Calix's Q3 2025: Contradictions Emerge on Gross Margin Expansion, Access Infrastructure Estimates, and Growth Sustainability

Date of Call: None provided

Financials Results

• Revenue: $265.0M, record Q3 revenue, up 10% sequential
• Gross Margin: 57.7% non-GAAP, record, up 90 basis points sequential

Guidance:

• Q4 revenue expected $267M–$273M (midpoint ~2% sequential increase; implies ~20% fiscal 2025 growth vs 2024).
• Q4 non-GAAP gross margin expected to be slightly higher than Q3; fiscal 2025 gross margin improvement to exceed the high end of the 100–200 bps target.
• Non-GAAP OpEx to increase sequentially to fund Connections and accelerate AI/agent development into H1 2026; expect to return within target financial model by end of 2026.

Business Commentary:

* Revenue Growth and Demand: - Calix delivered record revenue of $265 million in Q3 2025, reflecting 10% sequential growth and a 20% increase year-over-year. - The growth was driven by robust, broad-based deployments from its BXP customers who added new subscribers and expanded their footprint, favoring Calix for network upgrades and competitive displacements.

• Record Gross Margin and Subscription Growth:
• Calix achieved a record non-GAAP gross margin of 57.7% in Q3, marking a 90 basis point sequential improvement.

• This was attributed to the strength of Access Edge deployments and increased subscription growth, reflecting the success of Calix's unique platform and managed services model.

• Artificial Intelligence and Platform Innovation:

• The official launch of the Calix Agent workforce was announced at Calix Connections, integrating AI into the company's operations via the third-generation platform in partnership with Google Cloud.

• This marked a significant stage in Calix's ongoing evolution, aiming to simplify operations and enhance the go-to-market strategy for customers.

• Strong Cash Flow and Financial Performance:

• Calix reported $27 million in free cash flow for Q3, maintaining a consistent cash flow of over $100 million per quarter for the past five years.
• The strong financial performance was supported by rigorous operational focus and investments in OpEx returning to target financial models, ending the quarter with record cash investments of $340 million.

Sentiment Analysis:

Overall Tone: Positive

• CEO: record revenue and 'fifth quarter of sequential growth'; CFO: 'delivered record revenue of $265 million, reflecting sequential quarterly growth of 10%'; 'record non-GAAP gross margin of 57.7%, representing a 90 basis point sequential quarterly increase'; 'ended the quarter with record cash investments of $340 million.'

Q&A:

• Question from Samik Chatterjee (JP Morgan): Very strong revenue performance this quarter... help contextualize what has been driving this outperformance relative to your expectations at the start of the quarter and how you are thinking about sustainability into next quarter?
  Response: Management: Outperformance driven by broad-based demand and competitive footprint expansion (cap-and-grow plus rip-and-replace); customer wins (new subscribers) drive sustained revenue — comfortable guiding higher into Q4.

• Question from Scott Searle (Roth Capital Partners): On the small customer front, were there pull‑ins, sustainability into 2026, visibility and sustainability of double‑digit growth; and when will Gen‑3 private/sovereign cloud capabilities accelerate internationally and impact RPO?
  Response: Management: Demand is broad‑based (no single customer driver); sequential growth is durable though may moderate into 2026 with overall growth near the lower end of 10–15%; Gen‑3 and sovereign/cloud international expansion expected to accelerate in later 2026 and should drive higher RPO over time.

• Question from George Nader (Wilf Research): On monetization strategy for the agentic AI workforce — did you consider charging a la carte and why not be more aggressive in direct monetization? Also, is growth mostly from existing customers or new wins?
  Response: Management: Will monetize AI both via some direct charges and, more importantly, by enabling customers to add subscribers and services (driving higher contract value); growth is broad‑based — existing customers have large unmonetized footprint (e.g., MDU) and new customer wins also contribute.

• Question from Christian Schwab (Craig Hallum): Should we assume gross margin expansion next year will be at the low end of the 100–200 bps target given this year's outperformance, and when will BEAD peak spending occur?
  Response: Management: Expect continued margin expansion but more muted next year at the lower end of the 100–200 bps range; BEAD deployment looks lens‑shaped with ramp in 2026, then leveling and a multi‑year tail — too early to precisely size peak spend.

• Question from Tim Savageaux (Northland Capital Markets): Is 5–10% of award value still a good way to estimate access infrastructure opportunity from BEAD; any update on timing for the $1–$10/month software monetization and segment drivers for Q4?
  Response: Management: Use ~5–10% (depending on location) as an access‑network proxy (not as high as older estimates); $1–$10/month software/platform monetization goal remains targeted by end of 2026; Q4 demand is broad‑based across segments.

• Question from Ryan Koontz (Needham and Company): What are the growth limiters (BEAD process, fiber/labor/supply) and upside risks; and how much of the upmarket gains are competitive displacements versus enabling existing customers?
  Response: Management: Primary practical limiters are permitting and labor; supply chain is not a major issue currently; major upside via AI enabling faster subscriber adds and monetization; medium/large cohort gains are substantially from competitive displacement and enabling customers to outcompete peers.

Contradiction Point 1

Gross Margin Expansion

It involves changes in strategic guidance for gross margin expansion, which impacts financial projections and investor expectations.

Given current performance, will gross margin expansion be at the lower end of the 100-200 bps target range? - Christian Schwab (Craig Hallum)

2025Q3: Yes, the gross margin expansion for fiscal 2026 will likely be at the lower end of the 100 to 200 basis points target due to the overperformance in the current fiscal year. - Cory Sindelar(CFO)

Will Q4 revenue from Blackwell be additive, and what is the expected gross margin exit rate? - Stacy Rasgon (Bernstein Research)

2025Q2: We expect to see the gross margin expansion for fiscal 2026 at the higher end of the 100 to 200 basis points target we previously provided. - Cory Sindelar(CFO)

Contradiction Point 2

Access Infrastructure Opportunity Estimate

It involves changes in strategic assessments of the potential market opportunity, which can impact growth projections and strategic planning.

Is 10% of BEAD's award value still a good estimate for access infrastructure opportunity? - Tim Savageaux (Northland Capital Markets)

2025Q3: Currently, 5% to 10% of the BEAD award value is used to estimate access infrastructure opportunity, reflecting more complex network construction requirements. The number has decreased from the previous estimate of 10%. - Michael Weening(CEO), Cory Sindelar(CFO)

Will Blackwell's Q4 revenue be additive, and what is the expected gross margin exit rate? - Stacy Rasgon (Bernstein Research)

2025Q2: We continue to see $10 billion to $15 billion and $10 billion to $15 billion as the most reasonable outcome from that perspective, pretty much across the board. - Cory Sindelar(CFO)

Contradiction Point 3

Growth Sustainability and Driver Expectations

It involves changes in expectations regarding the sustainability of growth and the primary drivers behind it, which are crucial for investor understanding and strategic planning.

What drove the revenue outperformance compared to guidance? How sustainable are these drivers for the next quarter? - Joe Cardoso (Soniq)

2025Q3: There's strong confidence in demand sustainability for the next quarter, and we expect to grow sequentially despite the significant overperformance in Q3. - Michael Weening(CEO), Cory Sindelar(CFO)

What is your expected 2026 growth rate? - Michael Genovese (Rosenblatt Securities)

2025Q1: Yes, we can continue to grow sequentially from here, even with the demand pull forward, and particularly in the back half of 2025. - Cory Sindelar(CFO)

Contradiction Point 4

Impact of BEAD and Infrastructure Opportunities

It involves differing perspectives on the potential impact and timing of the BEAD program, which could have significant implications for Calix's growth and market positioning.

好的，我现在需要处理用户的问题，他们希望将一个来自美股上市公司财报电话会议的问题进行简化。用户是专业的金融文章作者，所以需要确保输出符合美式英语习惯，并且只输出简化后的问题，保留问号。首先，原问题：“Is 10% of the BEAD award value still a good estimate for access infrastructure opportunity?” 这个问题有点冗长，用户希望去除多余的装饰词，保持原意。我需要分析每个部分是否必要。“BEAD award value”可能是一个专有名词，比如某个政府项目的资金，比如美国的BEAD计划（Broadband Equity, Access, and Diversity），所以缩写可能需要保留，但用户可能希望简化。不过原问题中已经用了BEAD，所以可能不需要扩展。接下来，“10% of the BEAD award value”是核心数据，必须保留。“still a good estimate”中的“still”表示是否仍然适用，需要保留。“access infrastructure opportunity”是主题，可以简化为“access infrastructure opportunity”。可能的简化方向是去掉不必要的词，比如“Is... still a good estimate for...”可以简化为“Does 10% of the BEAD award value remain a valid estimate for...”。或者更简洁的结构，比如“Is 10% of the BEAD award value still a valid estimate for...”。检查是否有冗余。比如“still a good estimate”中的“still”是否必要，但用户可能想保留时间上的对比，所以需要保留。然后，“good estimate”是否可以用更简洁的词代替，比如“valid”或者“accurate”。但用户要求不改变原意，所以可能需要保留“good”。不过“valid”可能更正式，符合金融文章的风格。所以可能的简化版本是：“Is 10% of the BEAD award value still a valid estimate for access infrastructure opportunity?” 或者更简洁的：“Does 10% of the BEAD award value remain a valid estimate for access infrastructure opportunity?”但原问题中的“Is... still a good estimate”更直接，所以可能不需要替换“good”为“valid”，但用户可能希望更简洁。可能“good”可以保留，但去掉“still”前面的部分，比如“Is 10% of the BEAD award value still a good estimate for...”已经是比较简洁了，但用户可能希望更简练。比如“Is the 10% BEAD award value estimate still valid for access infrastructure opportunity?”不过可能需要保持原结构，比如“Is 10% of the BEAD award value still a good estimate for access infrastructure opportunity?” 已经比较简洁了，可能不需要进一步简化，但用户要求更精简。比如可以去掉“still”吗？但用户可能希望保留时间上的对比，所以不能去掉。可能需要检查是否有更简短的表达方式，比如“Does the 10% BEAD award value remain a good estimate for...” 或者“Is 10% of the BEAD award value still a valid estimate for...”。最终决定保留原结构，但可能将“good”改为“valid”以更正式，或者保持原词。根据用户的要求，不改变原意，所以可能需要保留“good”。所以最终简化的问题可能是：“Is 10% of the BEAD award value still a good estimate for access infrastructure opportunity?” 但原问题已经很简洁了，可能用户希望更简短。比如“Is the 10% BEAD award value still a good estimate for access infrastructure opportunity?” 这里把“of the”改为“BEAD award value”作为名词短语，可能更简洁。或者“Is 10% of the BEAD award value still a good estimate for access infrastructure opportunity?” 这样已经比较简洁了，可能不需要进一步简化。但用户可能希望更短，比如去掉“still”吗？但原问题中的“still”是重要的，所以必须保留。因此，可能原问题已经足够简洁，或者可以稍微调整结构，比如“Is 10% of the BEAD award value still a good estimate for access infrastructure opportunity?” 这个已经是比较简洁的版本了，可能不需要进一步修改。所以最终输出应该就是原问题，但用户可能认为原问题不够简洁，需要进一步简化。例如，“Is the 10% BEAD award value still a good estimate for access infrastructure opportunity?” 这样去掉了“of the”中的“the”，但可能用户希望更简练。或者可能用户希望将“access infrastructure opportunity”简化为“access infrastructure”，但原问题中的“opportunity”可能重要，所以不能省略。因此，最终简化后的问题可能是：“Is 10% of the BEAD award value still a good estimate for access infrastructure opportunity?” 但用户可能希望更简短，比如“Is the 10% - Tim Savageaux (Northland Capital Markets)

2025Q3: Customers are working through BEAD plans with government channels. BEAD is not in our growth numbers due to lack of clarity on timing. BEAD will be delayed and bigger than people expect. - Michael Weening(CEO), Cory Sindelar(CFO)

What is the status of BEAD discussions with customers? - Samik Chatterjee (JPMorgan)

2025Q1: Currently, 5% to 10% of the BEAD award value is used to estimate access infrastructure opportunity, reflecting more complex network construction requirements. The number has decreased from the previous estimate of 10%. - Michael Weening(CEO), Cory Sindelar(CFO)

Contradiction Point 5

Customer Growth and Demand Sustainability

It involves differing views on the sustainability of customer growth and demand, which are crucial for financial forecasting and investor expectations.

What drove the revenue outperformance relative to guidance? Are these drivers sustainable into the next quarter? - Joe Cardoso (Soniq)

2025Q3: There's strong confidence in demand sustainability for the next quarter, and they expect to grow sequentially despite the significant overperformance in Q3. - Michael Weening(CEO), Cory Sindelar(CFO)

What are the growth drivers for RPO, especially regarding adopted services? - Scott Searle (ROTH Capital Partners)

2024Q4: We actually see an inflection point happening on the customer side. We are going to be broadly engaged across the customer base to drive revenue growth. - Michael Weening(CEO)