it was a networking company that had a single Wi-Fi product. You know, we had kind of a cloud, but not really. But that was Calix 1.0. And we envisioned a very different view where we could actually transition ourselves into a platform company. And in 2019, we made that switch. It was hard for us. It was a huge transition in people. And in fact, we always talked about this, is that we always thought that the transition from a people point of view inside Calix would be relatively small. Maybe 20% of the people wouldn't make it. And actually, it was the exact opposite. We found that over that period, as we transition not only from a product point of view, from a culture point of view, we actually changed out 80% of our people. And that launched in 2019. And that was the start of a very different company. You can see it in our financial performance. You see it from a revenue point of view, where from 2019 to 2025, the year that we just ended, we landed at, went from $400 million up to a billion dollars. You also see it in the margin profile. The 34 points when in 2017, I actually go back to 2016, 2015, it was even lower. And so that margin profile has gone up significantly, and that's the power of the platform. How do we drive at scale a highly profitable business that customers love partnering with to drive great outcomes? And those great outcomes were evidenced by the end of the 2025 year. A billion dollars in revenue, great margin profile, incredible cash, but also significant innovation. And today we're going to talk about how do we innovate with our customers to help them be more successful over time and that innovation cycle the the chart up there we're going to go through that in depth and in March 26 you know we were talking about this at the end of last year we talked about it at connections with the 3,000 attendees who were there is when two and a half years of work came to culmination and our last customers left Calix 2.0 and were added to the platform and so I'm proud to say we put this in the investor letter we talked about this very briefly last night is that all of our customers are now on our ai native calyx 3.0 platform this represents a massive opportunity for us obviously when you talk to cory he's going to say the most important thing to him is we're not running two clouds we're not taking the cost affiliate with those thank goodness we can close down the other one but for our customers this represents an opportunity where artificial intelligence really comes to the fore and they're going to be able to join the benefits of that capability at a faster and faster pace, which we'll walk through today. And look, this represents the next start, the next period for Calix. And we enter this period from a position of strength on many levels. First and foremost, innovation velocity. We are an innovator in our industry, an industry that is plagued with lack of speed and lack of innovation. We're the ones who are coming into it and disrupting how we do business. And so you can see this in the way that we've been recognized. Over the last 12 months we've achieved 72 different awards with regards to how our culture, how our team members, how our products are changing the way we do business. And we'll show you some of those examples. We've invested $2 billion up until this point to get to it. This is not something where you grab a piece of technology, you hope it works. This is actually a long journey that we've been on for over 15 years, like I said, $2 billion invested to get to this point. Go slow to go fast. If you look at the launch of Calix 3.0, our agentic platform, it was two and a half years of hard work. And I will tell you throughout that process, and we're going to talk about innovation philosophy, our customers were saying, what's the payoff? Why are you moving me over? How's it going to impact my business? But we knew, and you cannot walk away from the fact that artificial intelligence is going to change everything in every industry and so we saw that back in November 23 and we started that investment so at this point in time we can stand up here on stage with you and say we have an AI native platform we can walk you through all the steps from what that means and we're ready to go and take advantage of it and the last part is we kicked off a strategic relationship with Google I have stated this openly and I will say this in multiple times and I'll actually talk about it's one of these slides the greatest threat to a service provider customer is Amazon. We were on Amazon Cloud and we made the decision to actually move off because frankly they're the enemy. They're the enemy of our customer and so we moved over to Google who's an incredible partner. They have a great footprint around the world and they enable us to completely change our business model. One where we're no longer a North American company but one where we can go into any market in the world but also we can actually do private instances that allow our customers if they're a large customer to host everything internally and we'll talk about that expansion. The second component from an advantage point of view is everything that we're doing with customers. You're going to hear that when they come up on stage. One of the things we're most proud of is the fact that our customers have a deep trust of us. We actually have a 94% renewal rate. We have over 1,200 customers on this next generation platform. But more importantly, if you've been reading about artificial intelligence, what is the most important part of AI? It's not an agent. It's actually the insights that you get from a workflow. If you don't understand how a business works, you can't effectively apply AI to that business to transform it and drive great outcomes. Last year, we did over a half a billion workflows. We run the customer's business every single day. We understand how they run their field service, how they run their marketing, how they run their call centers, and we take those insights, and we are uniquely positioned with this new platform to help our customers understand where were artificial intelligence have a really profound impact on their business on a go forward and so that half a billion workflows are critical to allowing us to go fast in this next stage third talent we're very proud of our team and i firmly believe myself that as we go into this agentic area era we need to stop with the value of ai is only how many people i can cut and say how do i empower my team members and really focus on human-centric AI? How do we empower the team members to do significantly more with less? And I'm going to show you some examples of that today. But how do I actually get that talent to think about how do we use AI? We can go off and be dispassionate about the business and say, I'm going to cut this many heads. Or what I can do is say, help me understand what you do every single day. Help me understand those workflows. And how do we reimagine work and go to a different level? How can one people do the job of 10 and expand the business and grow revenue? And so for us, 98% of our employees are adopting AI in one shape or form. In fact, I wrote an article with Fast Company, which I actually talked about. We ran over 700 POCs through the year with our team members to actually explain and explore how we use AI. And John will be coming up, our COO, and he'll walk you through how our IT organization is working and partnering with our employees to identify how do we reimagine work. On top of that, over the last couple of weeks, we had announced with Fortune, they were a top 100 company to work. We really do believe in this next stage. we want to continue to attract great talent as we optimize our business which will continue to do we want to be the company where people want to work and this award amongst the other the 48 other cultural awards we like one last year are important to us and help us build a great team to do great things you know and last and Cory's gonna talk about this at the very end our financial performance through what I would call very tumultuous times over the last five year a global pandemic and all the other things that are going on we continue to execute through it the margin expansion the free cash flow and and the way that we return value to investors in the form of share buybacks is something that we do methodically and execute every single day and Corey will talk about that at length so we enter this next stage of our company in a position where we can invest we have a great team and we have great partnerships with customers to do wonderful things and I cannot talk enough about how important is the relationship we have with customers. We enter this period with a deep trusting relationship with customers around how they view success. What are the things that they need us to do to change industries, change the way to go to market, and help them build their business? In fact, we believe in this so passionately and we see the opportunity to move faster that we changed our mission statement. We evolved our mission statement. And the mission statement is now this, enable customers to transform operations. We moved it from Simplify. Why? Because Simplify doesn't capture what's going to happen in AI. The future of AI is not I take an existing workflow and I just pop in a couple agents and I simplify things. That's not the future. The future of artificial intelligence is here's the outcome and to achieve an outcome I have two choices. I can do what I said. I can simplify it and drop some agents in and eliminate some headcount and make it simpler or I can take that outcome and completely reimagine how I work. And in fact, I'm going to show you a couple advertising examples that we did which allow you to understand just how transformative this is from a scale point of view. And so we're not in this next stage going to be simplifying. We're going to help them transform how they operate, sales, marketing, call center, all those different component parts through the power of AI. The second part is accelerate experiences. We've been delivering experiences since we launched the second generation platform back in 2019. But now the big impact is how do we accelerate that at a rapid pace? Not only from an innovation point of view, which Shane Aliniak, our chief product officer, is going to talk about, but also how do we accelerate the adoption of those experiences, which John's going to talk about? Because at this point in time, we only have an attach rate of about 45%. How do we get that to 100%? And Scott from Tom Bigby is going to be up here, one of our customers, and he's going to explain why hasn't he done our marketing product. Well, he didn't have the capacity and capability in his market to hire someone to do that. With artificial intelligence, we now have the capability to take a junior person and turn them into an expert marketer and transform and accelerate their delivery experiences to differentiate in their market. And so you can see the outcomes. We put these up at Connections every single year. We have an incredible list of what our platform does versus competition to enable the success with customers. You see 90% market share for Berlin, 73% ARPU growth, 60% reduction of OPEX. This is what we do. But this next stage is going to be a completely different scale with regards to what we can deliver for our customers. And I'm really proud to say that these four customers will be up on stage to actually give us an insight into how they see the next generation of where we're going. An example would be Allo, who deployed 23,000, you know, now 23,000 students in Lincoln, Nebraska, have SmartTown, have the ability to get free Wi-Fi as they roam around town every single day, regardless of their economic scenario. That's one example. But then the other part is, at the same time with Brad and his team, we did 14 proof of concepts around artificial intelligence in partnership with them in the last four months. So how do we really accelerate their outcomes? And we'll have Lumos up here, Tom Bigby, and BlueStream Fiber, who is a leader in SmartMDU, who has been with us over the last year, building that product out and telling us, here's the legacy vendors and what they provide in an MDU scenario. Here's my business differentiation and how I need you to change my business model and drive great outcomes. And so they'll be up on stage with me. And look, this comes at a critical time for customers. Competition is ramping up. It's getting faster and faster. So we know what's happening with regards to satellites. Starlink's launching. They're adding more capacity. They're throwing capacity everywhere. Amazon just bought Globestar, $11 billion investment, because they were falling behind. And so they know they want to get satellite capacity. And who here is a happy Amazon customer? I am, right? If you don't have your hand up, you're just lying, right? so I'm a happy Amazon customer every day every couple days there's Amazon boxes at my house they have a great MPS they're they're convenient easy to use and they have a direct to consumer relationship Amazon euro is a relationship with the customer and all that's going to happen is that for everyone who resold euro in the past is a quick switch of the WAN in the back when Amazon comes and says here's prime broadband and how do you stop that we see that as a huge opportunity with us with our customers as that competitive pressure ramps up for them to get it that if they don't have the best experiences in their market they're at risk because they can just be swapped and so this experience opportunity is one that we've been pontificating about for five six seven years maybe a decade and now is the opportunity because the competition continues to ramp up and that we believe that for Calix as we're the leaders in this market with regards to experience for those who haven't gone on the bandwidth they better get going faster and so and that's going to be john's mission to make sure that happens the second part of that is commoditization continues to be rampant everyone uses this fancy word called convergence let's be really really clear you know what convergence is convergence is a bundle i was at bell mobility i understand what a bundle is right it's nothing fancy it's just broadband with mobile at a cheaper price that's commoditization they don't want to use commoditization but that's what it is so again if you're not differentiating in your market with regards to experience the customer has a real struggle this is what we do really great and we'll talk about how we expand that out um in a moment and then last look artificial intelligence anyone who doesn't believe this is going to change humankind is missing out it's going to change every facet of life it's going to change manufacturing it's going to change every industry and it's absolutely 100 percent going to change our industry i gave the example of Tom Bigby Fiber. So Scott told me, I talked to him just before Christmas, and he said the biggest reason why I haven't used Engagement Cloud to deal with my customers is because of the fact that I don't have the capacity and capability, the people in my market who can do that. And I can't hire that person because, you know, they're going to be in a big city, and how do I bring them, and can I afford them? That's why I haven't gone forward. And so, transformation of marketing is a great example where everything is going to change, and customers need to be thinking about not only, I'm not going to be running campaigns in a linear approach anymore. I actually have to think about how do I 10x, 30x, 100x, how do I run 1,000 campaigns with one person a week? Everything is going to change, and artificial intelligence is going to make that scale. And I have a simple example to share with you. So if you've been following our company, you know the Jerry D videos that we do. We've been doing these Jerry D videos for five years, and the concept was we would do the video content with our decision council partners, and Jerry D we put the content out and then what we give it is we provide that to them and then they can put their brand on it and they can use that as a marketing campaign against our products right to build a Jerry D campaign was generally a two or three day shoot and I remember the very first time I went to it it was tractor trailers it was people building out like there was like 50 people there and our cost over three days was a million dollars a million dollars to do three videos a huge cost but and that that's excluded like there's all the pre-production time there's you know and you got all the union workers all those kind of things right a huge

Speaker 7

impact what i'm going to show you is artificial intelligence that was done for aloe in a couple days for 20 grand shoot the video real streamers have high expectations 4k ready immersive audio totally secure cable can't deliver the experience you need only allo fiber can deliver the performance real binge watchers deserve because sleep sleep is for quitters can your cable internet do that allo fiber internet built for you

Michael Weening, CEO

that was done with 20 grand using artificial intelligence and went in days. This is a simple example of how profound of a shift we face. Every job is going to change. And as I said, we can think about simplification, how do I optimize a workflow? Or I can think of here's the outcome, how do I completely change it? In that scenario, we're also looking at technologies where an individual can run 4,000 banner ads direct at a single person where they used to actually only be able to do a small fraction of that on a monthly basis. And they can do that in a day. There is a profound shift coming in all industries, and we're going to be at the forefront of it. And so as I think of this and go into 2026, there's really three discussion points. So the first is, what's the Calix advantage? Where do we sit currently, and how are we going to make the most of this opportunity for you as investors and for our customers? The second is our platform innovation. How do we actually speed up the innovation that has a lot to do with the new platform that we put out? And then third, core to our business is how do we make customers succeed if they do not succeed we do not get paid it's that simple if they lose a subscriber we lose we lose revenue if they win a subscriber we make money it is customer based success which is our revenue model and so how do we accelerate that at a rapid pace and that was what john's going to come up and how he transforms his business both as a customer success organization but then also how do we calyx transform ourselves internally and everything that we do And so let's start out with the Calix Advantage. First, I firmly believe that success starts with people. I believe in human-centric AI, which is how do we empower really great leaders to understand what the business opportunity, to leverage these capabilities so we can change our business and grow at a rapid rate at a lower cost. And so I'm proud to say we have an incredible team in place, and that team leads an organization who, as I mentioned before, has transformed themselves into an award-winning culture. So if you go back to 2019, our glass doors were three out of five. We were not attracting talent. We weren't getting the best and the brightest. We weren't having people from big companies like Meta and places like that coming to Calix. Now they are. And the reason why is because we really embrace empowering incredible people to identify what to do with these technologies and how to take our business to the next level. You know, we've kicked off with a strong year. We've already won nine awards. We're really proud of the fact that Fortune recognizes us, Little Calix, as one of the top 100 places to work, up against some of the biggest companies in the world. And we believe that that ongoing investment of culture is going to be critical to us because not only are we going to help our customers transform their business, which there will be a lot of resistance to change, but inside our company, we will change as a company significantly. John's going to talk about that. The second advantage that we have is how we innovate. All of our innovation is done with customers. We work really closely with them. We have understanding into how they run their business, and we've been doing this for 15-plus years. We've invested over $2 billion in the platform, and we have those half-billion workflows where we can actually parse out everything that they do. And in this next phase, what's going to be critical is that we make the right investments in the right places to drive the biggest outcomes. We process at this point over a petabyte of data every single day. And that comes from our customers trusting that we will help them understand that data so they can run a better business. So that massive investment from an R&D point of view has gotten us to this point. But the other part is that that R&D investment is going to pivot significantly. If you look at our innovation cycle over the last few years, these are the number of features that we released every single year since 2017. So prior to being a proper platform company, 77 features, 181 features, we were a hardware-integrated company that didn't have a platform. Then we released 2.0, and what do you see? A massive acceleration of the rate of innovation up until a peak in 2024, where we doubled from 406 almost to 1,000 features coming out. And so what happened in 2024? Well, in November of 2023 is when we decided, as a company, that Shane came into myself, and then he and I went to the board, and we sat down and we said, artificial intelligence is real. It's finally at a place from a security and privacy point of view where we can leverage it safely with our customers. And this is going to completely change every industry. And we need to start investing aggressively now because if we don't, we'll be behind. So in November 2023, we kicked off a massive project to actually start building out the third generation of our platform. And Shane will walk you through the levels of the platform. But that kicked off our embedding AI into everything that we do becoming an AI-native platform. And what happened? Well, as we progressed through 2024, we got those projects out from a features point of view, but in 2025, we slowly pivoted our entire organization into one thing, get that platform out. About 80% of our resources through 2025 went towards getting the next generation of the platform out, which meant that you saw feature velocity drop pretty significantly, and what's really great, it's out. It was hard. Nothing worthwhile is easy. It was really, really hard. But if you want to invest for the long term and change the way your business runs for customers, you have to think about this way before. Those companies who haven't done this, they're already way behind. And if you haven't been watching the pace and the acceleration and the speed of change that AI is embedding into every industry, if you haven't made those investments, you're going to fall behind incredibly fast. We are very fortunate that the product team identified this opportunity back in November and the threat, and we went hard, and now we're out. We can use any LLM. We have knowledge. We have all these capabilities ready to go. And so it was out. Last customer was ported on March 26th, and for us with that AI-native platform, what you're now going to see is a return to massive acceleration of our broader business. And so in the past, we've led the market. We've led the market as we opened up new capabilities. We've led the market from awards point of view. To go back to when we were a pre-platform company, again, two awards an entire year. It's pretty sad. I know we were really happy when we won two awards, but it's not a lot of awards, right? So this year to date, we're already five. We won 18 awards last year. People in the industry are recognizing us for the innovator that we are. This is nothing. What we're going to do in this next phase with AI is going to transform how we innovate. We have the trust with customers, but the pace of innovation is going to be mind-boggling, and we see that from all the news that comes out every single day, and we're going to be at the forefront, able to take advantage of it. And so what is that platform? I'm not going to dig into that. Shane's going to come up, and he's going to walk you through what the Calix 2.0 platform is. But at its core, there's a platform that takes customers and their teams, So everything they do in sales, marketing, network operations, field service, call center, and it aligns them to the markets that they serve on a single platform. It allows them to serve consumer, small business, MDU, and as I'll show you in the TAM expansion, new markets, including hospitality and other areas, with no incremental complexity. It just works. And so that's how we bring it all together to help our customers do four things. Grow revenue, add subscribers, reduce churn, and in the end, deliver the best NPS. And that's one of the things that we're constantly proud of. People are shocked when we hear from customers who are going to sit up there. You know, Tom Biggie's going to sit up here, and they can say, I have an NPS of 92 for the last four years. Apple's of 58. Brad Moline and Aloe can talk about the fact that they're NPS in the mid-70s, and they've had that for years. That's why they have 65% market share in a lot of the markets that they serve. NPS drives revenue. And so for us, the platform has allowed us to expand revenue. Had we just stayed in North American regionals, we wouldn't be at the revenue level that we're at. More importantly, we wouldn't have the opportunity that we have in the future. So if you look at the revenue growth, it correlates to us releasing new products. We launched Smart Home. We won Verizon, which was the launch of our next-generation platform with regards to networks. back in 19 2019 you see revenue accelerating with the expansion of small smart town which is our roaming and the small business and as we start on calix 3.0 you're going to see a massive expansion of the potential time for our company and where we invest to allow us to go after new markets first of all it starts out with agent work for everything we're doing with AI but there's a massive expansion opportunity in MDU hospitality events and all these other markets and for us they're adjacent markets they don't require new They require an expansion of our product, not a complete rewrite of our products using the existing resources that our customers have. And then on top of that, we have the ability to go after global service providers using Google Cloud as a partner. And so as we think about the expansion of TAM, it's a huge opportunity ahead for us. You know, if you look back to where we started out, it's kind of like, you know, 10-ish billion was the TAM in North America, right? and as we take this next step global tier ones it's a software only play so that's the TAM approaching ten billion dollars and then just in North America the multi-dwelling unit apartment buildings just that market alone is a ten billion dollar TAM just in North America that excludes hospitality that excludes events that excludes all the other areas there represents a significant opportunity for us to dress disrupt these markets and grow at a rapid place. And so with that, I would like to then pivot over to Shane. He's sitting at the back, and he needs to be walking up here faster. So Shane, our chief product officer, Shane Leniak, is going to walk through our platform innovation and how we make that real for customers.

Shane Eleniak, Other

So if you think about what we built from a platform perspective, it's a vertical platform. It starts with appliances and operating systems, the data path delivering the actual services that subscribers consume. It's also the source, though, if you think about the network edge and you think about the subscriber edge, it's telemetry, it's instrumentation, it's understanding quality of experience, it's understanding unmet needs, behavioral analytics. And it takes the form of a petabyte of data every day for us that we then want to look at and pull out insights. Traditionally, with our second-generation platform, it would have been insights that we'd be talking about. But we have context. We understand the workflows. We understand the actions that need to take place at the service provider from a marketing perspective, from an operations perspective, from a customer support perspective. So we've evolved from thinking about insights to thinking about knowledge, thinking about machine learning and embeddings, LLMs. It's context. What's the action that needs to happen? What's the material event? What's the unmet need? And the expansion from data to knowledge to say, I not only know what's important, what's urgent, what needs to happen, I understand the workflow. Traditionally, we would have built static workflows with dynamic data. Now we're able to go to agentic workflows. Those are outcome-orientated dynamic workflows. So if you think about the stack, it's the sources of the data, the data itself, the knowledge. It's these agentic workflows. And ultimately, what we're trying to deliver is experiences to the consumer, to the small business in the MDU, Wi-Fi roaming, venues, events, hospitality. Those are the types of experiences that people want every day that differentiate, but ultimately meet the things that you and I want to do every day as a consumer, everything that the small business owner wants to do. And that's the vertical tech stack, and that's really the big change. If you think about platforms in an agentic world, they're vertical. Traditionally, what we lived through with clouds and SaaS was very much horizontal. I'm going to focus in on a horizontal and do one workflow really well. Now it's about understanding the outcomes, understanding the dynamic workflows, actually having that contextual knowledge to understand what needs to happen and in what order and what sequence. And that's ultimately the platform and the hard work that we've undertaken in the last two years to evolve from a second-generation cloud to an agentic-orientated cloud. There's a how aspect to products, and there's a what and a when and a why aspect to products. This slide really speaks to the how. How you do things matters. The shift from systems and OSs to a platform and a platform effect that you're building on top, but it also speaks to us becoming a cadenced company and doing time-boxed agile and looking at a shift left in how we did testing and automation and simulation to drive velocity of features. And that's really the key goal here was to get a platform in place with Calix 2.0, put the right how processes in place to be able to drive innovation, to be able to go faster. And really what we're seeing now is a shift back to being able to focus on features after having built our third-generation cloud. And really, you know, that previous slide was a large shift away from a traditional SaaS-based cloud to an agentic-orientated, contextual knowledge, dynamic, workflow-orientated AI platform. And that's the work that we've done. But that says now we're able to focus products back on doing features and use cases and getting back to that velocity. There's also an element to this, though, and we'll talk about it on the next slide, about how you build products. The product development lifecycle and how AI changes that is also an aspect of this. So we feel very comfortable that we have the right how processes is in place that we built with Calix 2.0 to be able to innovate and go at scale. But we think there's a rich opportunity to go even faster with Calix 3.0. The second part of this is working with customers. Having how going fast doesn't help if you're building the wrong things. So a big element of this that starts way at the left in time is getting the use cases right. Understanding first use case, and that tends to be our focus. We'll pick a subset of customers with a use case that we understand really well. We'll work with them as our anchors, and we'll get that one right. You then go through a phase, though, where you're not only hardening that use case, you're expanding it. Because now, all of a sudden, you've got a market. So you're going away from a small group of customers to a broad market and all of our customers. So you're doing use case expansion, you're hardening, but there's an ecosystem around us. In this case, this is smart MDU. You start to talk about billing gateways and different commercial models. I don't want to do a bulk. I want to do paywalls. You start talking about tenant management systems and all the hooks and handles that start to fit into a complete solution and ultimately a platform-grade solution. And we do this with everything we do. We work with our customers. We work really closely with them, not only to understand the change in the marketing workflow or the operations workflow or the support workflow, the subscriber need, how does that experience need to change, but what are their broader ecosystem that we need to work with? Where are the hooks and handles? What else do we need to work with? What are those business systems? How do those change? What are new business systems as we get into new markets that we need to work closely with, ultimately because they're delivering a set of experiences to the property management company and ultimately the tenant, right? The other thing that's changed, though, is everybody's now talking about Vibe coding and code generation. We have a huge opportunity, and we're leveraging it today. We're now able to do rapid prototyping. Before, what we would have done was Figma wireframes and sat there with slides and sat there and said, hey what do you think about these wire flames and do you have any input now you can actually code a prototype it's grounded in your code base it's grounded in your data model it's actually accurate and I don't know about you but I work a lot better with a straw man when I can see it I can see what's going on it's really easy to give feedback going that's good but this would be better or you miss this or yeah but have you thought about that so now all of a sudden you're shifting that prototype to the left you're getting those first second third and fourth use cases solidified it very quickly you lose the lost in translation between product management talking to architects and designers who are going but i read your epic but is that what you meant so now all of a sudden we got visual we've got rapid prototyping talking to code generation tools that are generating the tool But this is a CICD pipeline. I need tested code. So how you do simulation, how you do testing, how you actually get to code that's deployable, that's stable, that's of high quality is really where we're focused. And we're able right now to leverage these tools in our product development lifecycle. So we feel very comfortable when we say, we built an engine on the how aspects in Calix 2.0 to today, but the tools that we have today are significantly better than the tools that we had in 2024 so we feel really good as we shift now into the platform that we have the platform in place to do this we've got the processes in place to do this we also have better systems and tools than we did two years ago you know and whether you look at kind of what's possible in the video world what's possible in the tested code generation rapid prototype world's pretty cool and where we've evolved in the last two years, okay? And then if you talk about, okay, you've got a great platform, you've got a great set of processes on how you do it, you work closely with your customers on what and why and when in getting sequencing and priority right, tell me more about how you got here with this agent workforce. So effectively, we started, as we would with everything, simple use cases, pox, close customer relationships, And we started plucking. Hey, we've got ideas. We understand workflows. We do 500 million workflows a year. We've had five, six, seven years of runtime on platform with Calix 2.0, understanding how people use these workflows. But when you shift to agentics and dynamic and outcome-orientated, it touches multiple personas. Everybody's involved. Marketing has a role to play. Engineering, operations, customer support, the needs of the subscriber, all of that changes. So we started testing our proofs of concept. Q1, we released assistance. We have, we want to help people. That was really our first agents. Q2, though, you start to get into these dynamic workflows that touch multiple people. You start getting into upsell, cross-sell, which is a marketing workflow, but operations needs to know about it. Engineering needs to know about it. Customer support needs to know about it. It touches subscribers in different ways. Same thing with churn workflows. Same thing with acquisition. So you're going to see us starting to see acquisition workflows, upsell, cross-sell workflows, churn prevention workflows, loyalty workflows. Then you start getting into customer support workflows. How do I help the customer? Shortest time to happy customer. And then you start getting into subscriber workflows and how How do I interact directly in the subscriber with the app? We start to deliver those in Q2. And then you're getting into call center workflows and network operational workflows. And those are going to be the swim lanes that you're always going to see us delivering in. We're putting the first ones in people's hands in May. We then augment with additional ones. We start moving closer into the home, device anomalies. So we move from, hey, we understand the network. We understand the demark of the network. Now we've moved into the home itself and into the business itself, and we're trying to understand anomalies there. We start getting into critical incidents, which get into notifications. How do you interact with subscribers? And tell them, hey, there's an issue. We're working on it. Here's the mean time to when we're going to resolve it. How do you continue to update them? Then you start getting into optimization workflows, AI-enabled network optimizations, planning type of use cases. Upsell, cross-sell also starts to evolve from, hey, I'm doing customer support. The issue is really the person has the wrong package. They're not doing anything wrong. The network's working the way it is. They've got an unmet need. How do I upsell, cross-sell at that point of contact also? So that's one of the types of things that we start to deliver in our August release. With that, I'm going to turn it back over to Michael. So hopefully I've given you a sense of we have a vertical platform. We understand the how. We understand the what and why. We work closely with our customers. And we're at a point now where we're delivering dynamic workflows that change the way people work today. Thank you so much.

John Durocher, COO

Thanks, Shane.

Michael Weening, CEO

And at the same time, he's going to transform his organization. If you didn't see on the last slide, the productivity gains he's going to get from rapid prototyping, from an accuracy point of view and a use case point of view, but also, you know, CodeGen is a simple thing. It's actually how do you go from use case to test a code and product out the door that transforms the customer. And so this is the road map, and you're going to see this accelerate at a rapid pace. And when I was at Mobile World Congress, this is the first time we've really been there, we got invited up to do a keynote. And so the keynote that I did was, what's the AI future? And it was the AI architect session that we did this in, and I talked through, how do you rethink how we work marketing? And in this scenario, this is one we've been talking a lot to our customers about because they generally end our they buy our platform in the end and the scenario becomes I have a subscriber agent and agents are task based entities they can think and reason and they can evaluate data so they look at a subscriber they see things are going on working is optimized and then as the person moves from inside to outdoors they move out into the backyard to do some work they see something bad happening which is their experience gets changed And so that is a Wi-Fi degradation because they don't have coverage in the backyard. Maybe they wanted to go work in the pagoda. But then at the same time, the subscriber agent can grab insights with regards to that customer, taking external data and look at, for example, they know that there's a pool in the backyard because they have a warranty for a pool pump. I actually am registered somewhere with Pentair for my pool pump, and so you can do that correlation. I saw them leave the house. I saw the degradation. oh by the way they have a pool pump chances are they have a pool in the backyard this becomes important context in the marketing scenario but this is all automated in the past can you imagine an individual trying to go through and sort through all the external data to say who's got a pool pump and then who has an issue that's a huge amount of work that is unfathomable you cannot scale that so in this case it's agentic work doing it at an individual level then it passes on an operations agent says you know in this case brad and his organization also sell mobile phones they signed up for an allo mvno so it also looks at that home and sees the devices well there's two iphones and those are on my mvno there's two iphones that aren't okay that represents a mobile opportunity for brad and his organization to upsell there's two devices to be one there more context it then passes over that workflow to a service agent who does all the correlations with regards to what's been going on in that home over the last 30 days it sees it's moving back and out it also sees things like he's been working on salesforce and different applications without breaking privacy we just want to know what they're doing because we want to optimize their experience and then it bundles that all up and it passes over to a marketing agent which builds a campaign and in this case the campaign is contextual it actually grabs and it you know as we showed with that video there's no reason why you can't go create a video based upon someone hanging out in the backyard at a pool doing work put the video it builds that context, it puts the offer in place, and then it chooses, based upon their social media preferences, where should I service that ad? Should I buy an ad from 8 till 10 p.m. on YouTube? Should I actually service it on their mobile app if they're using our Command IQ application branded by the customer? And then when they go into a buy cycle, they click to buy. Doing this type of a workflow at an individual level by subscriber is impossible unless you actually scale it with AI. Now, that's how our regional customers would use it because the fact is they use all of our tools. As we migrate into different markets, Calix, from an agentic point of view, becomes a different entity for those companies. We become a toolkit. So in each of those scenarios, we recognize that they have all kinds of other systems. Brad and his organization use other systems because they're a big-scale company. So whether they're using Salesforce or Adobe or pick your system what we can do is as they go through their workflow we can be then become a component part we're in a smaller customer we're going to do it end to end in a bigger customer we're going to become a component so in that scenario where we do cross sell upsell into the pool and drive the data we may be the one who identifies the pool we may not be that might actually sit with another agent in a data science you know ai agent and it's actually servicing that data we provide the subscriber insight it goes into a workflow and off you go so our role changes and Shane and his organization from an architecture point of view part of our re-architecture was also to ensure that we can serve any size of customers how because in the past it used to be apis which were great at the new terminology for agentic is model context protocol mcp which is you put a server in front of it and we share our context without moving data or a to a which is agent to agent so it's our agents talking to their agents as part of a workflow which we've embedded we're very good at being an industry standards organization and so for a company that has all these back office systems no problem we can add value from an ai point of view with our platform in a very different way it represents a significant opportunity the other part of this agentic workforce is that it also gives us an opportunity to help our customers rethink how they do work this is a transformation of your business this is also a transformation of your business in a different way and to understand how we help our customers go faster accelerate differentiation and the experiences that they deliver into the market so they can win more subscribers i'd like to invite john to the stage our coo he's going to walk through how we accelerate their customer success John morning everyone so i want to share first of all how do we think about success right and at calis we deliberately align with our customers life cycle around build around

John Durocher, COO

launch and around optimize what does that look like in practice in practice that may mean that we consult around a strategic funding they have questions around that it may be around setting up their Wi-Fi or their network design. It could be around subscriber activation, right, or projects driving market growth. And lastly, it's around optimize, right? What's the most important thing? It's business performance or accelerating growth or thinking about what is that subscriber experience. And we'll get engaged with customers in the subscriber experience that NPS scoring, we actually help our customers drive that. And why do we want to know what that NPS is? Not just because it's a great score, but there's opportunity within that score how do we continue to improve the experience and change that relationship we're relentlessly focused on three things with our customers helping them to attract new customers retaining their existing customers and thirdly growing that customer base and when our customers are successful we're wildly successful and this is an example in terms of this this visual in terms of our ability to help our customers grow right? Because we win when our customers win. And innovation isn't just a product focus at Calix. It's a company focus. And how did we help our customers grow their attach rate? Well, we listened to them. They came to us with challenges. And we created a marketing acceleration program, which helps them think about their offer strategy, think about persona-based offers, and really change how they go to market to really focus on that experience. And we continued to listen and they said hey we we need help in this area and we created a workforce transformation program and that was intended to help them attract talent retain talent and grow their existing talent because they have an aging workforce that they needed help to make sure that they were ready for the future and then they came to us two years ago and said hey you know as we get into smart business it's a really different selling motion and we're not that experienced in that and so we created the sales acceleration program that thinks about what is the sales structure need to be? What is the incentive compensation need to be? And how do we create a sales culture, right? And so when we're doing these things, we are partnering, right, with our customers in that continuous life cycle. Now, the most exciting part is around this AI opportunity that's in front of us. And we can talk to our customers in an academic way, but that's never my style. I want to get out there and be a practitioner. And so everything that we are going to work with our customers we've done already right we've activated our organization we've done a great job job of driving adoption but not only adoption but actually building agents right my team in particular i'm pretty proud of that uh has the majority of those 400 that have been built out there that we're using to transform how we do certain activities and when we did those we found huge um you know improvements in how it took time to go and build something for a customer So we really automated that. And as Shane and Michael both talked about, the biggest opportunity is around that end-to-end workflow. And we're doing that internally as well, as we're thinking about our three biggest workflows and how do we reimagine those so that we can apply AI not in an episodic or in a functional basis, but across the entire thing to eliminate rework, to automate processes today, to reduce the number of handoffs. And that's fantastic. And then none of it matters if at the end of the day that you can't actually measure and get value realization and we've done that we had a project going on around our supply chain right next generation supply chain and we're looking at signals to build a transform that and if you're interested in that Jerry will be up here at the supply chain he can talk to you all about how he looked at the signals automated that and reduced the number of people that he needed to go actually run his business which was fantastic. So again, we're going to now take all of these learnings and we've built them in something we're calling the AI leadership playbook. And that's from our firsthand knowledge of how are we doing this? How are we governing, right? How are we activating pilots? How are we doing the change management to get everybody behind this? Because many employees could be threatened by this. But we think there's a huge opportunity. Why? Why am I excited about this? Because when we are working with our customers on ideation of things to do, their biggest challenge is capacity. right as all of us have a capacity problem and so how do they do more with less i'm excited about how our agents are going to fill that need so that when we come up with an idea and they want to do this we can get them all the way there and now there's an agent to do the work for them to go faster with that i'm going to turn it back to michael for the customer q a allo communications go ahead cue the video allo communications is based actually in two places is Imperial, Nebraska, a town of 2,000,

Speaker 3

and Lincoln, Nebraska, which is 300,000. We serve business, governmental, residential. But what's really changing our business is Smart Town, how we serve everyone through a variety of modes. The industry is changing at a more rapid pace than it ever has. And what we can deliver to our customers is just phenomenal. Al is going to be here to take care of our customers. However, how we take care of them is going to be ever-evolving. It's going to change at a pace that we've never seen before. That's why I'm excited about our partnership with Calix. They'll help us get there.

Speaker 5

Lumos Fiber is located in High Point, North Carolina. We also have a major office in Waynesboro, Virginia and Roanoke, Virginia. Lumos Fiber has been in business for actually hundreds of years. We are currently building fiber or serving fiber in 10 states in the southeast and the Midwest. In terms of technology we use, it's predominantly XGS Pond. That's what we provide to the home. Calix has been a key partner for us at Lumos as we've grown and expanded. They have scaled as we've scaled. they're becoming more embedded in ensuring that we have the appropriate not only physical technology but software technology that allows us to do proactive troubleshooting, proactive maintenance and resolution of troubles when they occur. Our partnership with Calix has allowed us to be the world-class internet provider and the experience that we provide with the Lumos Fiber and Calix Technology allows us to be best in class and allows us to change people's life with their internet experience.

Speaker 6

Tom Baby Fiber is located primarily in Tupelo, Mississippi and the seven counties that surround it. Tom Baby Fiber has 28,400 customers that we're proud to serve both in Tom Baby Electric's territory and the neighboring co-op of Pontotoc Electric. And then thanks to our friends at Calix, we learned the difference in an experienced provider and just an internet provider. And so very early on, about a third the way through our construction project, we started offering, everything that Kallax had to offer for the add-on suites. And then we have worked forward from that and piloted things like Smart Town, bringing Wi-Fi to our communities, our baseball fields, our community centers, our parks, our cities, our downtowns. When competition comes in, they're about the dollars, they're about the profit. They're not about the customer, they're not about bettering their communities. And that's what Tom Baby Fiber is all about.

Speaker 10

BlueStream Fiber is one of the most reliable companies in any industry. We've been in operations for over 45 years and proudly service each region of Florida and now the Texas market. Our business focuses on bulk, fiber-to-the-home, internet and video services for homeowners associations, condos associations, and new master plan-developed communities. Our business focuses on service reputation, reliability, and is the reason that we have a 99% plus renewal rate of the communities that we serve. We've been partnering with Calix for the better part of the last decade to fuel our expansion into the markets that we serve, as well as new verticals. We most recently expanded to offer the smart MDU solution by Calix, focusing on apartment buildings and similar platforms. And the results have been fantastic. With each of the residents that we survey in those buildings giving us a 4.9 out of 5 star ratings. We're excited about what the future holds with Calix and look forward to partnering well into the future.

Michael Weening, CEO

Good morning, gentlemen. Thanks for being on stage with us. Nice to see you, Scott. Thanks, Michael. Thank you very much. So let's start out with, you know, we've been talking to all of you about what's possible with artificial intelligence, right? So why don't we start right here, Brad, because back last year you came to me in May and said, hey, my team wants to go build out a whole bunch of things. We really need to start collaborating on how we can partner together. So why don't we start out with kind of your view of what the potential is ahead and how we partner together.

Speaker 4

Well, what's been done several times between our organizations is we really have a mutual challenge, opportunity, problem, whatever you want to call it. And so what I found is we were working separately. And every time we work separately, we waste money. And so what we talked about and got everybody in the room and said, here's what we're developing. Here's what you're developing. Hey, we have other systems and other complexities. But what we did is we came to a common view. And with that, we switched to the Google Cloud. That was a huge lift for us. But now what we see going forward is not just the first 14 things that we talked about, but now the ability to work together at a true partnership or stakeholder level to solve problems. Because it can't be just that the network performs better. It's every piece of our customer's journey has to work with Kallix, with some of our other vendors and teammates, and create solutions that I can't even imagine. I hate to say it, but what our teams are working on was never imagined two years ago. Right.

Speaker 5

So, Brian, yourself, how do you think of it from a competitive point of view and where we're going to go? as a next stage because you've gone through some big transformations in your business too right yeah we really have and it's been the partnership with calyx has allowed us to do this and i'll be the first to say we're not really a the first you know a first and uh follower or we're more of a fast follower on the ai we leverage the work that the brad and you guys do leverage the things that you team does but it really helps us focus on our business outcomes right and i think what people don't fully appreciate um you talk about our our mps score of 84 four years ago it was um 77 78 but we've grown i mean we're building 10 times more houses than we were four years ago we've added you know exponential number of subscribers we have not added new customer care agents right yeah you don't have to grow you know over 4x and not have to add customer just because of what we're doing and what you're doing in the background. So what I would say is we're still evolving, we're still learning, we're just kind of getting there, but it's really your focus that's allowed us to focus on business outcomes.

Michael Weening, CEO

So your point is that Brad, his team was going to start doing the AI, so he partnered with us in that way. Yours was, I don't need to invent it, I just want to actually keep my headcount flat and expand profitability. And grow MPS and customer experience. Yes, and then yourself, the conversation was around marketing that we had at Christmas, right?

Speaker 6

Exactly. So we're the ones that are, we're the smallest ones on stage. You may not look, I may not look to be the smallest, but I am. So we're coming from a world where I have six CSRs and one marketing girl who just graduated at Ole Miss a year ago. She's wonderful. I hope she's watching. She's doing a great job. But we can't pull the data. We can't gather the things. We couldn't do any of this without you. So without engagement cloud.

Michael Weening, CEO

Well, that's why you didn't do engagement cloud. You couldn't actually do, you were doing very basic marketing because of the fact that he didn't have the capacity to do that.

Speaker 6

We don't have the time. And so this is a game changer from us, so we're the opposite. Where some people are afraid of downsizing because of AI, I view it as upsizing. I'm going to take my six-person CSR team and my one-member team. Turn them into 60. Turn them into 60 or more because of your help, because of your partnership. We can do that, and we can reach people in ways we never could. And there was a gentleman who ran for a political office in Mississippi once, and he was running against somebody who had been an officer in the military, And he said, you know, all you colonels and generals vote for him, but all you privates vote for us. So I represent the privates of your customers, the 1,200 customers. You've got a lot of people that look a lot like me. Brad is my hero over here. Lumos is amazing. You know, these guys are awesome. But we're the meat and potatoes of what Calix does, and this makes us have the resources that an aloe has, and that's amazing. That's a game changer in rural Mississippi.

Michael Weening, CEO

Well, it's a democratization of AI, right? We are in this phase where technology is going to be democratized at a phase we have never seen before, where the big guy doesn't necessarily have access to things that you don't have access to. And that's, by the way, the same for Calix, because all the LLMs out there are now readily available to us as AI becomes the biggest commodity out there. We have the opportunity to use the latest and greatest, swap it in and out, and bring that capability to you. Now, Gavin, so your conversation with us is a bit different when we talk about what we're doing there, because we built product together. So I want you to walk through kind of how we actually partnered with regards to the MDU market.

Speaker 10

Yeah, and look, our story with you all is really the better part of the last decade. It almost started out with our business a little bit different than the folks on this stage. We offer community solutions. We do long-term contracts. We work with HOAs or MDUs to do master plan communities. And we first started to see, as you look at that product curve that was up there earlier, routes us on the innovation, We're ever leveraged Smart Town for, you think, master plan communities, the pool, the gym, the pickleball court, all that goes with that and really sort of have that ubiquitous coverage. As we started to really verticalize and focus on some very different segments, MDU, and you saw that TAM that's up there, we think that's a major growth engine for us as a company. And what we really tried to do is step back and say, think about it. These are long-term contracts. They're truly partnerships with these communities. What is going to get us? Yeah, they're 10-year contracts, right? On average. In a lot of those HOAs, you're doing, like, long-term. it's not a consumer who's deciding month-to-month right no they want to know about your long-term customer experience I want to know about what I'm getting today but what am I gonna get the end of that contract and think about 99% renewal rate this is a long-term relationship that continues to build on it so work with Calix we really focused on this smart mdu solution and we've now rolled this out to a number of our communities and it's a number of our backlog you saw the scores in the video some of the early communities are 4.99 out of 5 so even every single one has been a 4.9 out of 5 as we deployed this we think that differentiates, and it gives us something from a product standard that we can go out to each of these larger portfolios, property managers, asset owners, and talk about this as a key differentiator for us in the market.

Michael Weening, CEO

Well, and the way that you used to do it was you would cobble together technology. So maybe you can explain to the investor group, right, how you actually used to do it.

Speaker 10

Yeah, I mean, I think that's right. About three years ago, we went on this journey, and we called it as a company, customer experience excellence. It's about consistent, scalable, predictable processes, technology, and talent. A lot of the similar teams you heard in today's presentation and as we looked at that we wanted to make sure that we had product-to-brand standards reach the site which we focused on and we started to work with Michael and his team to really get the get out into nitty-gritty around what makes the most sense and going back to the pure use cases what we found was a number of these calc solutions particularly in the mdu segment were truly differentiated from X vendor or Y vendor and allowed us to have a solution cell that could ultimately scale for the test of time right and so and in your markets so as you look at Scott, you know, you, one of the ways you differentiated, we talked about how you use Smart Town Gavin to go across an HOA so you can cover the eventing place.

Michael Weening, CEO

You actually went to a very different level because you actually went and covered all of the football fields, the baseball fields. You really focused on, because you're very community-orientated, around how do you use that technology to kind of cover everything, right?

Speaker 6

We started on the football fields, and because the ease of the platform had that in a five-week period, covered nine schools. And then we took it from football to track to softball to all sporting events to all schools to all parks, all downtowns, all community centers, all volunteer fire departments, all parks. And we've hit our whole service area with community Wi-Fi. If you sit in the stands in Mantache, Mississippi, a 12-person-person town in a football game, you have better service than the competition has in your home. Why wouldn't you switch to Tom Bigby? Why wouldn't you want the experience with us? And the whole SmartTime platform, we were, Calix partners with you, we were one of the innovators of that. I was as well. But we were out front. We were one of the first few to try that. We were the first few to turn 19,000 units on in one day. And we have a first responder network from that. It's just amazing what impact it can have in your community. And I've sat in a room with a customer from another company that was a first responder, and he looked me in the eye almost crying and says, why would I do business with anybody that wouldn't care about me like you do? I said, you shouldn't. And that's the difference that we can make in our communities because we work with Calix, a company that cares about us, that ultimately cares about my communities. And that's what makes it special.

Michael Weening, CEO

Well, let's expand out a little bit on that. So the power of a platform is that you didn't have to go, you talked about you only have five CSRs and a marketing person, right? So you didn't actually have to go like what Gavin said was, in the past you cobbled together a whole bunch of technologies. You could just turn it on, right? Maybe you could expand a little bit more about how simple that was for you to differentiate in your market.

Speaker 6

Well, so on two occasions we've done that with you, with SmartTown and with Bark. Very easy. We turn Bark on in less than seven days. So if you make a decision to go down the road with one of these platforms, one of these products, to scale for the community, it's just a matter of working with your team, my team, put them together, talk within days, within weeks. It's up and running. It's seamless. It's easy. It's simple. And I'm not doing this with rocket scientists. I'm doing this with a team that's good, a hardworking American team, because you've got the rocket scientists for there. We just watch the rocket go off, and it's a great show. And I appreciate folks like Aloe piloting that with you. I want to be like Gavin and get 10-year contracts. So he's my new hero. Yeah, yeah, yeah. He's your new best friend. How do you get a 10-year contract? How do you get a 10-year contract? That's a good deal. So we're going to talk after. But the ease of that is because your people care.

Speaker 5

Your people care about my community. your people care about our success because our success is your success right well so let's talk about how this can scale so brian you got bought by somebody right who wants some so maybe you could share that and then how do you think about scalability yeah so um you may have heard we are now 50 owned by t-mobile it's a joint venture between t-mobile where we're all at t-fiber and eqt and so change scales yeah yeah we're yeah we're we've ramped up we are growing at our builds that it may be doubling our pace and we're more than double our pace again uh on our builds and the installations are coming and having that service model and all that uh but i want to share i haven't even shared this story with you okay so as part of the deal when the founding uh genesis of lumos was segra segra got sold to cox communication cox kept the b2b they spun out the residential to eqt so we were exclusively focused as a residential business right so that exclusivity is gone now right and and so t-mobile sells the resident is responsible for some residential the joint venture we're responsible for selling enterprise and complex business so we got to do one thing right so we got to either say okay we're going to go build a dia network dedicated internet network or we can take what calyx provides us on our xgs pond we can put some slas around it and sell it as an enterprise network with xgs without slas so guess what we did so we just about a month ago launched that it's been a huge success at a higher ARPU higher ARPU big contracts like Gavin we're working on those and and uh it was the easiest product rollout that we've ever did in my entire life right because we just took what you already did in the back end we wrapped some SLAs around it and now sell it enterprise so well and that's the same thing that we did with Verizon like so when we did the collapse with Verizon it was all around how do you actually bring the different networks together onto a single fiber and put MPLS and all these other capabilities that would normally be, you know, I'd have to go build a separate enterprise, you know, put, I'd have two fibers.

Michael Weening, CEO

I have my consumer fiber. I have my, you know, now because of the software, I can do it on a single and create a new business opportunity at very high margin because there's a lot of capacity in there. Exactly.

Speaker 5

Exactly.

Michael Weening, CEO

Right. Well, we'll get to capacity in a moment. So Brad, you do that all the time because your belief is when you go into a market you know you want to dominate the whole market from consumer all the way up to enterprise so maybe you can talk about how we enable that because you've been doing that like brian's doing now for a long time right well uh you know there's there's ways that you differentiate your business and and one of ours is uh and maybe it's uh my uh fear um my fear of of a competitive threat coming in and healthy paranoia. I think that's what Andy from Intel always said, right?

Speaker 4

The paranoid survive. Well, sometimes it's unhealthy.

Speaker 5

It's not if they're really out to get you.

Speaker 4

Yeah, that's right. And so, so what, what we, we did is said, the most expensive thing we're going to do is put in fiber.

Michael Weening, CEO

Right.

Speaker 4

So why not make everyone that that fiber goes by a potential customer? From, you know, grandma's house to the corner store, the small business, medium sized business. The state of Nebraska is our largest customer and then make the ecosystem work together. Well, when we started this, this was probably 12, 15 years ago, we didn't realize things like DIA circuits could be done by the current level of pawn architecture. Oh, my gosh, that collapses. But guess what? Mobile. Mobile ties into our company just simply. From offloading. Streaming. All these things. And then the Smart Town. I met with an electric utility last week, and the CEO, and it's a pretty large electric utility, said, you know, you know more about our electric grid than we do. Can we share information? Right. Okay. Now that's the ecosystem. And can we work together, and we do have this with some of the low-income developments, how can we lower these financially challenged households' electric bill? Well, by lowering their thermostat at certain times when no one's there. Well, we know no one's there. And so we're doing some things that are pretty innovative, and it's helping society, and it's helping education, and it's just...

Michael Weening, CEO

Well, doing good is very profitable, right? Like, honestly, there's a huge opportunity. We'll get to you, because I imagine you're just biting your tongue seeing how you also have an electric utility.

Speaker 4

So we'll get to you in a second to talk about that. is it doing good but operating in an exceptional fashion right is less expensive right makes the customer happy and it's less expensive this idea of white glove that's offensive to me why don't you just take care of everybody all along right you know i i think people like us i think people like me but no one wants to talk to their utility no we're a utility come on now and and you know it'd be be like the water system it always works you always have plenty and it's good and clean well they want their communications the same way well and and the

Michael Weening, CEO

the platform makes it very simple for you to do the things that you used to cobble together that was one of the things that you and i have partnered on a lot is that part of our product roadmap has been driven by build this build this build this so you can eliminate the complexity of incremental vendors and actually collapse everything onto a single platform right smart business what we did with the roaming and then where you go with mdu right so let's talk about capacity because in this crowd there's a lot of people actually think that starlink is a competitor and amazon i know amazon's a competitor we've talked about that because they have a direct consumer relationship but let's talk about it you have a ton of capacity so why is it would that a customer would ever change well if you do the experience right like you're talking about they wouldn't right well and

Speaker 4

it's not binary. I have two subscriptions for a low-orbiting satellite. Well, one is in an aircraft and one is at a cabin that's down in a valley. It's the right tool for the job. My fiber isn't going to solve either of those challenges.

Michael Weening, CEO

So there's 10 grand or 100 grand to run it to that cabin.

Speaker 4

And I'm not sure how you tether a plane. But the reality is we work together. We all work together, and we always have. But our industries came out of these monopolies. The cable industry, the telco industry. It's not a monopoly anymore. So if there's 10%, 15% that's solved in a better or different way, who cares?

Speaker 5

It's more efficient. but at the same time build the experience so that in your where you have capacity you never lose right is that how you think about experience absolutely no absolutely you know and it's been a little bit different since the joy adventure but prior to uh the the joint venture with d-mobile you know we learned pretty quickly because i came from the telecom industry where um nobody liked us um and probably for fair reasons so to going into you're very likable brian i just want to say that so so but we came to came to uh lumos and we had a chance to create this new brand customers love our technicians customer loves our customer care and then and they just absolutely hated the cable company hated them right so i said okay let's just provide a fair value you know don't hit our prices included taxes fees and everything else fair value paid great customer service don't chase the pricing game and you know just focus on customer experience and double down on customer experience, do everything we should have done at the telecom business, and it worked out great. That's why Calix is such a great partner, because that's how you believe, right? You guys go above and beyond on the customer experience. You're with us almost every day. What can we do different? What can we do better? And that's the type of partnership that you have to have to be successful.

Michael Weening, CEO

Well, and so now let's go back to the utility side. So you also run an electric utility. So broadband business and electric utility. And so there's a huge opportunity coming down the path with regards to utilities, too, because you can either run a network all by itself, or you can actually say, as utility needs to go through a massive upgrade to deal with EV, there's, you know, I've heard the number of trillion thrown out just in the United States with regards to the investments needed to go after those markets. So how do you think about your broadband business, and then also how do you evolve your utility business to bring those together?

Speaker 6

Because your teams have been pushing us around, you know, how do you actually parse off that fiber to build out great utility experiences and all those parts too right like brad mentioned which then goes to a true customer experience of where you can control the home so so the utility world we we saw it coming we have no option other than move to where we have the fiber of the home move to where we have the experience where we control the thermostats where we control the water heaters uh it's a capacity issue it's a cost issue uh if there's only so much electricity and every time you're adding all these evs with you know gas going to six bucks right you know if every house has two cars and they're both evs that one transformer that powered four houses now you need six transformers unless you manage the load right so we need to manage the load for that and that is a a strong possibility if not inevitability of what's coming but load management itself is smart as well if you look at electricity it's grown very little in the last 50 years because you've you've had efficiencies added right uh now yeah right so So like an incandescent to an LED and things like that, right? So the next logical step of that is we need to manage the network. The managing of the network needs to be consistent across all aspects. And it's either going to be the Tesla managing the house or us managing the whole network. We need to manage the network. The only way we can do that is build the fiber. Well, for my system...

Michael Weening, CEO

And then put the software and the AI on top of it to make sure it actually really understands it.

Speaker 6

Well, that's right. But the only way we can afford it is monetize the network by providing the service that we provide. and that has opened the door. I built two fibers to every house. If I have a fiber-fed meter, it's there. I've built it. I serve 61% of my market, which is incredible, but I've built to 100% of that market. I can serve every customer I've got on the electric side and make a fiber connection, and now I can afford to do that. And so it'll let us do that and control it and go places we never could have before that we had to go, but we couldn't find a way to get here but for this, and so partnering with you has allowed us to do that well, has allowed that to be more than a service. Internet's a commodity. We sell service, and I sell service that you and Brad pilot. My goal of doing business is the same as Lumos. We want to give you that customer experience that you deserve, and I think you can have that in a big city. You can have that in a tiny town in Mississippi because of what we get with you, and your team is part of our team. It's family. We work together. We pull it together, and we can take the next step forward and we can untether that plane. You know, a tethered plane only flies in a circle, Brad.

Speaker 4

I had one of those when I was like eight. I did too.

Michael Weening, CEO

So, but from a profitability point of view, how has it changed your profitability across eight? Because your investors are different. Your investors are actually your members. But there's a massive profitability gain here.

Speaker 6

So my electric co-op is very unprofitable. We break even. We have a very, very thin margin and not fat enough. I've been in business for six years now. My fiber margins are six times what my electric margins are with half the customers. And it's allowing to add infrastructure back. We transfer a million dollars a month back to the electric co-op or more that's putting money back in the system that we can grow and expand and do. And it will allow us to have this modern grid as time goes on that we could not do but for this business. So while I don't return the profits to my members under my TVA co-op, I provide better service, I have better products, I have more employees. And you invest. And we invest in the system in ways we never could have before without this.

Michael Weening, CEO

And so, Gavin, as you look at your profitability as the business and where you see it going, how does kind of this level of automation, the elimination of complexity, how does that all kind of play into where you go and this future that you see?

Speaker 10

Well, I think it does go back to our conversation we had to start out with around smart MDU's and some of the new verticals we're focused on classically we've leveraged a lot of the experiential to build references and HOA's and kind of associations we're really focused now on the MDU and asset owners a channel as well as new home builders and developers in order to really scale into new markets if you do it really well in this market and that market it starts to be more and more again about just what is the value proposition and how do you offer in that space and that's in that motion it's really around making sure that you have the right solutions they scale across markets and by doing that you add significant more scale more communities that come online more mdus that come online and ultimately

Michael Weening, CEO

that leads to a major increase in our EBITDA over time if we can maintain our fair share and margins so that market is one that hasn't changed for a long time and in fact I had an investor asked me that question saying okay so you're you as you enter in the MDU market because you're one of our early entrants into it sure it's actually something that has a strong incumbency right and they haven't changed in a decade right so how do you actually see the you know the step forward in partnership with us guiding us to how do we actually drive differentiation and and spur that market on to allow you to win more i think it's twofold uh when you go back to some of the just the core fundamentals of doing that there is a lot of legacy solutions that have been there for a long period of time if you're able to offer it's it's no different than our roadmap with you is sort of

Speaker 10

every year we've sort of brought out the latest and greatest technology if smart mdu and similar platforms if you're when you get to 3.0 with that one too they'll continue to iterate and will have more access controls and the property managers can do new use cases that they couldn't before right all of a sudden that creates a value proposition that we're allowed to go in and speak about that as blue stream and collectively come in with a solution that makes a lot of sense well to your point it's also a very fragmented market with a lot of different property systems correct without question like i mean like zillions well i think zillions and i had also just especially with, look, this is not a the MDU space going back to reset. Some of these have been in place for decades plus as far as what they've leveraged. So when you come out and you say, here's the latest, there's all this AI and intelligence that we can also give to you about your residents, everything else that's going to allow you to offer a better service and a better resident experience, we think that's different.

Speaker 6

So yourself, what's next? Oh, what's next? I'm excited for what we're going to do with what you're bringing us. So I'm going to expand that marketing base i'm going to make my service better with my my techs and have better informed uh service crews we're going to get to problems before they exist uh or before the customer knows they exist is a better way of saying that yeah we're going to have better knowledge of our network uh i think something that comes as part of that marketing discussion i don't know that i said to you so i'm an electric co-op so my csrs have never been in a business where they had to sell something right it's hard for them when the grandmother calls and said i need fiber service, oh, ma'am, that base package is all you need. When she may need more, the grandkids may be gaming upstairs. That I will be able to use this AI technology to know that they are and have a call with the grandmother. Your grandkids can have more fun. They can game better. They can have less latency if we do this greater package. And my CSRs probably would never make that call. And I can use your AI to either prompt it or send a customized email to them. That's going to be really cool. It's a game changer. I can get a more aggressive marketing stance from less aggressive people, buy this product that will make it comfortable. And so when the grandmother calls back in, they will have a great conversation with her because she's asking for it rather than they're having to sell it. And then they will be the persona of explaining it, and it's symbiotic. The AI gets us to that point. So that's what's next for us. Continue to grow as best we can, but increase that service.

Speaker 5

I'm not happy with the 92 MPS. uh apple might be happy at 58 but i won't hire i'll take it i'd say yeah well by the way that's almost a cult did you know that it is it's almost a cult and so brian what's next for you yeah it's uh it's it's a little bit of a complicated world right now uh as you might imagine um and so i'd say there's really rapid into three things number one uh we have a one single customer it's a very very big customer it might be one of the world's largest customers based on private equity market or equity value that we have to provide performance operational performance yep and we we have basically contracts with it we have financial penalties if we don't deliver that so it's really building that world-class smart intelligent network behind the scenes to ensure that we are solving problems before anybody sees it before it happens so that's that's kind of number one number two is as we grow exponentially number two is we are now evolving into going to be getting more involved in the mdu space getting more involved into the enterprise space where we were more opportunistic that's becoming more and more of a real business core yeah and then and then thirdly it's going to evolve as um our new marketing agent learns the fiber cell business versus the wireless cell business and the different processes associated with that i think you'll see this continue to evolve and get a lot more

Michael Weening, CEO

intelligent about how we'll go about doing it collectively so those are probably the three pillars i would say and so brad you're actually coming into our san jose office in a couple weeks yes and we're actually going to do what we do annually which is that the planning on how we actually do joint innovation so as you think about what's most important for you in this next step especially with all the talk that we're you know in the partnerships that we've been doing on our on ai what do you want to what's next for you how do you see this evolving out well you know a lot of it is uh you know we're just crawling with ai and crawling with the the partnership there um and hopefully over the next year or two we'll start walking right and then then it's a run after

Speaker 4

that to torture the analogy um the uh the the real thought process is moving from efficiency efficiency efficiency i don't know what efficiency means um you know we haven't added uh to even though we we grow at 25 30 percent per year we haven't added to our service you know and that um but it's making them smarter being able to push more products through them delighting the customer i think what the piece we're really missing is an industry that i think is maybe a bigger opportunity than all the the network to network uh work and all that is what products should we be delivering to the small business or the home that allows another $10, $15 of ARPU? And not in a transactional format, much like the mobile phone has developed. There's this little heart thing on the mobile phone. And I can't tell you what it costs me, but all of a sudden as I got older, I learned I needed to start walking more. And so I look at it once in a while. I don't know what it costs me. It doesn't. It's included. It delights me that I have it. And I think that's where our businesses are going, is we were very focused. We were electric. We were telco. We were cable. We were mobile. It's all coming together. And I think that's where Calix's real play is over the next two, three years, is enabling that and allowing us to be exceptional.

Michael Weening, CEO

Great. With that, let's thank them very much for their time. We really appreciate it, gentlemen. Thank you. Thank you very much. Appreciate it. Thank you.

Speaker 12

I really appreciate it.

Michael Weening, CEO

With that, I'm going to welcome to the stage Corey Sindelar is going to walk us through our financial model.

Cory Sindelar, CFO

Thank you, Michael. Good morning. Appreciate you spending some time with us today. So you probably realize that this is a really big story. We are building a company with the Jandic workforce that allows us to transform the service provider industry. It's on scale of like Uber transforming cabs or Amazon transforming retail. So my job here for the next few minutes is to wrap up everything you heard and how that's going to affect our financials over the next three years and ultimately what it means in terms of return to shareholders you have seen us talk about these four financial objectives we've been talking about it since we began our platform journey and from 2018 as we go forward nothing really changes with these other than we go faster and we go better what you've just seen in terms of the prior presentations is that each one of these objectives is enhanced by what we're delivering with our agentic platform you've heard us talk about on the call that our visibility in terms of our business has improved and as near an all-time high you might be wondering why we say that and what gives us the confidence in saying that so let me share this with you what this is is showing a kind of a cohort analysis it's the basis of our land and expand part of our model once we land a customer they grow in time so what you see here is going back to 2018 we added 147 customers you can see how that just grows over time as you know as Michael said, all our services are tied to subscriber, right? We monetize on a per subscriber basis. And so we are maniacally focused on helping our subscribers win. Our customers win new subscribers. That's why we've developed our customer success team, led by John. And it grows over time. You can see by this chart, it's up and to the right. Sometimes it grows a little faster than others. but inevitably it is up and because our customers are focused on delivering experiences they are winning in their marketplaces and they are taking subscribers every single year every single quarter every month and every day now this is where we're at today more or less let's talk about what the opportunity is this is the u.s. total addressable market it's a fraction of where we're at today we have an enormous opportunity in front of us we are now beyond the elbow we're in a sustained growth phase we have everything that we need to be able to go work against this and so that's the opportunity we have how do we get there largely the same way we have so far first and foremost we're going to grow our customers our customers are going to continue to add new subscribers and with the power of Calix one they'll be able to go at a faster rate when you have the ability to market to the audience of one their chances of improving their success of landing new subscriber goes up you saw that the workforce agent agent workforce kind of free up additional resources those resources you heard the panel up here today talk about how they can redeploy those resources to go deliver new services maybe it's smart now maybe it's MDU maybe it's smart business they're gonna additional rollout additional new services and of course we're never going to stop adding new customers to our base and with this agentic platform i think we're going to be able to attract more at a more rapid pace than we have in the past all of that is accelerated by calix agent workforce cloud let's talk about the numbers a bit so on your left is kind of where we've been operating in terms of a finance target financial model on the right is kind of where we're looking at in terms of moving forward on the revenue line we typically said hey you know we're gonna continue to grow sequentially we still believe that's the case and then we would provide you a range you know in 2016 we said we'd be at 10 to 15 yesterday we just took it to 15 to 20% you know on the back of the kind of the memory surcharges but for 27 and 28 we're gonna call it right up down the line at 15% growth it's based on all the visibility or backlog the reoccurring revenue everything that we're seeing with our visibility being as high as it is you might be asking me well can't you grow faster I'd answer to you possibly so but this is what we're committed to delivering in this time frame and we'll see how it goes on the gross margin perspective we've been using and operating under 100 to 200 basis points for some time and over the past three years we've done really well we've exceeded that target greater than 200 basis points in each of the last three years. Unfortunately, in 2026, it's a little bit of a different story. We have some short-term headwinds that we're going to be facing. I'll talk about those, memory and dual cloud costs. But as we get beyond 2026, I think we have the opportunity to continue to get back on track to deliver 100 to 200 basis points of margin expansion. So let's talk about memory it's probably the one that's affecting us most when you have a demand supply disconnect as large as the one we have now forcing the kind of price increases that you've seen over 10x increase in cost somebody's going to lose out the music's going to stop playing and somebody's not going to have a chair our number one priority is to make sure that we are one of people that have a chair so jerry and his team over here are world class you've seen us execute through covid one of the few companies that never missed a beat and we went into covid and came out of covid stronger we will take the same opportunity here and we've been aggressively in the marketplace in terms of acquiring memory because at the end of the day when brad and the rest of the team up here are winning their new subscribers we better have units to supply them right so for us we don't want a top-line problem it won't be a time what top-line problem so now they have to deal then with the cost side of this equation so it's unfortunate so what we've decided to do is to go ahead and pass along those costs and kind of the best way possible which is we will just look for cost reimbursement i'm not going to put a margin stack on top of it okay and so we're doing that in the form of a surcharge surcharge is deliberate we don't want to raise price if costs go down we'll pass that through costs go up we'll pass that through so this will be persistent likely into 2027 but but as i said yesterday on the call i sized that headwind for 2026 at about 200 basis points and that's just the fact that you have zero margin business running through your P&L all right you're putting a whole bunch of incremental revenue at no margin on top if we take a look at the second headwind boom member dual cloud costs well best news story there is it's past tense it's done it's over it was a one-quarter phenomenon and so that's probably the best thing I can say about it and it's short-lived but you had to add some headwind to us on our annual numbers trick of looking at the operating expenses you've heard how we're using AI internally you can share some time over here with Jerry on how we're using AI and supply chain we're using AI to help our customers to go faster well we're also looking at doing it internally so you ought to expect us to see some improvement in terms the way you run business should be saw opic savings as a result of it. So as we look into 2027, we are still forward investing in some of the things we want to do for AI. And there's a couple new markets that we're going after in terms of large customers, MDU, that we need to build into. But we're setting that target in 2028 that we should be able to grow OpEx at half the revenue growth rate. And we'll make some progress into that path in 2027 so to kind of recap the end of 2026 we'll be back in that old financial target model because we told you we would forward invest but that we would be back in target model by q4 of 26. from there we'll actually make some improvements by growing less than the revenue growth rate and then with opx in 28 making some more substantial progress let's roll that all kind of together over this next planning horizon we see our gross margins drifting back into the into the 60s OpEx will drift down to 40% or below so we can see clearly during this period of time that we can get to a 20% operating income for the company this business is going to generate a tremendous amount of cache. So that cache is going to go to the balance sheet. And so these are the metrics that we are gauging how we're going to operate our balance sheet. There's reason to make no change to them. We can still run a very, very tight DSO. And by the way, we frequently do much better than the 35 to 40 days. For example, last year we actually hit 24, which is unbelievable inventories no change let's stay to three to four you know we're running it on the higher side of inventory level for three and that's largely because of the current supply environment that we're in we need to do more to be prepared to meet the demand equation and to be available for some of the memory and other components that we are buying ahead in this battle for memory. One of the things you want to make sure you do, pay your vendors. Maybe pay them early. You want to be one of the best customers to your vendors as possible so that when they have that memory and they want to allocate it, they want to pay one of their favorite customers. That's Calix. So the DPO is important. So that gives you your cash conversion cycle. No real changes to it. We'll continue to operate a very clean clean balance sheet so what do we do with all that cash you know i personally would love to have it all stacked up around me um i i have visions in my head of either you know think of scarface or pinky blinders or something like that but but carl tells me we're not a bank so i can't keep it so at the end of the day we have a very disciplined capital allocation process and we've talked about that but I might as well recap it one last time for those that may be new to the story so we think about our cash in three buckets our operating cash or strategic cash and our rainy day cash and over the next three years we would anticipate that we need some additional cash in that operating bucket not only to grow the growth and in the company in terms of expanding the balance sheet but to have those inventory investments if I think about the strategic balance you know we are an organic grower and have but we've always set some money aside in our minds thinking about hey there may be an opportunity to go buy a technology or do some kind of tuck in but we have recently just continued to build onto the platform take MDU for example we would rather have actually built in the platform creating greater DVs for our customers than to go out and buy a piece of technology I think over the next three years that trend will continue and so our needs for the strategic cash probably go down so that means the cash that we're generating will likely drop to the third bucket the rainy day cash bucket at a faster rate and be the the fastest growing part of the bucket so we do a disciplined model we come up with a long-term model we're going through it with the board every quarter and as I said many times that the larger the cash balance gets the less sensitive we are to price and so every quarter we put a trading plan put together and the shares will be repurchased and you've seen that we've done a significant repurchase here in the first quarter and it will continue to be that way so for the next three years I would expect us to continue to retire shares at a healthy clip but there's another part of the story and it gets better as we've moved from this early development part of the company and to where we're now into the early majority sustained growth we are realigning our equity programs so in the past we were using performance stock options and we had two employees stock purchase plans going forward we are pivoting to performance stock units and collapse those two operate all play stock plans into a single plan which creates more and more of like a stock employee stock ownership plan closely aligned to long-term shareholder value the effect of which should be fewer shares being issued we think the combination of cash being returned to form of share repurchases should more or less offset the the share being issued through the equity plans and we become dilution neutral obviously in 2026 with the large purchases that we did in the first quarter will probably be diluted negative so to wrap it all up just recap we are the only company that has built an agentic workforce platform capable of transforming the service provider industry the the tau is enormous we have a proven model that works we are asset light and therefore investors should expect significant

Michael Weening, CEO

cash return to them over the next three years thank you with that invite the leadership team on up here grab a seat Cory you are part of the team Shane and John are gonna join us all right can the Donahue's pass the mics put your hand up glad to take questions hi morning and thank you for the presentation so maybe

Speaker 1

a couple of questions um you've been um you highlighted the managed services opportunity and you've talked about it since like carl's days as well about that sort of one dollar to ten dollar subscriber range you've made a lot more progress on that front so now with the visibility that you have can you help us quantify that a bit better in terms of where you are in terms of progress there including now the ai-led opportunities that you're sort of looking at How should we think about what's a reasonable milestone for that to get to during this sort of model period that you're discussing? And then a follow-up would be maybe, Corey, for you is you talked yesterday as well about BEAT being an accelerator on the model. So when we think about the growth target that you're outlining today, which is the 15%, is BEAT incorporated? Are you saying, oh, let's see what goes, sort of how it plays out? Is that sort of what's embedded in there? I just want to understand because you did refer to it as an accelerator yesterday.

Michael Weening, CEO

So on the first part of your question, which was around is there an opportunity to accelerate the business, John talked about how we were currently doing it, and one of the issues that we always had was capacity of the customer, right? Because you heard from literally sitting in his seat when Scott was talking about the fact that he only had this many employees, he didn't have the capability to expand out, couldn't use all the products, couldn't get them launched faster. So we think in our existing base where, you know, John showed an attach rate of only like 40%, there's a huge opportunity for us to, first of all, actually put the capabilities in place using Agentec to actually do the work for them. And so John's organization is going to change radically in how we support customers because, and I've said this time and time again, this next stage for us and what we've built over the last two and a half years is in the past we would have to cajole the customer to please launch that product, please listen to us, please change your website into an experience-based website, the next stage for us is going to be push the button. Push the button. Here's the ROI. Get it done. And so we think that represents a huge opportunity to radically expand at a faster rate with the existing business. And then the second part of that is, as we look at the new markets, we showed some of the TAMs. These are very logical expansions of our existing platform. We have incredible partners. Again, you heard from Gavin on what the opportunity is in the MDU market, which is embedded legacy companies who, frankly, aren't investing to actually innovate. And so we come in with a very different mindset. They basically brought their technology enterprise down, and we all know that things don't scale well down. We brought our technology from consumer up, and we actually have an opportunity to completely transform and disrupt that business. And that's the ones like Gavin, which are the ones we partner with, why he's so interesting is because they're a challenger in that market looking to significantly grow market share. And so when you partner with them, what they do is they say, hey, I can try to be like everybody else, but here's all the opportunities to completely change the business because I want to disrupt. Gavin doesn't want to go and be like everybody else because that's not how you make money. If you're like everybody else, then you're just kind of, you know, who do I pick, right? Versus partner with someone like us and be first to market. That's the other part too, is he wants to be first to market. And so this represents a significant expansion of TAM. You look at the MDU market, that's excluding hospitality, international, what we can do in inventing. Just the North American MDU market alone is bigger than the global tier one market for us, which would only be software, and it's frankly as big as our incumbent market today. And what we're really good at is going into markets that are highly not decentralized. You know, if you look at the U.S. regional market, what is the U.S. regional market? It is unlike any market in the world. It's not dominated by a single provider. It's like 3,000 companies who are highly, highly distributed. it. And what do we do in that market? We dominate it. So as we go into this MDU market, this is what we actually do really well. It's the exact same type of market as we're currently in regionals versus going after one big company. And so we know how to do this. And what's great about the regional market and the way that not only our products are built, the partnership and trust we have with customers, but also our selling and success motion, that creates a moat around the business that we have because our customers trust us and we are going to go do the exact same thing in that market. And so it represents a significant opportunity for growth. And then the second question is over to you, Corey.

Cory Sindelar, CFO

So I'll just add a little bit on the monetization of $1 to $10. All our offerings have been on a price volume curve.

Michael Weening, CEO

And as we go into large customer segment, obviously they'll bring a lot more volume i would expect them to be on the lower side of that scale of one to ten okay well that's why the tam is different because of the fact that the other part too is they're also going to be running it on their own private google instance therefore we're not going to have an appliance element in there and we won't actually have the cogs so shane's team's not going to be running it like we do with our current customers it's actually going to be their google instance with our stack and a pure software only sale which is why when you look at the TAM was so different about it is that that's 100% margin or pretty close to.

Cory Sindelar, CFO

Yeah. And on the bead side of it, the answer is some, right? So our forecast is being built on the orders that we have and the pipeline that we're driving. And our customers have provided us with their initial set of builds. And so I would say that there is some bead in those numbers. it doesn't include all of it should it come to pass and so it provides an opportunity to outperform that 15% should we get what we think we might in terms of share okay next question Mike Mike nice to see you in person versus on a zoom like always nice to see you too Mike Genovese from Rosenblatt A couple of questions.

Speaker 12

First of all, Michael, can you talk about expectations for selling software only to customers that don't buy hardware? How big that business could be? But also, how does the telemetry work there if you're just taking the data from publicly available sources and not your own captive equipment? How's your competitive advantage in that area?

Michael Weening, CEO

And then I'll follow up with one for Corey. Yeah, so, by the way, it's the same. So, for example, what we do currently is that we have millions and millions of non-Calix systems actually being managed by our systems today using industry standards like TR69 and those things. So while, you know, Shane talked about being in the data path, we're not in the data path there. We're actually using industry standards to collect the data, so that still becomes available to us. It just means that the customer can't do quite as much, right? but with the new business model what we do is we actually our operating systems can run on other systems so we put our operating system on you know let's say you're a big customer you say i would like my volume skew to be i'm going to go direct to a manufacturer right so i go do that but then i still put the calx operating system on that and so it sits on top of it and it can be an industry standard operating system we've openly talked about how we're going down the path of purple, which is a standard. We will be purple certified. And so they pop that on. They then have containers where they can add the services. But when that OS is there, it is also collecting the data, right? It can link into our clouds. Because what people don't really understand is that they're thinking about the OS and how to grab data. And Lord knows you and I have talked about this a lot. You still have to have that cloud system that sits on top of a private Google instance, and it provides access to what are the operations, services, marketing, all those capabilities. And then in that customer as identified in the workflow, you're just going to consume it in a different way. For example, I'm running ServiceNow or Salesforce in my call center service environment. And what I do is a Calix agentic agent is going to be a component of that it's going to feed data into the sales force or service now technology and then what's going to happen is if I'm a call center agent and Shane calls in I actually am going to click through and iframe is going to pop up and you might be in if you choose you can be in service cloud to diagnose our issue then close it down and go to the bigger view of the customer so this is something we're very good at the other part of this is that when you look at the evolution of open systems in technology that's what model context protocol is which is how you don't move data you can actually use context or agent to agent so that we can actually have what is basically an api framework for agents so we have had a long track record of standards based right we're very good at integrating into disparate environments and we see this as just the next evolution and the ability to enable those customers to do those things so i'm assuming you had a second question which would go to cory yeah but if i could just follow up first michael um so are you expecting to win other new large customers with this 100 absolutely 100 shane and i didn't go to barcelona because we like prosciutto right and cappuccinos we were in mobile congress talking to big customers this is the start we had to get past the like you know we went to Mobile Congress to kind of say hey we're here we have some big customers we have Verizon you heard from Lumos what we're doing with T-Mobile and the next stage for us is now to go after that big customer base and worldwide and so we kicked that off at Mobile Congress Shane and I were there that's why I was on on you know did a keynote there to start having those conversations absolutely What's different about us, though, is that we also don't have to go after a large customer in one way. And what you also heard from Brian with regards to where we are in MDU, a large customer has many facets and highly dysfunctional, right? Having been in the big companies, I know how this works. It's silos, right? That's how they function. You have a consumer. You have a small business organization. You have a multi-dwelling unit organization. you have a business organization, and all those segments in there are filled with executives who actually run their businesses. So what's also unique about us is that our platform does everything. It's just about where is the entry point. And if you look at my career history, I've been in leading sales transformations and transformations of companies for, you know, this is my sixth, right? When you're in a sales and marketing role, the most important thing that you want is lots of opportunities to get into a customer. If you're a one-trick pony and the only way in and they slam that door is you can't, you know, that one opportunity that you had is closed, that leads to, you know, a lot of disappointment and in the end, a small pipeline against a TAM. If you can actually talk to a large customer and say, and go to talk to all the different organizations about everything that we offer, what you can do is search for a beachhead. You're searching for, is it, and in the end, those beachheads and large customers generally come from who wants to make a name for themselves? Who's driven to drive change versus who's on the, who's actually just waiting for retirement? You have to go find the people who are saying, you know what, I just took over this organization. It's the same as when I got promoted at Microsoft. the people before me and I got when I went to Bell some of the people before me weren't driven to drive change they were just like I want to keep doing the same thing but when I took over a business when I was at Microsoft anyone who come to me with regards to I need to change my business I want to go and take us from 2% growth to how do we do 50% annual growth I'm ready to listen and so the good thing is that we just have to seek within those customers who are the ones who want to drive change, and then enable them with our platform. And then what happens is once the platform gets in, you have the beachhead, and everything is available now to the entire customer. They just have to turn it on. Because once you integrate into the back office, everything works. So for example, if I go into a large enterprise customer, a tier one, and we win the small business go-to-market, all of our capabilities in the platform are enabled for all segments of that customer. And so you're in. And then you can start saying, well, you don't have to do a two-year OSS-BSS integration into Amdocs because it's already been done. Just add it to the product catalog, and you can be up and running in 90 days. And that's a huge change.

Speaker 12

Okay. Then finally, Corey, I just want to get your confidence on the idea that the second quarter could be the bottom for gross margins and that we'll grow sequentially from here.

Cory Sindelar, CFO

And given the uncertainty about what's going to happen in the spot pricing for memory you know how do you factor that into what you're thinking there yeah um so so mike i i don't know it is the bottom because of the gross profit is going to be the same or better but the margin might be down right because if you think about what we're talking about and i said 200 basis point and uh headwind It's not even. We're just getting started with the memory surcharges in the second quarter. You're going to get a full quarter in the third quarter and fourth quarter of those memory surcharges. So how much $0 margin revenue I'm blending in will have an impact on my overall margins. But EPS goes up. But I can tell you the GP will improve.

Michael Weening, CEO

Right? Does that make sense? Yeah, you're going to keep seeing EPS growth, but you're not going to see the margin is going to wash out. until we get through the memory admins.

Cory Sindelar, CFO

And I will say on the software side, though, let's just talk about that because that's a positive. With having the dual cloud cost behind us, we'll spend Q2 kind of optimizing the new GCP platform. But I would suspect by the time we get to the third quarter, we'll be setting new records in terms of software service gross margins and from there build on it. So, you know, you're going to have that as a tailwind as we move forward.

Michael Weening, CEO

I'm actually going to make one other point on that topic, too. So when I was up here, sorry, I just got to scroll back a lot, too, when we talked about the velocity of product. So you see the dip, right? The dip actually in 2025. To be really clear from a selling motion point of view in the end of Q4 and all through Q1, it actually had a dip on our selling motion, too. It was all hands on deck. It was all hands on deck for Shane's team to get it out. It was all hands on deck for John's team to support customers through that transition. It also took a lot of our selling capacity in Q1 off the bench from actually selling because they, for example, all our sales engineers were working with customers to make sure that those customers had support as they went through this transition. It was all hands on deck. So in the same way, I think that, to your point on software sales, the other part too is we go through Q2, Q3, we're back to regular cadence as an example being what you know Shane talked about with MDU the big last release that really makes this platform grade is in May for two weeks away from that and we go hard at that market and so now those selling resources aren't supporting customers which is you never want that we never want our selling resources supporting customers but that's what it took to do something monstrous for our customers. So with that, we can take one last question. Or not. We're out of time. Scott, one last question because we're over time.

Speaker 2

I always have multi-parts. But just real quick, Corey, in terms of the outlook for 27 and 28, I'm wondering what you could tell us about your assumption on memory pricing, kind of what the baseline is that's going into that forecast. And then, Mike, going back to the private clouds, Huge opportunity there. You know, I wonder if you could distill a little bit what the pipeline looks like, how big, how diverse the engagements are. And these are larger, complicated sales, so kind of the closure time period of when we would actually expect new customers to be coming on board. Is that 27? Is that 28? How are you thinking about that? Thanks.

Cory Sindelar, CFO

Yeah, Scott. The underlying assumption is that memory will find a new equilibrium sometime in early 27. don't think it goes back to where the pricing was right it'll be at some new higher level but I think you'll start seeing and you're seeing the memory guys already putting more fab capacity to it and micron has stuff coming on in early 27 so you'll have other people that are optimizing the amount of memory that they're consuming so all those so we also even saw what Google just did where they saw a 10x reduction in memory so you're gonna start seeing those optimizations and as the fab capacity increases that represents an opportunity to so i think it goes to early 27 and then we'll we'll see a new new baseline and so

Michael Weening, CEO

with regards to i'll close off with this with regards to driving market one of the great things is that the competition is increasing for our customers it's not great for them but the great thing is that we're partnered with them we understand their challenges we understand their markets and how they are going to compete and win in their businesses so i would say as we go after these incremental TAMs one of the important things is that it isn't where you know we went back to and you had one provider per market and there wasn't a lot of competition so you know what as long as if I have a fiber and I show up I win those days are way behind us there's a lot of competition and so I would say with regards to the selling motion the good thing is is that customers see a need you know when you heard that from the four people who were up there they're all like i want i you know brad said i find white glove offensive i want to have the best experience all the time you heard them talk about how they dominate in their marketplaces they taught up talked about you know you talk about um what scott said with regards to everything that we're doing for the customer in the past you know john and his team would have spent a lot of time to try and convince customers to do these things but with the threats and the and the pressure there there represents an opportunity where people are starting to say you know what I also need to do these other things how do I build the best experiences and so yes these cycles take time yes there's a you have to build out the pipeline but the great thing is is that there's demand because of the fact that there's threats and we're best positioned to deal with it so and the pipeline grows thank you and with that I'll wrap it yeah we'll wrap gentlemen off you go thank you very much thanks to the leadership team sorry now I got a cycle right back to the end of the slides which actually just says thank you so to everybody in the room to the customers who took the time um huge thank you for coming and joining us on the panel and giving color on what the business model is and to all of you as investors thank you for investing in callus we really appreciate your time we hope you have a great day thank you