Calix's Q3 2025 Earnings Call: Contradictions in AI Strategy, Dividend Policies, and Margin Outlook

Date of Call: October 30, 2025

Financials Results

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

Guidance:

• Q4 revenue guidance $267M–$273M (midpoint ~2% sequential); FY25 revenue expected +20% vs FY24.
• Q4 non‑GAAP gross margin expected to be slightly above Q3 (Q3 at 57.7%); FY25 gross margin improvement to exceed the high end of the 100–200 bps target band.
• OpEx to increase sequentially to fund Connections and accelerated AI R&D; expect to return to target financial model by end of 2026.
• Management cites growing RPOs (RPO $355M; current RPO $141M) as supporting demand visibility.

Business Commentary:

• Revenue Growth and Customer Demand:
• Calix reported record revenue of $265 million for Q3, reflecting a 10% sequential quarterly growth and 20% year-over-year increase.

• The growth was driven by robust broad-based deployments from their BXP customers and the addition of new subscribers and footprint expansion, along with competitive displacements.

• Operational Efficiency and Margin Expansion:

• Calix achieved a record non-GAAP gross margin of 57.7%, representing a 90 basis point sequential quarterly increase.

• This improvement in margins was attributed to operational efficiencies and the company's strategic focus on reducing operating expenses while maintaining an 8-figure free cash flow.

• AI and Platform Integration:

• The company launched the Calix Agent Workforce, integrating AI capabilities into its platform, which is expected to support customer growth and operational efficiency.

• This investment in AI is anticipated to enhance customer success and drive revenue growth, with a focus on adding subscribers, increasing revenue per subscriber, and reducing churn.

• RPO and Customer Expansion:

• RPOs grew 2% sequentially to a record $355 million and increased 20% year-over-year.
• The expansion in RPOs reflects the strength of the platform and managed services model, with new customers adopting Calix's solutions and existing customers expanding their deployments.

Sentiment Analysis:

Overall Tone: Positive

• CFO: "record revenue of $265 million" and record non‑GAAP gross margin of 57.7% (up 90 bps); management raised Q4 guidance and highlighted "RPOs grew sequentially" and record cash. CEO: "we're going to monetize this like crazy" describing the AI agent opportunity — signaling confidence in growth and monetization.

Q&A:

• Question from Samik Chatterjee (JPMorgan): Can you contextualize drivers of the revenue outperformance relative to expectations and how sustainable are those drivers into next quarter? Also thoughts on implications of the Connections AI innovation cycle for investment and international expansion?
  Response: Overperformance is driven by broad‑based customer demand and competitive footprint expansion (customers winning adds subscribers); management views this as durable, guided higher into Q4, and will accelerate AI investments while expecting to return to target model by end of 2026.

• Question from Scott Searle (ROTH Capital Partners): The quarter was broad‑based and strong across small customers — were there pull‑ins and how sustainable is this into 2026; visibility and sustainability of double‑digit growth?
  Response: Demand is broad‑based across ~1,200 customers; sequential growth is durable but may moderate into 2026, with full‑year organic growth expected toward the lower end of the 10–15% target range excluding BEAD.

• Question from Scott Searle (ROTH Capital Partners): When will Gen‑3 private/sovereign cloud capabilities accelerate and will Agentic AI drive RPO acceleration into late 2026?
  Response: Gen‑3 private/sovereign cloud expansion is expected to accelerate in late 2026; Agentic AI is expected to accelerate platform adoption and thereby increase RPOs as customers acquire subscribers and services faster.

• Question from George Notter (Wolfe Research): What's your monetization strategy for the Agentic AI workforce — did you consider charging a la carte versus driving customer success and monetizing indirectly?
  Response: They will monetize both directly (some elements charged) and indirectly by enabling customers to add subscribers and services faster; management expects significant revenue upside from this mixed approach.

• Question from George Notter (Wolfe Research): Is the company’s growth coming more from existing customers expanding or from new customer wins, and how should we think about BEAD opportunity sizing and timing?
  Response: Growth is broad‑based: existing customers have significant unmonetized footprint and Calix is also adding new customers (20 in the quarter); BEAD is becoming constructive with early orders and is expected to ramp in 2026 but sizing/timing remain uncertain.

• Question from Christian Schwab (Craig‑Hallum Capital): Given this year's margin outperformance, should we assume next‑year gross margin expansion will be at the low end of the 100–200 bps target?
  Response: Yes — management will continue targeting 100–200 bps of gross margin improvement but expects next year's expansion will likely be at the lower end of that band.

• Question from Christian Schwab (Craig‑Hallum Capital): When do you expect BEAD peak spending and the multiyear cadence?
  Response: BEAD is expected to follow a lens‑shaped multiyear curve that ramps in 2026, levels for a period, then tails off; it's too early to provide firm peak sizing.

• Question from Timothy Savageaux (Northland Capital Markets): Historically we used ~10% of award value to estimate access opportunity from BEAD — is that still valid?
  Response: Management now uses roughly 5–10% of award value for the access infrastructure estimate, noting locations are harder/ costlier to serve (more construction dollars).

• Question from Timothy Savageaux (Northland Capital Markets): Any update on timing for a detailed breakout of appliance versus software/platform revenues?
  Response: No change — the company still targets delivering that appliance vs. software/platform breakout by the end of 2026.

• Question from Timothy Savageaux (Northland Capital Markets): What customer segments will drive Q4 sequential growth?
  Response: Management: Q4 sequential growth is expected to be broad‑based across small, medium and large customers.

• Question from Ryan Koontz (Needham): What are the practical growth limiters (BEAD, fiber, labor, permitting, components) and how do you view risks versus upside?
  Response: Primary practical limiters are permitting and labor; management sees no material supply/component constraints today and views AI and broad demand as upside drivers.

• Question from Ryan Koontz (Needham): How much of the upmarket (medium/large) growth is competitive displacement versus your customers simply growing more effectively?
  Response: A large portion is competitive displacement — customers are switching to Calix for broader cloud/Experience Edge capabilities, enabling them to outcompete incumbents and accelerate growth.

Contradiction Point 1

AI Investment and Financial Model

It involves Calix's approach to AI investments and its impact on their financial model, which could influence investor expectations regarding future growth and profitability.

How is the innovation cycle impacting Calix's investment strategy? - Joe Cardoso (JPMorgan)

2025Q3: We have a target financial model and continue to make investments. The broad-based demand is driven by our existing customers, who are uniquely positioned and see significant growth opportunities. - Michael Weening(CEO)

What was the sequential growth for smaller customers excluding reclassification from small to large customers? How will costs trend with AI investments, and what impact will this have on ARPU levels? - Scott Wallace Searle (ROTH Capital Partners)

2025Q2: The impact of cost from AI investments is mid-single digits. The R&D and OpEx investments will remain constrained until revenue reaches target levels, aligning with our financial model. - Cory J. Sindelar(CFO)

Contradiction Point 2

Dividend and Share Repurchase Policies

It involves Calix's dividend and share repurchase policies, which are important indicators for investors regarding capital allocation and shareholder returns.

Will gross margin expansion be at the lower end next year? - Christian Schwab (Craig-Hallum Capital Group)

2025Q3: We are going to take a cautious but progressive approach to capital allocation. So we will balance the need to continue to invest in the business and support the growth with the opportunity that we have to return capital to shareholders. - Cory Sindelar(CFO)

Will cash flow support a 2026 dividend? - George Charles Notter (Wolfe Research)

2025Q2: We believe it's the right balance to continue to invest in the business and support our growth and support our innovation cycle with the opportunity we have to return capital to shareholders. - Cory J. Sindelar(CFO)

Contradiction Point 3

AI Opportunity and Monetization

It involves differing views on the monetization strategy for AI capabilities, which could impact how investors view the potential revenue streams and growth strategies.

How will you monetize Agentic AI capabilities? Have you considered a la carte pricing for customers? - George Notter(Wolfe Research)

2025Q3: We are taking a direct approach to monetizing AI, mainly through helping customers acquire subscribers and roll out services faster. We won't charge separately for AI, but it will accelerate our business model. - Michael Weening(CEO)

What are the international customer dynamics and growth prospects? - George Notter(Jefferies)

2024Q4: We are already seeing material returns from our AI investment because we're helping our customers manage their networks and help them deliver services faster and better. - Michael Weening(CEO)

Contradiction Point 4

Impact of BEAD Program on Growth Trajectory

It pertains to the company's strategic positioning regarding the BEAD program and its influence on growth expectations, which is crucial for investors to assess future performance.

What is the method to estimate the infrastructure opportunity from BEAD awards? - Timothy Savageaux(Northland Capital Markets)

2025Q3: We use 5% to 10% of the award value as a percentage of the access network. However, also consider additional subscribers won as they build networks. - Michael Weening(CEO)

How will BEAD impact your growth, and do you anticipate a slowdown in existing programs? - Scott Searle(ROTH Capital Partners)

2025Q1: BEAD is not included in our growth numbers due to uncertainty. If customers are not pursuing BEAD, they are not pausing plans. - Michael Weening(CEO)

Contradiction Point 5

Gross Margin Expansion Expectations

It addresses differing expectations for gross margin expansion, which are crucial for assessing financial performance and investor expectations.

Will gross margin expansion be at the lower end next year? - Christian Schwab(Craig-Hallum Capital Group)

2025Q3: Yes, we anticipate margin expansion will be more muted next year, likely at the lower end of the 100 basis points to 200 basis points. - Cory Sindelar(CFO)

Can you provide Calix's multiyear revenue and earnings outlook? - Christian Schwab(Craig-Hallum)

2024Q4: We expect growth in the range of 10% to 15%. We are not providing a multiyear outlook. - Cory Sindelar(CFO)