Calix, Inc. Stock

Please welcome President and CEO, Calix, Michael Weening.

How awesome is it to walk up to that, all of your successes things that you're doing every single day, congratulations. It's absolutely incredible.

And so we kick off the third day, our last day. Have a great time last night. I heard everyone loved it. Yes. Yes. lots of great feedback, awesome.

And as I said yesterday, the theme, if we're going to put one slide up, this is it. There is no version of the future where AI is optional. None. And so as you contemplate this, you really need to think about what are you going to do as you leave today to take big steps forward. What are you going to change? Because now is the time. We've set it in place so that you can launch quickly, but you have to embrace change. You have to be embraced that the past is the past, I need to go to a different place. And I need to go to a different place, fast and I need to go hard because what got you here won't get you there because this thing is going to change.

And it's funny this morning reading the news. Again, there's all this great stuff that's happening. But this is what I woke up to you this morning, AI attack tools left the lab, weaponized to breach, huge costs. These are the types of things that you face if you don't get ahead of it.

I'm going to tell you a little story. So you sit at this point, this decision point where your teams are going to come to you and say, we can do all this cool stuff. We have this tiny little vendor who's got a couple of people. And you know what, they built some really cool agents. And those really cool agents can do some things we couldn't do before. I really want to go use them and I want to let them proliferate through my business. That's actually where Calix was 2 years ago.

We had our teams going out because it was this early stage of, let's go try kinds of cool stuff. And yes, it's five guys in a ChatGPT agent, and they're building some things. But you know what, we can go really quickly. They're doing things that we never thought was possible before. Let's just go and it was shocking how fast that proliferated. And then we slammed it shut hard.

Because here's the simple truth, if you don't get on board with the people who are putting hundreds of millions of dollars behind putting security trust and making it predictable. It's like driving a moped on a 12 lane highway, and it's just a matter of time before you and your little moped get run over because this is what's coming. It is that stark.

So while I love entrepreneurs, there is no place for this next stage for playing games and playing with tinker toys trying to build it yourself. The future is you've got to align with people who are monsters and driving big trucks on that 12 lane highway and can protect you, but more importantly, are going fast.

And in our enterprise, our partners -- so we run a business just like you do. We have the products that [indiscernible] and his team build and I showed you all the investments that they made there. But on the enterprise side, we have very clear partners and the #1 choice with regards to who we pick is do they have deep pockets and can they go fast.

So I will tell you that we started to build a whole bunch of crazy stuff before I shut it down hard because of the fact that I would rather wait for example, for Salesforce to show up 6 months later but know that my company is not going to go bankrupt, because all my data went lose, because I don't look good in an orange jump suit, I just don't.

And so we're focused on who are the partners with deep pockets who are going to play for the long term, not the ones who have cool little tinker toys that can actually build me something that aggregates it and does it lead to long-term success. And you really have to be pragmatic and really think hard about this because the proliferation of technology in your business leads to complexity.

If you didn't hear Shane West yesterday, he was in a business that had 400 IT people that had a ton of complexity and led to 40% higher truck rules and an NPS that was 60 to 70 points lower than what's happening at all. That complexity is cost, that complexity is people, and that complexity is your competitor is crushing you. So you really, really have to think hard on who you partner with in this next stage because the ones with the deep pockets are the ones that are going to win.

That's also why I believe chat GPT, everything that Anthropic and Claude, it's a matter of time before they go -- they get beaten up and destroyed. You've got to go with the deep pockets and you've got to go with the people you can trust you're secure, and we're in it for the long term. And that's what we've done.

You made that happen. You made that happen because of the fact that you trusted us to partner, you gave us great ideas. When we had good ideas, you told us they were good when we have bad ideas, you told us about why it won't work. And together, we've gotten to this point. And it was hard.

It's funny like people who learn about our company as we become more and more known with regards to what we're doing that's unique with regards to AI and disruption, they all go, wow, it just like you guys have shown up and you're a new emerging talent, [indiscernible], we spent 15 years grinding away in the trenches with you guys to get to this point. None of you are flashes in the pan that showed up. The secret history of success is really simple. No one cares, work harder. Get at it, and you got to grind of success because nothing is easy.

And so for us, $2 billion plus, this year, we'll have $200 million of deep pockets to ensure that you get trust, security and predictability. And in 2027, we will run everybody over from a competitive point of view because we're together going to put up more capabilities that allow you to crush your competition, and we're going to crush ours because none of them are doing anything like this. None.

And that's going to become clear and clear as we open up a big gulf between you and your competitors because the best way we're going to prove that is when no one beats you in your market. When you own the home, when you own the small business, it expands out to the medium-sized business, go look at those switches, who else has given you a switch, a network product and a WiFi system that can control everything in the network. We brought all that together because you asked for it.

And by the way, the little switch that is in there, I told them I want to, they are not prosumer. That's for every consumer. And I don't know what the price point is, it's less than $200. It's a pittance if you can actually not roll a truck with the price of gas these days. So there's this huge upsell opportunity, churn opportunity because once you get in there, everything can be reduced from a churn point of view and a great opportunity to grow your NPS and expand your business and dominate your markets. Because we've done MDU, and we're going to do it the best in the market.

I was sitting with MDU customers. All they do is MDU and they look at what they're doing. They've been guiding us to this point, just like we've worked with all of you, and that product is going to be the best in the market. absolutely flat out. Why? Because when you put it in an apartment building, it can go from the edge of the fiber in or whatever the transport is all the way to the top of the building and everything in between. Small business, network, whether it's coax, fiber or any other technology, it can do the WiFi in every resi. It can do the small business, if there's a convenience store in the bottom and the SmartTown allows you to wander around through the MDU product. So I can go to the gym and head of great WiFi. I can have my car connected even great WiFi, and I can go to the pool at the MDU and I going to have great WiFi.

Building owners are going to become your best friends. They're going to love you. And if they don't, as Shane and I said, if you give us a ring, if we're not stepping up and there's something that you need, all it has to do is hit the stack rank. Because we have a stack rank of requests on what's going to drive revenue and lower costs. Those are our two metrics: help you make more money and help you lower costs. And the lowering of cost is when revenue goes up, your OpEx stays flat and you just get to gain the benefit, whether it's for your investors or your community.

And embedded is all the things that you need from a capacity point of view. This is 15 years of investment, waiting to turn AI on. As I said, around the BNG, the challenge is out there, kill the BNG by itself. That's the motto in 2027. There's not a single person in here who can eliminate their BNG box and put access aggregation in BNG into a single system and whose MPLS, we can't run, allowing them to buy a hell of a lot less from Cisco, tomorrow. And if you want that challenge, I take it. Call me, call Shane, the two of us will get on there and walk you may ensure we have an entire team that do a gap analysis. You want to simplify your network, you want to say if a fortune, just do the math. A big PE router, a big BNG a aggregation box in an access box, that's four boxes, 192 that does all those functions with a smaller PE router, 60% less power, 80% less power right? One team, not three. Well, 1.5 teams because your PE team is going to be half the size. So 1.5 team versus four teams, do the math and bet for the long term.

Companies who win are not the ones who did what they did before. They're not encumbered by their team members who are in an existing job and don't want to change. Human nature is not to want to change. The leaders, the ones who win are the ones who change. And we are the easy budget. We will help you architect it. We will help you build that next-generation network. We will help you save a fortune so that you can be successful and take those investments and put them into other areas. And those other areas are when the subscriber, sales, marketing, reduced churn. We care about your sales teams. We care about your marketing teams. We care about how you actually do personas. This morning, we had a customer in one of the leadership sessions talking about how they had a churn problem. And they engage with our success organization. They put persona-based marketing in place. We help them build all their content. They launched it, and they went from a negative to a significant positive.

Frankly, you are the best in your industries. The only thing that you should have is 0 points of churn. We're taking out the people with credit risk. Everybody else should be 0 churn. If you lose anybody to StarLink and you have a fiber to that house, my goodness, look in the mirror and say, "What have I done wrong? What have I done wrong?" Because you should never lose to StarLink. And you should never lose the Amazon and [indiscernible], you should win every time.

And if you're not ask us, we'll help you. And the reason why we can help you is not because we're really smart. It's because we are an aggregator of knowledge. This is a community that comes together. All of these wins are your wins, they're you executing, you doing incredible things. We got your back. We'll make it simple.

And as you heard, with where we're going with agents, you're going to see a proliferation of them. But more importantly, you're going to see everything that we're doing with regards to workflow studio. So that as you go reengineer your business, you can say, "here's how I'm currently doing it with all the agentic capabilities and simplification that Calix offers me, I can go rethink how I run my business, and then I'm going to work flow it out."

The future of leadership and management now some of the same things still exist. I have to set a vision, I have to have a strategy. I have to be able to execute with grit, but the bigger one that's now emerging, well, I have to attract talent. And last, this new one, I need to be able to workflow my business. Top to bottom.

For those of us who started in engineering or computer science, you've done lots of [ ISOs ], that is actually reemerging as a great skill because if you can work flow out your business including sales and marketing and every function and what you can do is identify where you insert agents to automate. And that, to me, is the biggest element of workflow studio that you have to contemplate. "How do I take that tool to assess my business and say, Hey, guys, let's get in the room and figure out how do we actually run every day." That's what we're doing. We're actually going through every single function and they're building out their top workflows, which have the top employees and the top complexity, and they're saying, "here's how we do it today, what are we going to automate with our partners, sales force and others, in your case, us and all the tools that we're going to give you how am I going to automate those things step by step." Because the reality is, you can't change if you don't know how you do it and what you want it to be.

And so that workflow studio is going to be incredibly important to you on how you change your businesses and we'll be there with you the whole time. That's why we have a massive field organization. And unlike others who kind of parachute in and parachute out like seagulls. We've been in this business for a long time. We have a massive team that's here to help you every single day.

And so as you think about this as you go home, just remember, we're behind you, the whole time. We want to become easier and easier. We are the easy button. We will give you the AI. But the key thing is, you've got to figure out what to do with it. And if you need something else, we're all ears. Because this is a great time from a capacity point of view or we can help you elevate your entire business, top to bottom. Because the #1 value at Calix is when you win, we win. We know that every single day.

And with that, let's kick off the show welcome Juergen to the stage.

Thank you, sir. Good morning, everyone. In marketing, typically, what you have is a lot of voodoo magic, intuition where you think folks go. Today, I'm going to talk to you about the dark art of science, data science.

And also I want to bring it back to the [ Aura ] sleep ring real quick. I was stopped several times after my keynote yesterday, how I achieved a perfect 95 every night. So next time, I might have to deliver a wellness key note to all of you and to the 45 recipients of the [ Aura ] ring that hopefully you have already put to use.

But if we look at data, and I'm a marketer, I geek out on data. It's part of my job description, to ground my intuition on data points that are scientifically backed. And Michael talked about yesterday about the changing pressures of competition. The absolute insane speed of AI transformation that hits us all. And last year, if you've been here, we started to share out a study. It's actually a commitment of ours to do this 5 years in a row. So that we get trends as well. Snapshots in times are great, but they don't tell you where it's headed really. And what is the difference from year to year.

So it is my distinct privilege to share our second year findings here. And what we're doing in this study is we're looking at switching experiences, what drive subscribers to behave differently. And last year, we did it with a blind study of 2,000 Internet decision-makers at home.

And this year, because why not bigger is better, right? We did it at 2,600 subscribers. So not only are we opening the funnel to be more representative of the demographics we're including. And we looked at rural, we looked at suburban, we looked at urban plus we took the entirety of the gene pool from Gen Z, all the way down to the more senior type of decision makers.

And those studies performed by [ DC ] and [ gather ] really inform our insights, plus we're willing to share that with you and also provide that framework to you that if you want to run similar studies with your subscriber base, feel free to do so.

Here are a couple of numbers. 16.1% of subscribers have already voted with their feet this year. So within the last 12 months, we have seen a 6.2% increase on subscribers actually switching, all data point. But what for me was a more striking data point is that 48.9% of the subscribers we pulled are on defense. They are in market right now.

They might be loyal to you right now. They might be masked actually by good NPS and satisfaction scores, but 48.9% are actively in market means if they are approached with the right offer at the right time, meeting their economic needs gone. Or I learned in business that this is a negative way to look at it. Has anyone learned this, Yes and Methodology, anyone? This means, Yes and it means that your competitive subscriber base is up for grabs as well. Grab them right now, reach out to them, engage them.

Have also learned -- are there any Gen Z in here? Okay. We're somewhat safer with the statement I got it. Now we're somewhat safe in an environment here, but there's no loyalty baked into the gene pool of Gen Z. Absolutely not. This is why we see the highest vulnerability. So if you do the demographics of your subscriber base, you might want to pay attention to this particular segment of your subscriber base because they are most receptive to be poached.

This is the false sense of security I was telling you about. 93% have indicated they are actually really happy. This is an all-time high in terms of their commitment to their current provider. You could take a lot of comfort in this number. But if you pair it to the number I've shown you earlier, it doesn't mean that they don't opt for something better if the opportunity arises. So don't let this false sense of security sink into heart.

And then we also looked try to see where does the switching happening, where is it most dominant compared to last year. And we found that in rural areas, it jumped just about 10%. It doubled, right? So that's amazing. And in the Midwest, it almost tripled. This might be a snapshot in time. This is why we're saying we're doing this year over year over year. I'm not saying this is an internal truth. But every year, when we release the study, we're going to go very deep on those data points to help you be sharper potentially, use the data points as you see fit or run your own studies based on the data.

In 5G, it is a topic, right? I mean, 3.5 million to 4 million have changed last year to 5G. It's a big number. So the big companies are luring a lot of subscribers right now with potentially what is a good enough type of things. So the bundles, the offers that they put in front of them are luring them away.

Now bundles is also a topic that we try to dissect a little closer. So what is it, what is the right composition that hits home with -- in those type of offers. So streaming services tops the list. Streaming services are effectively bundled into an offer that's also matched with price and speed. A pretty good strategy, it seems right now. The same thing is true for smart home features, comes in at a second place at 42%. And then also the personalization security that comes in very hard. I would bet it's hard. I'm just going out [ Olympias ] maybe not the type of word I would use. I may be proven wrong next year, but I would hunt some level that security is going to go up next year as well.

At just the sensitivity we're seeing in the market around cybersecurity. And oftentimes, we see a lot of folks working from home so you want to be twice as safe with data type of points, right? But security, I think, is going to be increasing next year in our study as well.

Network availability, so if we take away the table stakes, price and speed, I mean, come on. This is you need to have that. We need to define as to what's the right threshold for everyone, but price and speed always matters. I never forget that. But on top of that, network availability is a high factor of satisfaction and loyalty. We see the degree of customer service that is being extended has a massive influence, that means everything visibility how fast your ticket is touched, which type of channel do you use, for example, to interact if you have a service issue. And increasingly, those channel mixes are changing, right? We're not talking just getting someone on the hot line. The in mobile app experience actually is really dominant. We see chat also rise to the forefront.

And I myself, if I can avoid talking to a human, I'll do that first. I help myself. I really try to help myself first. AI-powered chats have come a long way. So customer service and the channel mix is going to be very interesting.

And then personalized packages. If I have the feeling, the subscriber knows me, my demographic fit based on my usage, what would be the ideal package, big plus. I'm an Xfinity Comcast subscriber. Sorry, I have to tell it. It's the only choice I have right now in my neighborhood. Fiber is not yet there. But every year I call them and basically said, what's the next best offer, I test constantly, right? So personalization, I want to see if they know me, do they really use telemetry to get to know me, the intimacy. Sometimes they get it, sometimes they don't, but they'll push hard for price.

So this was my espresso shot therapy for the morning for you guys. I wanted to jolt you with a couple of numbers. The key takeaways from the study are here. I'll leave it at three, because three is psychologically a great number. Your customers are not leaving you because they are mad with you. We have seen that 93% is a super high satisfaction rate, but they're going for better at the current time, what is relevant to them right now? Take economic hardship. If you can lower your price bill right now to offset diesel price, whatever it is, you might go for that.

The second finding is move before the market. What I meant with that is, if you know that roughly 50% of the subscriber base is actively in the market, you need to move faster than competition. That was this Yes and Moment that I described earlier, right? It's not just shocking, but it's your opportunity to really aggressively go after those and make them yours.

And don't sleep on 5G. I mean the big ones are spending millions and millions and millions of dollars and it's showing results. So those are the three takeaways. If you want to learn more, everyone has access to the study. So if you have not seen it yet in your connections app, I invite everyone to do so. And I did something dramatic. I volunteered someone out of my team, this to be the single point of contact. So she's going to have a lot of friends. Your e-mail account is going to blow up in [ NF1 ]. But this is fantastic. She has access to all of the data. So please don't hesitate to reach out. And we also have [ DC ], our design partner and gather working with us that if you feel you want to run a similar study, the framework, the methodology is in place, contact us, we're happy to run those type of studies with you.

And with that, something for which we typically don't take nearly enough time because we're all operators. We're running the business very hard. We know what we're doing or at least we think we know what we're doing. And that is what I want to do.

Right now, I want to introduce [ Molina Palmer ]to the stage in a second here. [ Molina ] has a really interesting title, Behavioral Economists. You don't see that in a lot of business cards. I thought I was a super sharp guy in co-authoring a book, but this lady has not only one book. not two books, but three books. And really, I'm trying to understand the psychology as to why your subscribers choose you, what can your customers not tell you, but you need to know that anyway. So this is not such a session for marketers. This is really an investment from us into the software science on how can we get subscribers to choose us over and over again. And I couldn't be more delighted to bring [ Molina ] on stage. [ Molina ], the stage is yours.

Thank you. Hello, hello, and good morning. I'm so delighted to be with you here today as we're going to be talking about some brain science and how our brains really work, I have had the great joy of meeting several of you over the last couple of days, working with the GMs in a workshop yesterday and with the women in broadband, all fantastic, and I'm just really delighted to be here with you today.

So let's share a little bit about what your customers want and can't tell you? And to start that off, I'm going to ask you a fun little question, something to take a look at here. What do you think this is worse? Like what would you pay for this guy, I don't where I didn't make it. and none of my kids made it, so we got nothing there, right?

Maybe you'd give me $1, maybe. I know often is like, I would need you to pay me to take that thing, right? Like, I don't want that. There's no way that I want that. But of course, it depends. The value of this, what it is worth depends on a lot of different things.

And so this is actually part of a research study that was done. It's called the significant objects project. And what they wanted to do is they wanted to understand what would happen. They went out to flee markets and garage sales, and they went and got a bunch of junk essentially. They bought 100 different items for a total of about $128. 74. So they spent like $1.29 each on these cool little trinkets and they wanted to see what would happen if they were to go and resell them, in this case, on eBay, the only difference being that they gave them a story.

So if these now have a story associated with them, does anything change? Do people feel differently about these random pieces of junk, right, that we have out there.

So when they went to sell them, do you think they made their money back? Maybe double, more triple 5x, Don't worry, we're not going to get there. They sold them for $3,612.51 for this stuff, right? And our little friends, this guy right here, he was actually one of the most expensive things they bought at $3. And they had the story about him being he was the patron saint of fast dancing. And he saved a whole town that was going to be in a blizzard. What have you, he sold for $193.5.

So the story here is that the story matters and what people are willing to pay for something, how they value it, what matters to them changes based on how you present it to them, and that's all that I do as a behavioral scientist. And today, I'm going to be giving you three cheat codes of things that you can be doing in your business to help leverage behavioral economics in the work that you are doing to be more effective.

And the first one, building on our significant objects project is to think about speaking their language, communicating to people in the way that they want to be communicated with. I've got another fun little question, shouted out moment. It's my favorite thing. I hope you enjoy them, too.

So I want you to imagine that you're going to order some breakfast. And you went there and you love a yogurt parfait by the way. So you were delighted. When you go look at the menu, they have two on there. They're almost identical. The only difference is that one is labeled as being 90% fat-free the other as 10% fat. So which one do you want to buy? 90% fat-free right? Yes?

I've given this presentation to thousands of people around the world, everybody says that, right? And logically, I know it's the same, but it feels completely different, right? 90% fat-free is like, "oh, what a good decision I'm making for myself" and 10% fats like, "I haven't been to the gym in a year or so, I don't know. That's no good", right? And so if your messages aren't landing, if they're not resonating, if people aren't buying it might not be the price or the product, you might just be talking about it like 10% fat. And if you could reframe that to be 90% fat-free all of a sudden, it takes off, right?

And so knowing that how you say something matters more than what you say. And as you think about communicating with your customers, a main thing to really be thinking about is jargon. Every company's got jargon. Every industry has jargon, you all have some jargon. You know you do. Yes. And as you think about lightening that up, so people can understand it actually makes it easier when their brain is not like wave down with stuff.

And let's take an example of thinking about something like a megapixel. We all know what a megapixel is. But like you, do you know what a megapixel is? And like -- do I need 4.9 or do any like 25? Do I need 50.4 I don't know, do I need 100? What will make for the best experience. And so when someone goes to buy, it doesn't really make much sense.

But if you look for the opportunity to reframe and what they value, what they care about, if we instead say, "Hey, this is good for digital only. This could be poster size or this you could blow up a billboard, if you wanted to". I can very easily say, like, "hey, I can take a pretty good picture. Maybe it will be a poster, probably not going to be a billboard. That's all right. I can be a little humble, but I can make a decision in that way".

And all of a sudden, something that might have been a lot of debate and they couldn't tell you why it was off. But now you know, okay, this is why now it's easier for them to make that decision because it's that smooth transition to something that matters to me. And so if you think about streaming where nobody gets kicked off and the WiFi is always working, and you can do those Zoom calls no matter what, right, whatever it is that people care about is really going to matter for them.

So in this case, your first action step on cheat code number 1 is change the words and you change the value. What I recommend you do to practice this is pick one offer and rewrite how it's described with no jargon, and focus on what customers truly value and see what happens, test something out. You'll be surprised at how impactful that can be.

Our second cheat code is to be worth missing. I want people to remember us and to miss us when we are gone. And we actually have a bit of an uphill battle as we're trying to do that. More questions, how many decisions do you think you make on an average day? We remember how many decisions maybe we made yesterday, I usually hear 2 or 10 or a few hundred, maybe a couple of thousand? But research shows we humans all make an average of 35,000 decisions each every single day. We are constantly in a state of choice, decision-making.

And when you're putting out information into the world and one, you've got a lot of stuff that doesn't necessarily line up or you say we send the e-mail. They must not want it because we sent one, right? But there's more communication to be had.

One of my very favorite quotes is from [ Peter Seidl ] that a brand is a memory. And if your brand is one where things aren't really lining up as you consider that omnichannel experience that you have. So when somebody calls you is the experience what they would expect based on what they saw in an ad that you have out there. If they are using chat and communicating with someone, is it the same as what they're getting on direct mail or if they run into someone at a community event or when they call all these things.

And if it's not, you're just making it that much harder for people to do business with you. And if you were to ask and consider inside of your own organization, if you were to say, what are we about? What do we stand for? Would your employees all say the same thing? And if they're not, your customers definitely aren't all saying and thinking the same thing.

A favorite example here, I've got a picture, okay? So we see this. What I'm going to tell you about this image is that it has no red in it at all. I'll prove it. And sorry for the front row, gets a little bit much on the big screen. And if we still can't see there's no red, right? We now all know, no red, let's zoom back out. Is it red?

Even though it's super pixelated and weird, and there's nothing there and you know it's not -- you can't not see red on this Coca-Cola can when it's up there, no matter how much you try because your brain is so ingrained to know that, that is what Coca-Cola is supposed to look like, which is amazing when we think about it.

And as we think about other brands, there are other opportunities for this as well. There was a really interesting research study done where people were shown a video, and there was just a flash of a logo that came up too fast for them to consciously recognize that they saw it. And at this point, half of the people were shown in IBM, half an Apple logo. And then they went on and we're doing a creative exercise. Those who saw the Apple logo much more creative and innovative in the ideas that they came up with compared to those who saw that flash of an IBM logo but didn't ever actually see either of them.

And so the question I have for you, I had is, is your brand strong enough that if people didn't even realize they saw your logo, it would actually change their behavior. Are you consistent enough on one thing that people know what you're about, that it could be standing that test of time.

For a lot of companies, it's not the case. Not everybody has the budget of an Apple, but they went really consistent with something and you can do that as well. And so your action step for this one is knowing that when we change the memory you change the game.

I would encourage you to ask five long-time customers. If we disappeared tomorrow, what would you miss? This can help to start to understand what people see about you that's deeper than what you might recognize is how you're standing out in their mind, how they experience you, what they love about you and what you can dial in on to help have more impact and lean into as that singular message of what you're about.

What's great about these first two is it's really driving home that point that it's about what people value. I have a book called the Truth about Pricing in which I give you that answer on Page 3, which is the truth about pricing, it's not about the price. Whether or not people buy is not. Everything that happens before matters so much more than that price itself and understanding what people value and think about story and how you're communicating what your brand is about, is a huge piece of that.

And eventually, you do have to talk about price, right? It's going to come up at some point. And that's good. When you do I recommend that you lead high.

Let me show you an example of what I mean for this. So I want you to imagine you're now going in to buy a couch. You've been looking for a while, you find one that you are very excited about. This is the ouch, amazing. And you say to the salesperson, how much is this couch. And they say it is $900. I'm so sorry, my mistake, it's $700. So that was experience won? We're going to rewind, we're going to go back, same couch, same person, we walk up and we say, "How much is this couch and they say it's $500, Oh, I'm sorry, my mistake. It's $700. Do you feel differently about the couch in scenario 1 versus scenario 2, knowing it was never $900 or $500. But in one case, feels like it's a great deal. And the other 1 I got, no, maybe I need to make some calls. There are cheaper couches out there. Where is this thing $500. It's now a very different experience.

And so making sure that the numbers that you put out, the way you present information is so important in understanding how someone feels about the thing that you're actually selling to them. And this is a concept known as anchoring and adjustment in behavioral science.

What we want you to do and to think about is how are you putting that information into the world? What comes first? Look for opportunities to do some bundles, like was talked about here earlier your talking about that, right, and making sure you don't have 15 of them, right? We have a few bundles and the biggest mistake that I see companies make across industries all over the world is that when it feels like we're putting numbers out in there, we want to start low and work our way up, and you do not want to do that, right? We have to start high and work our way down.

The other problem that I see that comes to this anchoring experience is that people will have -- the thing that you really want people to buy. What you know is the best one that they should have is the most expensive thing that you offer, and you should not do that because we want to point to be able to move down from, right?

So what I recommend everyone do in this case is to create -- know what your best product is. The thing that most people buying from you should have that you would like most of them to get and give it a wingman, create a product, a service, whatever it is that you are providing, that's more expensive and that's clearly not the best value per se. It's not something bad. We're not taking advantage of anyone, but it's something that most people don't need right?

You don't have a white glove service. You could add something in for that or how quickly you're responding to people for those who want extra handholding or whatever happens to be. When you can lead with that item, and we know most people don't want to or need that. Its job is not to be bought. It's the wingman, right? It's there to make that best offer look good and for it to get picked up, right? That's the goal.

And when you know what those are, you start with that wing man that's at a higher number, and we work our way down to the real offer, it feels so much easier just like we had with that couch. It makes it easier for people to buy from you. So your action step here as you consider that, knowing that when we change the order, you change the choice, how you architect and present choices has a massive impact on what people select.

And you can just test some things, which is amazing. And when you know your best offer, you can create a wingman for it and make sure you're going to anchor high and build it on that value proposition of what really matters to people based on what we've already been talking about today.

So as we close, I know maybe we're thinking, wow, that was a lot of brain stuff. That's great. And where am I supposed to start, right? And also knowing this is at the end of such an amazing event and conference. Thank you to Calix for everything, been so great. And I know there's a lot of stuff in your head, right? All the things you're thinking you're going to go back and do when you're in the office.

But if you're thinking you're going to do everything, you're so excited about all the stuff, you will do none of the things. Yes, we've all had that I have a talk to this call, there's nothing magical about Monday, my [ TedEx ], where we go back on that day on Monday. We think we're going to do all the things we learned and then there's e-mails and meetings and all this other stuff we never do it. If you want to do something and make progress, implement what you've learned here, which I know you do, I say, just pick one thing, one thing at a time, something to start with, so that you know what you're going to focus on, you can talk with your team about it.

Once you've completed and accomplished that thing, you can move on to the next, right? What's going to be coming after that. But you get that progress, that momentum moving with you and your teams. And I would recommend starting with our cheat codes, right?

So let's show the three of them here again. So one is to speak their language. Knowing that when you change the words, you change the value. For two, we have be worth missing. You change the memory and you change the game. Our third to lead high and know that when you change the order, you change the choice.

And these don't have to go in this order, right? If one speaks to you, leave with that, that's great. But being able to move in and do something and know that these can have impact, you can start testing things. You could do a little reframe on your sales calls, right? You can have your teams doing different things, test them stuff out and see really amazing impact across your organization without having to invest a lot of money, which is my favorite part of behavioral economics personally. And so I hope you've enjoyed it. I've enjoyed being here with all of you today. I've been [ Molina Palmer ]. Thank you.

Wasn't that amazing. It's still true. Thanks for tripping with my mind actually. I still see red. Anyone did not see red? Come on, to be honest. Maybe you want to pixelate your own logo and see if you have the same effect. But this is just mind-blowing for me, but first of all, thank you so much for enlightening us. I have three questions for you. .

I mean, generally, what we tend to do, we market functionality, like multi-gig speed, managed WiFi, symmetrical connectivity. What can we learn how we need to talk to our consumers somewhat differently. I think you had it on the digital billboard. But what was the essence Right,

Absolutely. Yes, is to just think about that framing and things that people value, right? I can tell you, symmetrical connectivity does not mean much to me. And I do have a lot of devices in my home and things like that.

So if we think about communicating in that language that understand the different -- my son can still be playing on the PlayStation and on his iPad while the other kids are all doing things and my husband is working. And I have to do a really important virtual keynote and I'm not going to lose that connectivity, right? That matters to me, right? You can make sure that, that reliability is there, these things that people care about.

And even if others offer that as well, you can position it in a way if you're talking about it, they realize, "wow, that's amazing. I'm so glad that you offer that. Thank you for letting me know".

Super distinct essence here, and hopefully, we can take that home. Second question I have for you is proven very effectively that our brain gravitates to what we know what we're used to, right? Yes. How can we remove this friction?

Yes. The best thing for knowing humans have a familiarity by us. We're really built on habits. And so when you can bring in that consistent messaging and communication that we automatically, "when I hear your name, we think what, right?" I hear you, I think of this. That consistency across the messaging is something that's going to go so far for you.

You think about maybe at Coca-Cola, they'd be sick of the color red and want to shake it up every now and again, right? But no, right? We have to be consistent in that way, so that it holds through for customers.

Wasn't Coca-Cola Zero black?

Oh no, not anymore. They've changed their packaging. Everything is read now actually.

See, tripping with the colors.

Maybe confusing but yes. .

But in essence, I mean, what we want you to take home is actionable advice. So for the leaders here in this room, what would be your guidance? What can we take home implement at home?

Yes. Well, I hand every episode of my podcast with be thoughtful. So I would say being thoughtful out in the community saying, "Why would I open this -- why am I interested in this? How did I know that with spam, right?" That's one thing and then know what you're doing in sending that might be in the wrong category, but also in that, just pick in something. Any of those steps that I put up there, whatever resonated with you, just go try it. do something and see the power that comes from that. .

Fantastic. Once again, big thank you for [ Molina ] here.

That was fantastic to oftentimes take a step back consciously and really think about what we're doing every day to reach our audience, our customers. And I hope it gave you a couple of thoughts how we can think differently about it.

But now back to the agenda and to more hearing from your peers and hearing from your partners, play the video.

[Presentation]

What a great introductory video to a great story. When [ Greg ] and I were preparing for this interview, he told me that electric cooperatives have always been terrified at telling their story. So I'm glad you're up here today to share your story, [ Greg ].

Let's go to the start. So when we were prepping we talked about the fact that electric cooperatives had always been really, really good at building infrastructure. They've been really, really good at building reliable services. But from day 1, you knew that connectivity wasn't going to be enough. Tell us about that story.

Yes. We're terrible telling our story sometimes. I think we're humble to a fault, but all of a sudden, we're thrusted into this industry. Well, I guess we've volunteered to but we're in an industry where I've got nine competitors in different places. So we've got to tell our story. We've got to talk about what we're doing. And centering that around experience has been really key for us.

I tell our Board all the time, you can't think local. You've got to get into the community and talk about what we're doing and telling how we're superior.

Yes. Great. I think being a trusted neighbor is a really important part of that equation. You talked about lots of competitors. You told me that when you actually launched our services, you knew that there were several well-established, really financially healthy competitors in your market. So what was your strategy for dealing with that when you launched?

Well, it's fine. You mentioned that we -- was getting ready Thursday of pops and ad and social media, $19 a month, $300 gift card from one of our competitors. They just keep getting cheaper and cheaper and cheaper. We knew upfront that we had an opportunity to do something that they were failing at. Every time you look around, you would hear, I hate my Internet company. I hate my provider, and we didn't want to be the next provider that nobody likes.

So we had an opportunity to really from a standpoint of staffing to bring in just an amazing team, and that's how we got here with this fine team of employees. But we took a blank slate really approach and said, okay, if we could build the ISP of our dreams, what would it do.

And some of these guys came from our competitors, and I said, "Hey, bring the things you like, but the things that drove you nuts, your whole career, we can fix them. If we can just find a way to build that ISP of our dream".

So that's what we did. We really have a fun time doing that, and we pivot almost every day, but we now have 11,000 customers, about a 50% take rate, about a 50% giga [indiscernible], I'm really proud of.

And most importantly, and this is just a big point of pride. Our NPS score for the last 3 years has gone 90%, 91% and this year at 92%. So we're just really thrilled and humbled.

That's fabulous. And obviously, I think if I recall, 5 months to deliver first services and going to be profitable sometime soon, right?

Absolutely. Yes, we were cash flow positive 2 years ahead.

So that's fabulous. Well, look, ConneXions is all about sharing stories and people learning and inspiring other stories. And you told me when you left ConneXions last year, you were motivated and invigorated again to go do more. Tell us everybody about what you learned at ConneXions last year? And what plans changed as a result of that?

Yes. We had been watching what others had done with persons with database selling. We knew we needed to go there. And we had some probably paralysis by analysis, but also some technical challenges, not just trying to figure out pricing in our marketplace but also half of our system was [ XGS-PON ], the other half wasn't. So we had to come up with some dollars. We had to come up with some technical plans for how to deal with that out in the field, down to how do the text deal with it installs.

So it took some work, and we left you really challenged, motivated. We're going to get this done, and we did. This spring, we kicked off five new plans. Unlike our competitors, we went up in price across the board, we threw in a lot of value and we throw in Protect IQ to every new account most. The higher tiers got experience as well. So we're excited about that.

We also added multi-gig WiFi 7, and we're going to be rolling out smart down here. So the great outcome of that is in really just 5 months, we've raised our ARPU of about $0.75. We've got -- we have budgeted for about a 5% take rate on our 4 gig product. and we're at about 11% now. So we're thrilled with that outcome and really excited. We've got about 10% or 11% of our customers on one of the new personas already.

Look, we hear that all the time. When you compete on value, you deliver more, you really destroy the competitive story of just selling on speed and price. So well done. Your video talked a lot about the extension of connectivity beyond the home and into the community and the fact that, that had. You also said you would just finished your plans to start launching SmartTown. Tell us all about what's going on there?

Well, probably outdoor extender experience really came from some community needs. We had a local chamber of commerce that wanted to start a fireworks event and everybody likes fireworks. But unfortunately, the location of recreation complex, where this is going to take place had really almost 0 cell phone coverage, maybe 1 bar most of the time. So the community wants to bring in food trucks. We're souther you cannot have a successful event without food. Probably fried food being honest. So it was a real challenge. So they turned to us and said, "Hey, you helped us with bringing broadband here, can you fix this?"

So we took on the challenge, and I'm not going to ligand tell you that it was great at first. We put in a couple of APs and we figured out very quickly that the human body is full of water when you put 5,000 people a place that really kill signal. So we learned from that and we put up some more APs, the Calix team is really helpful with the technical support for that. But today, I'm proud to say we are the -- one of the presenting sponsors we're the Internet sponsor offer an event that draws about 5,000 folks on site. And as you probably saw from the photos, we gave away hundreds of beach balls.

And the person who sees the event the idea. Let's place some games with your beach balls is that, okay. So you've got hundreds of beachwalls flying around and kids taking beach balls home with our logo on them. So not only did we need a community need that's ongoing, it's something we can work off of. But we sent some swag and some rating home too.

So -- that's awesome. Well, listen, I want to say congratulations. It sounds like you not only built the ISP of your dreams, but a great business as well. And hopefully, this story inspires other people in the room here to go away and follow through. So congratulations.

[Presentation]

Thanks for spending some time with us under the big lights. I know it's not your first time. So I can imagine you probably have a pretty dialed in morning routine, you fueled yourself well before we started?

Well, if [ Durocher ] asked, it was Domino's.

Okay. I won't ask what you were doing last night that made you need a domino's for this morning, but alas, here we are. Thank you for joining us.

United Fiber has become one of the most widely respected fiber providers in our industry. And the reason for that or one of the core reasons for that is your commitment to continually growing and evolving your strategy?

Can you tell us a little bit about the evolution from being a fiber provider through taking ownership of the experience inside of the home with managed WiFi and then most recently, including managed services in your model.

When we started off back in -- we showed it on the graphic, that 2013 was our first subscribers. And like many, we're owned by an electric co-op, very rural area. We started to basically just get our members a good service. They really needed some type of some type of an Internet connection, and we've now given them a world-class one.

But we really started off with this with the concept came from Calix early on when [ Carl Russo ], the first time I was here and heard him talk back in 2011 was about owning that customer experience because many people at the time were just putting the ONT on the side of the house and not wanting to mess with that.

So we started from that premise, that we wanted to own that experience. That's what we're all about as a company. And so it really helped us get started off on the right foot.

And you're one of the people who stood up yesterday of being here 10-plus years. So thank you for that commitment.

I know that over the course of our partnership, you've shared with the Calix team many times that one of the pillars in developing your strategy is listening to your subscriber. And in doing that recently or more recently, you've uncovered a need that was a little bit unique to that from your residential subscribers. And that was the small business owner that led you to rolling out the Calix small business solutions, [ SmartBiz ], can you tell us a little bit about, as you have embarked on that process, when did you realize that providing for a small business owner was about more than a reliable connection?

Well, much like the managed WiFi that we've done in outdoor WiFi and all the things we've done for our residential customers, we saw that same need for our business customers as well because they were coming to us and whether that's phone service or different things, we've filled a lot of needs for those folks.

And so what we saw was that natural progression. We had a very limited WiFi connection for our business customers that really just didn't seem to be hitting the mark. So when we saw [ SmartBiz ], it's like this is perfect. This is that continued evolution into what we want to do as close as we want to be to the customer that good partnership. So we really started off. Our teams picked it up, and we started offering it. And so it's really been a natural progression, and I know we'll talk a little bit more about some of the challenges we face, but we had some roadblocks early on, like we do in many things, but it's really become a very successful product for us.

Great. I love hearing that. I also love to hearing you talking about the internal process as well as the end process, bringing the team into it, et cetera.

I think one thing in this room, we can all agree on, no matter what model business we are running is that growth is on our mind. In one of my meetings yesterday, one of our customers said to me, we know we need to further differentiate. We know we need to become or remain competitive, but we don't have margin to miss right now. Every investment we make has got to hit. Well, how do we go about making sure or having a higher propensity for things to hit well?

Look at this room. There are thousands of us in this room and thousands of you that are doing remarkable things and having wide success with it. Admittedly, there are also a few folks in the room who have stumbled along the way and we need to learn from one another. So in the spirit of sharing, can you tell us if you have the lessons learned as you launched and then I know you evolved your [ SmartBiz ] solution.

Yes. We talked about listening to the customer. That's where it all starts. But then you have to listen to your teams because frankly, I was probably the roadblock to start off. They came to us and said, "Hey, this smartest thing, we can sell this, and I think we can get $30 a month out of it". And I'm like, "no way. I don't think you can do it, but I like your attitude. "

So we talked about it more. We have decided that we would give a range of $20 to $30. And now success we've had is they've proven that, hey, we can do this. We knew the customer had a need, they saw the need. And sometimes it's just listening to both sides of the house, like you said, and then making sure that everyone is aligned once you start doing this because that's the other piece of it is whenever you start something like this, if you just put it out there, this is just not a product you put out. I mean this is something that you really have to talk to your teams.

After our sales team did such a good job, then somebody what became sometimes with the tech. They may not understand what the need was. So when we became successful is when we simplified the message, we talk to our teams and put them all together in the rooms and everybody got on the same page, and that's what it really took of.

Well, I feel like there's so much to unpack there, but I heard a few key things. So one, as a leader, you had to trust the people you brought in, who were doing the research and maybe had some expertise or some ideas that you hadn't thought of before for ways to evolve or grow your business.

You also -- one thing I really like to use said there, every single unit of the organization had to understand why is United investing in this initiative? And how do I help it be successful? And then you also had to understand why would a small business owner care about this? And how does it improve their life?

Yes. So I mean -- and it's just it because there's two pieces to this. We want to be as close to our residential customers and our business customers as we can because that's why we're going to be successful in the long run. We cannot compete with every lowball offer we see out there and those types of things. And it's really just fulfilling that need, listen to your teams and given them the tools they need to be successful with it.

That's great. I mean I think everyone in the room is looking at their phone or looking at us, but I can be sure that on this giant screen behind me, everyone has seen this 125% year-over-year growth. Congratulations I imagine you're going to walk off the stage and be inundated with people say, "Yes, yes. Thank you".

Well, and I want to say this has a lot to say about our teams because they're the ones that have taken the ownership. They're the ones that have made these numbers happen. And that's really what you have to do is trust them, trust that customer need and put it out there. And like you said, we have to look for every revenue opportunity we can. And these things have just been such natural fits from the time we've done in-home WiFi, outdoor WiFi just we provide and things like that.

So again, we just look to continue this, and we're excited about the things we hear here smart MDU, the other pieces that we can bring to market and help us be a better company.

I love that. So I think what I have heard overall is need to continue evolving, continue growing. You need to keep the subscriber at the heart of your strategy, I think that feels like game on. Thanks for the time.

[Presentation]

So thank you for joining us. So just before we start, I had a question. How is your makeup experience?

Interesting. I heard of the powder yesterday, but no one told me about the lit close. So that was the lip loss I learned it's kind of like going to the dentist. You don't want to hear oops. And when you said the makeup care, you don't want to hear the makeup parters go, "Oh boy".

So listen, thank you very much. for joining us. I thought maybe you could start off by telling us a little bit about BlueStream. And in particular, you folks have been doing a lot in the bulk area and HOAs and MDUs. What does it mean for your business? And why has it been such an important part of your growth strategy?

For the question. Before I get into that, I just want to say thank you to Calix. So yesterday, we heard Michael and John thank the crowd. About 3 years ago, we came to Calix with a problem. We're just getting into the MDU market, and we needed to work on our resident experience our first property called Oasis, installs were perfect, 4.9 out of 5 service experience, which was tremendous for our first community. Three years later, every community thereafter, 4.9 out of 5. Is that better? Can you guys hear me? .

So 3 years later, 4.9 out of 5 and all communities. And if it was a Vocalics and smart MDU that would not have been possible. And also we have other vendors in the crowd that make a difference for us. So a little bit about bulk connectivity and why we think that it's the model that really works for us. I'm going to break it down in three words: commitment, responsibility and value.

Commitment. Just imagine those decision makers and the HOAs, the boards, the developers, the asset owners. They need to make a choice. Do I remove choice from my residents? How are they going to feel if I make a bad mistake. Our contracts with our communities range from 8 to 10 years. That's a huge commitment. That's guaranteed ARPU with a huge upside on upsell. We need to make it work. That's a lot of responsibility on BlueStream, and we take it on. We know that service makes a difference.

We provide a dedicated account manager for every community. We provide a dedicated phone number for every resident. We also make sure that all of our contracts, regardless if it's a 100-unit property or a master planned community of 15,000 units, all of our contracts have service level agreements that are the same. We have a 99% -- sorry, 99.9% uptime guarantee. We guarantee that we're going to pick up the phone in 60 seconds on every phone call. We also guaranteed that we're going to get a field technician out to their property on the same day if they call us. We want to take the burden offer the property managers, or for the asset owners, after the developers that we need to build that trust with.

And then the value, the properties, they're looking to have a differentiated amenity that they can provide to their residents. So we're providing them with a reliable future-ready connectivity. And the residents are going to have dependable service across their entire community. And for us at BlueStream, we're building on that 8- to 10-year contract, making sure that we're turning all of those properties into reference properties, which we're very proud of. We have a 90% reference rate, and we also have a high 99.5% renewal rate. That's really where it makes a difference.

So at the end of the day, if the property, the resident and us at BlueStream fiber are benefiting, it's a relationship that's built to last for a very, very long time.

To some impressive results. We backstage here telling me a little bit about how some of the expectations inside the unit by the residents is starting to shift. So maybe you could help us understand a little bit more about that.

Yes, absolutely. If you speak to our sales team, the last couple of years, the conversation was always about speed and connectivity.

At this point, fiber is all over the place and speed, there's more speed that customers know what to do with. The conversation has really turned into a more stronger strategic conversation around the full resident experience.

Residents want wall-to-wall WiFi, not just a connection coming into the unit. The properties, again, are looking for that differentiated amenity that makes it easy for them to get residents into their communities. They want the property management group to have less friction, the on-site staff, making sure that the move-in, move-out process is effortless for them.

And then for BlueStream, it's being more proactive, being more responsive and being totally focused on that resident experience. And with Smart MDU, all of those are green chatbots, and we're ready as you go.

So about a year ago, you chose start deploying smart MDU and growing very quickly, you've deployed thousands of units. What is it about Smart MDU that's allowing you to service these changing expectations?

Smart allows us to manage around the connection, not just the connection going into the unit. It makes it very, very simple for the employees and also for the resident and again for the property. They're looking for that differentiation.

We know that connected devices are going to continue to increase. We know customers are going to continue to stream and stream more. More and more people are working from home. We want to make sure that we have the answer for them, so they don't need to look for another provider.

Again, at the end of that 8- to 10-year contract, we want them to renew with us. Technology is going to continue to matter, absolutely, but the expectations of the residents are also going to continue to increase.

Smart MDU. I was just at the 8:30 session with Jacob and Brandon. The road map for Smart MDU is tremendous. It's solid, and I can't wait to get rock enrollment with those enhancements. It's really going to continue to make us a leader in the MDU market.

All right. Well, Milton, thank you so much. I appreciate the time.

Absolutely. Thank you look making your flight. Run Forest, run.

[Presentation]

Please welcome, Corporate Vice President, Partner Community Calix, Steve [indiscernible].

That's a big version of me. Good morning, everybody. Sorry for the voice. I'm a little froggy, but I will push on through.

So Michael put us on notice yesterday morning that the word we'd be hearing a lot of during this conference would be together. I want to talk about a word that's very close to that and very near and dear to my heart, and that's community. Specifically, the partner community that comes together to serve all of you every day as you deliver value to your customers and win in the market.

For me, I'm incredibly proud to be on the team that works with that community every single day. So what I want to do now in building on Juergen's metaphor at the end of day yesterday, is remind everybody that, that community is your extended bench as well to help you compete and win in the marketplace.

So let's scope down now from the entire community to a single partner, and that's GAIA. We've got the CEO and Co-founder of GAIA with us today, along with the CEOs of two of our shared customers. And so without further ado, it's my pleasure to welcome to the stage the panel for today.

So welcome [ Timothy May ], CEO of Direct Communications; [ Rachel Solomon ], Chief Executive Officer of [ WECOM ] Fiber; and Mark Campana, CEO of GAIA. So let's start with some introductions. So Rachel, why don't you lead us off and tell us about [ WECOM ] Fiber, you and the team.

Sure. Thanks, Stephen, and thanks for having us here today. Thanks, Mark. My name is [ Rachel Solomon ], I'm the CEO of WECOM Fiber, and we're an Arizona-based fiber company. We have line of sight to about 270,000 passings in the future. and we're the largest bead winner in Arizona. So we have a very exciting and very busy future ahead of us.

No doubt. Timothy, why don't you take it away on talk about direct communications and how you got and where you are to where you are today.

Perfect. Just like [ Rachel ] said, thank you to Calix for allowing us to be on this panel. My name is [ Timothy May ], I'm the President of Direct Communications. We have operations in three different states in Idaho, Louisiana and Maine, and I know that sounds strange to be so far apart, but they are beautiful places to visit. At least that's my wife's saying.

So we have about 17,000 broadband subscribers with about 16,000 MDU units that we service. across the country.

Fantastic. And last but not least, Mark, why don't you introduce those to you into GAIA? .

I'm Mark, I'm Co-Founder and CEO at GEA. We are the fastest-growing USS, BSS in the industry in the U.S. right now. Everything we do starts with the customer experience and we work backwards from them. So we help you create amazing customer experiences, grow your business and reduce your operating costs.

So let's turn our attention now to one of the themes at the conference and that is, of course, artificial intelligence. So I'd love to hear from both of you about how you're thinking about AI, how you're leveraging AI. I know you're thinking about leveraging the AI brought to you from Calix. .

Yes. Thanks. So for us, AI, as I mentioned, we have line of sight to 270,000 passings. And if we have to hire in all the people to scale to that extent, it stops making economic sense for us to do what we're going to do. And so this is where AI comes in beautifully and helps us become the large fiber carrier that our vision is to become without the large fiber overhead.

And that's exactly where Calix and GAIA are helping us. A perfect example of that. Right now, 80% of our orders when a customer enters right from checkout, all the way to the order hitting the tech are done without human intervention, no human touch. So that flows beautifully. It allows us to, again, scale but not necessarily with headcount, and it gives a better customer experience, quite honestly, and so we couldn't -- we're just so excited about where we are today, where we're going and what AI and this collaboration with you is going to provide us.

That's fantastic. And Timothy, what about direct communications?

For us, we look at AI as a tool. I mean, it's something that augments people. It's not something that's going to replace them. It's something that's going to help them do their jobs better. We would love to be to the point that WECOM is at able to get those workflows on the back end. .

We'll talk afterwards.

Yes, we will, unfortunately. But we're trying to get to that point where we can get our people to be able to handle the proactive side of it. We don't want them to be sitting behind being reactive to the things that they should be doing, which is better helping our customers. They want the human touch our customers do, and let's have AI handle a lot of the back-end stuff that is more meaningful or not as easy for them to handle. And so that's kind of the way that we are looking at AI is a tool to let them do their jobs better.

I love that. And I know you were joking, but that's again, back to community. That's one of the best parts about being in the industry and the community that we're all in is that there is a lot of sharing going off, right, in best practices.

So one of the things we heard about yesterday toward the end of the session was how, in our opinion, and I think probably in many people's opinion that the best unit of labor today is really not a person or agent, it's person plus agent, right? It's employee plus Agentic support. So building on that theme, how do you think that as you think about leveraging AI within both companies.

Yes. We really believe that install is the next frontier and where we can go with that because today, when you have a tech on site and they can catch a problem quickly and the driveway or even better in the home, that's a 5-minute fix. If they've already left the home in a week or 2 weeks later, a customer is the one calling in with a trouble call, that's a support call, that's a truck roll. That's a really bad first impression.

And this is a fairly competitive business. as we all know quite well. And so that's not the impression that we want to leave. That's not the standard that we've set our eyes on so with AI and again, the collaboration with all of our companies, what we look at is how can we leave that home in a perfect place for every customer, every single time leaving the best impression possible. And then they become ambassadors for us in the communities that we want to serve.

It makes tensions Tim, what are you thinking about?

For me, I look at AI and the partnerships that we can make. I mean, AI is going to allow us to have better partnerships, whether it's with Calix, GAIA, because we're going to be able to implement those partnerships a lot faster. We're going to be able to make that happen for our customers a lot faster. It's not going to be this 1 year time frame that we're waiting to implement some software or some strategy or process. It's going to be instantaneous with AI.

And so for us, we want to see that be a faster process so that we can compete. Because as Rachel said, competition is there, and we have to be ready to act quickly and make those decisions quickly, and AI is going to be that differentiator that's going to allow us to do that.

That makes total sense. So I want to pivot then to from talking about agents and people to agents and agents across platform. And that brings me to a conversation with my friend, Mark. So literally, I'll tell you, sorry, so I was on stage last year in this panel, and we had different partners and different customers, and it was great. And I was approached. I'm my friend here right afterwards. And he said, "Stephen, why aren't we on stage? Why is it GAIA? Like we're doing amazing things and we should be the ones you talked to you". .

And first of all, I love the energy. So Mark and I sat down literally at lunch after this and for months after that and really dug in to what they were doing and what we were doing and how we do it together. And my boss, [ John Drose ] and I have met with his leadership team and understood how they're using AI not just to build their products, but to build the company and really leveraging it to grow. And so that began a really deep partner that culminated about 2 months ago when we decided that you guys would in fact be a great partner to have on stage with some amazing shared customers.

But it wasn't enough when Mark and I were talking say, okay, we can talk about all the times we've held hands and skipped through the graph together as lovely partners, what can we do? How going to roll up our sleeves and have something interesting and fun to talk about when we're on stage. And so we got our engineering teams together literally like 6 weeks ago and issued them the challenge to build something that we could talk about.

And first and foremost, something that wouldn't be a science project. something that was worthwhile actually having for important customers and be the first of a series of workflows that we would automate. And so the teams got together and shifted around priorities and I think a quote that I remember from one of Mark's engineers was, we don't mind working weekends. Like, okay, that's great. And let's dig in and see what we could do, right?

And the expectation wasn't we were going to show a demo. It was we would actually be working together to build these use cases that hopefully by, say, the end of the year, we can have you guys trialing.

So they dig in and did that and we did some ideation about what would be great use cases. And we landed on the first one to talk about, which is network instant, which is actually new service installation, which is something the ear and dear to all of our hearts because selling new services and installing those services in the homes is something that's really important.

So the teams dug in, and I was on their case to have something that we could talk about in time. And so about 3 or 4 days ago, the team sent me the detailed flow chart of what the workflow would be that they were working on. And I said, "That's great. We can actually take everybody through that. "

So what I'm going to do now, and this is -- you guys are going to love this is I'm going to show you in detail the work that they've been doing together to automate what they're building. So -- but I'm actually going to show it to these guys haven't seen this. for a second, and we're going to start when I should never turn my back to the audience, that's [indiscernible]. So like do you guys want to see?

So this is perhaps not working out. So maybe what we should in fact do is have Mark take you through a somewhat more abstracted version of the use case on the bigger screen. So let's get that one going.

So Mark, is this renders, perhaps you take the audience through something not as authentic and detailed as this, but it does represent the work that the teams are doing together.

Okay. I won't read it all. Long talk. But at the end of the day, we're all about the customer experience, Calix and us. And there's a lot of things that can go wrong by installing the customers. And unfortunately, as humans, we forget, we forget things, the coordination between the different departments gets complex, and that's where AI comes in. GAIA has great AI agents, Calix has great AI agents that takes part of the process and automate or assist your team to be able to deliver this amazing experience. And that's what we're showing here.

So there's four components. There's the installation prep. Do you want to elaborate a little bit on the infra?

Yes. I think one of the most important things is making sure that when the installer shows up to install the service that the customers asked for, they have, I don't know, the right gear on the truck, the right pre-provisioned the customers in our customer database, things are ready to go, so there's not a lag of, "oh, I forgot, I don't know where I'm going et cetera, et cetera". So there's an agentic coordination between Calix Cloud and the GAIA platform to make sure that all the data that was asked for, perhaps in the call to the contact center or the interaction with the website is available to the tech when they come.

Then when you get to the actual installation day, obviously, this is a human behavior. So the installer shows up, but you have a genetic support, whether that's the Calix install app, guys sitting in the background watching to guide the installer through the rapid and well done execution of the installation, ending with a birth certificate that is then pushed up to the cloud, so we know what was installed and where.

And for example, endpoints weren't moved to behind a refrigerator because they're ugly. And that leads us into the third step, which is the follow-up checks that GAIA and we run to make sure that installations as represented by the birth certificate, signal strength is still where it should be, services well and functioning properly.

And then finally, the Agenda collaboration ongoing between [ CommandIQ ] was the endpoint in the home and the GAIA platform in the back end to ensure that as the customer enjoys and grows with the service, the service continues to perform and we can identify new service opportunities to sell them in the future. So how does that sound? Does that sound like something that would be good for you guys?

I'm ready for it tomorrow. When is it coming?

Hey, you people have engineering this, get on your horses.

Yes. It is fantastic because again, this is the next frontier for us. And you all for this conference, your theme is game on. This is game changing for us. And we all know that our techs when they're in a home are the heroes for the customers. this and all that you all are doing in the collaboration with us and being great partners and listening to what we need in the field, you're literally putting caps on our technicians. So thank you.

1

Simon, is there something you'd be interested in having a direct communications?

Oh, yes. I mean I think of some of our technicians and things like that, they are awesome people, like they are out there. They are great with the customers. They're great with the individuals, but everyone has a human error. Everyone makes a mistake. And so having something that's kind of that check that's allowing them to know, hey, I can do this better. I can service this customer better, and it's an opportunity to upsell that customer. It's an opportunity to tell that customer, "Hey, we noticed this in your system. We heard this on the background. That partnership between GAIA, Calix and us is going to be exponential for not only our company, our technicians, our employees, but also every customer that we service.

We love that. And we're very open and we'd love to have a discussion after the session as we go along about what are the next use cases that we can collaborate on to bring to you both.

So I can see from the clock, we're winding up at the end of our time, and we have another session coming up. So as we transition, I want to thank the panelists very much, Timothy, Rachel, Mark. And again, I want to thank the partner community that works together and for you every day to help you compete and win in the marketplace. And as we transition from this session to the next one, I want to highlight some amazing work that's been done over the past year by showing you a video of the winners of the 2026 Calix Partner Innovation Awards. Let's run the video.

[Presentation]

Please welcome Chief Customer Officer, Calix Nancy [ Tishan].

Good morning. Good to see you all. It has been a brilliant past couple of days, and I am absolutely thrilled to be standing with you all right now. And when you're 5 foot, there is nothing better than standing in front of a 20-foot version of yourself, especially with a title like Chief Customer Officer shining there in bright orange.

Now in a world, though, where titles are inflated, let's face it. What does it really mean to be the Chief Customer Officer. Well, I have the privilege of leading the team that support you all, helping you achieve outcomes, realizing value faster and even in turn that you delight every single one of your customers. And honestly, it's one of the best jobs that I can imagine.

My north star is your success, and I spent 2 decades walking a mile in all of your shoes. And you just can't take that out of the girl. And I wake up every morning with a relentless focus on helping you all achieve your outcomes.

When I think about the Calix team too, I know every single one of them are going to not stop until they've made sure that every dollar and euro or pound, I don't know who's in the room today, that you're getting a full ROI for all the investments that you've made in our solutions.

And so you're at a phase now where you probably heard quite a few times over this conference compete to win. And so what I would like to do is be able to share with you the way that we're reimagining the customer success organization to help you take advantage of all the opportunities that you've seen over the past few days and really bring them to life.

So my career, it's allowed me to see a lot of different success organizations, numerous ones from different angles, whether it be scaling success for millions of SaaS customers at Intuit, building award-winning, consumer support at Virgin Mobile twice or transforming the customer experience at the Telecom Giant Bell Canada. My compass though, has always been one simple truth. You all choose us. And that is a privilege that I or my team will never take for granted.

We serve you, and that is our job to be there to meet you whenever you are at or wherever you need us. When we don't have an obvious answer, we're going to make sure that we figure that out with you together transparently.

And lastly, my favorite one, we are your advocate across Calix. And I promise you that your voice will always be heard. I might be small, but I'm a little bit mighty.

So I don't know how many of you in the audience have teenage daughters. If you do see a few nods, you probably know about [ Brandy ] [indiscernible]. Well, I can't make this up. They have one size for every item that they sell, and it's tiny, and it's one size. And I don't know, but this world that we live in does not come in one size. Let's face it. You could put me in your suitcase -- and I don't know if Scott Hendrix, are you out there at 6-foot 4, there's no way he's going to be fitting in any one suit case today. And so my career long motto has been forget the golden rule. Don't treat the customer the way that you want to be treated and treat the customer the way that they want to be treated. And it's because you are all different. It is our job to listen, understand and then personalize the way we show up to drive your success.

So Juergen talked about the AI toolbox. It's [ Chockablock full ]. It's full of Calix solutions and our partners and our customer success organization. and it is yours and it is yours to deploy and activate in any way that you see fit.

So if you're kind of a Home Depot DIY type, and you want your teams to do it themselves. We'll train them. We will advise them, we'll assist them and we'll get off the pitch. If, however, you want a little bit more specialized resources, and you want us to come in and do it side by side and do it with you. We have engagement models where we can come in and make that happen or you might be wanting to just say, I am ready to hit the accelerator and we want you to come in and do it for us, and we've got teams ready to jump in right now and help make that happen. You get to determine the pace, you get to determine the investment, you get to determine the resources that allocate that is the organization that we are building for you right now today.

So let me share with you the simplest equation that I know. AI plus PI equals ROI. We all know how powerful AI is it can spot a subscriber that's thinking of leaving before they've even made their mind up. PI is people intelligence. It's the human judgment, human empathy, it's human experience. It's the context that only all of us can bring. It's because you know your communities inside out. You know why your Board wants you to go chase after a certain market segment within your region. And so AI without PI, that's products that people don't buy, it support that people don't trust and it's operations that go real fast but in the wrong direction. AI plus PI is where the greatest return is at.

So I'd like to say to you all before we do anything else, why don't you guys get your experts, I'm going to bring mine, and let's do the best work of our lives together.

So our new structure that we're building is optimized to serve you. We are more focused, more nimble and more strategically set up for the challenges that we're all facing in the industry today and what is ahead of us. When we step back and looked at it, we realized, we can't support an AI transformation and evolution if our organization is built on a legacy model. And so we don't just preach transformation. As John said, yesterday, we are embracing it internally.

Our new customer portal, we've just put it live. I think it's always live. It's super exciting -- thank you, Mike. I see you there. And it is full of all the digital assets that you need in one place, when you need them, when you need them. And that's where we're taking our transformation to be there for you when you need us.

So over the past year, you've been telling us about some of the challenges and opportunities that you'd like help with when you start to take on a transformation. And so here's our favorite 6. And I'll just step through them with you.

The first one is I suggest you start with one meaningful outcome that you want to achieve, whether that be reducing call center costs, optimizing truck rolls or accelerating acquisition.

The second one is train your people. This is new. This is fresh to all of us. And they don't yet have the skills around disambiguation. The machine having intent classification, how do you do best-in-class handoff to humans.

The third one is around optimizing your data. We need the workflows and the automation to operate on clean data. What is the status of your contacts that you have for your customers in the CRM. What do the CRM logs look like? If that data is dirty, garbage in, garbage out. And you do not want to be McDonald's who turned on their AI drive-thru and allowed customers to order bacon milk shakes.

The next one is measure the impact, no, you've got it right.

And then lastly, when you have repeat the success, scale and make all of your customers' dreams come to life.

So most people don't know this about me, but I used to be a competitive figure scatter. And I cannot explain to you the trepidation and anxiety when your coach for the first time, comes to you and says, "You're going to do it today a triple axle". It's terrifying. But in your heart, you realize that if you don't master that one specific element, you will never stand a chance of being on the podium.

And so as John said yesterday, we are at a point now where courage and confidence will be the defining factor for long-term success. And so I hope that I've made the case to all of you that we could join on this transformation journey together and be confident.

And I would actually like to just I have a special person with me here today. And if the crew in the back could play the real, I'm going to show you what's giving me confidence.

[Presentation]

[indiscernible] Roxane, and her mom, Hi. So I am feeling confident. I see green shoots, I see momentum building. With every new release, our functionality gets better and our friction gets lighter. I also feel confident because we have some of the best minds in communications, scrap that, the best mind in communications in this room, in your teams with our partners and also with our team at Calix. And lastly, I feel confident because every one of you in this room has made a promise to your community. A promise to stay modern, I promise to be competitive and are promised to stay future-proofed. Our only purpose is to help you achieve that promise.

And so in closing, it is an absolute honor and privilege that you call us your partner, lean into us, lean into 1 another. This is our moment. This is our time. Let's do the best work of our lives together. Thank you very much.

We welcome back to the stage Chief Operating Officer and Chief Unicorn Rider. John Durocher.

Has anybody seen year, I've been looking all morning for, I cannot find it. Okay. If you're no help, I'm going to just bring the show to an end then with one more story about history and history can be made by the bold. Every big idea has always been met by a course of naysayers. It can't be done. It will never work. No one would buy it. And the bold did it anyways. And because of that, we remember all of their names.

So let's look at these moments of history, Thomas Edison. Thomas Edison told the world that he was going to light up in New York City, and he didn't even have a working product. Steve Jobs got up on stage and showed everybody the iPhone, right? We all remember this, thousand songs. Well, as competition last at it and said, it's got no keyboard. It will never work. And then my old boss, [ Mark Benioff ], told people that, it's the end of software. You're going to put all your data in the cloud. And I was there, and the client said, we're never doing that. Clearly, that didn't happen, right? They changed the world.

What was the common thing that they all had. One is they had some breakthrough technology, right? Edison, the light bulb, Steve had the smartphone, Mark had the cloud, and that was really important. But there are two other things that I think were really the thing that made that technology possible and that was having a huge goal, audacious goal, and then having purposeful action. They committed to it. They were going to do it no matter what. That's how you execute.

This room has done this before. You had audacity. It's part of your DNA. You brought broadband communities. They said, it doesn't make any sense to do it. And you made it happen. You connected these communities and you created new opportunities for everybody that lived with him. This is why I joined Calix because I was so committed to that. I moved away from my small town because this wasn't happening 25 years, 30 years ago.

The other thing that you did along the way, and we've heard these stories in the last couple of days is, you challenged conventional a wisdom. I told you the story is about Domino's and Shopify and Aura, but you've done it as well. You've challenged what was in front of you and said, we can do this differently. And that's what makes it so exciting.

Now the future isn't about enabling AI right? Or deploying AI. It's about employing AI that you can believe in, so that your customers, your prospects, your employees, all answer these questions. Yes, I can trust it. It's secure. It's predictable. It's actionable because if they don't have that belief, there is a big problem. Let me show you a video.

[Presentation]

Here's the question. Does he ever getting that car again? No way. It's all about that belief. It's critically important that you believe in that AI. And it meets all of these things.

Now we talked about having a vision being bold, but it's really important to have purposeful action, right? And AI can do a lot, but I know there's one thing that it cannot do. It is not going to change your business. It's not going to change my business. Only we can do that, right? Only we can reimagine we heard all the stories yesterday about how that could be done and then taking that and transforming and putting distance between us and the competition breaking away.

Now look, you guys have all been successful before you ever started working with us. And our goal here is just to continue to do that, right? We know that you have plans, your teams, your solutions, your offers, and all Calix wants to do is to be the rocket fuel to make it all go faster and higher. And with that, let's make this moment, let's make it happen together. Game on. Thank you.

How's everyone doing this morning? Yes. So before we start, let's have a big round of applause for all the customers and team members who got on stage in front of all of you last night and kicked the show off with the band. Let's give a big round of applause for the band.

All right. I just got told something that you guys like the Pavilion outside more than you liked what we did last year in the other place. So my question, yes, who wants it there next year outside? Yes, a big round -- there you go. Scott looks like that's done.

All right. So welcome. Welcome to ConneXions. I was just reflecting this is my 10th year at Calix. This is my 10th year at ConneXions. And if I think about what we've accomplished together over the last 10 years, it's incredible. And we've transitioned this conference slowly but surely into what's all about you. So it's about how do we innovate with you, and you're going to see thematically throughout the morning that we talk a lot about together, together, together. And then how do we celebrate your success? How do we focus on your success every single day and ensure that we harvest that knowledge so this community of people, which John is going to talk about later today, how do we make this community stronger and stronger and help each other to thrive in what is a crazy time in this world.

And if I reflect back on 2025, October last year, when I stood on stage with you, that's when we unveiled multiple years of work, the work that we started back in November of 2023, where our team started to pivot into artificial intelligence, hundreds of millions of dollars invested into our platform so that you could be successful with what will be the biggest trend in human history. If you look back in time, and we're going to talk a lot about that, the pace of change that all of us are living in has never been seen before.

I was joking with someone as I walked to the stage this morning as we're walking in the hallway, and we were both joking about the fact that I grew up with a black-and-white television playing Pong. Who here grew up with a black-and-white television? Yes, exactly. To talk now about autonomous cars. If you're in Las Vegas and you haven't taken the time to get into a Waymo or get into Amazon Zoox and try that out, that's the future. Everything is changing at what is an astronomical pace that humankind is really going to struggle with.

But the good thing is we saw that in November of 2023, Shane Eleniak and his team, he saw that AI was finally ready where we can make it trusted and secured. We're going to talk about that today. And we made those significant investments so that you don't have to worry about the things that everybody else is freaking out about, which is how do I use artificial intelligence in a safe and secure way to drive predictable outcomes. We made that investment. And in March, at the end of March, every single one of our customers is now AI-enabled. You have exactly 0 to do. You just need to use it because it's embedded in all elements of our platform.

And so I do know that it was difficult because let's be clear, think back on your career. I've been working for, I don't know, 40 years, probably since I was 10 years old when I had a paper route. And if I think about all the things that I did through my life, you know what never happened to me? Nothing worthwhile ever happened easily. Everything that I did, everything that my teammates did, everything that our company has done with you has required sacrifice, hard work, weekends, pain because the only way something is worthwhile is if there's some pain to get to it. If that wasn't the case, anyone could do it.

And so this was hard, but it was worthwhile. And today, we're going to walk you through all the ways that is worthwhile for your teams, how we are going to litter AI into everything that you do every day. So instead of thinking about how I have to go build this stuff and worry about like what Anthropic did and things break out and worried about losing my customer data, you can focus on what's important, which is selling, marketing, building more and winning, not monkeying around with technology.

So it was hard. We know we slowed down some implementations. We had some problems because when you're holding a petabyte of data every single day, it's a juggling act, and there's going to be a bit of that. So I want to start by saying thank you to all of our customers for going on that journey with us. We acknowledge how hard that was. We deeply appreciate it. And my promise to you is now it pays and it pays big because that investment in time and effort and the communications that we've had together, it's going to pay. So a big round of applause, and thank you for everything that you've done and you working through that with us.

And let's be really clear. There is absolutely positively no version of the future where AI is optional, none. Everything is changing. And you either change or you get run over. You will find my dialogue on LinkedIn this morning with somebody who doesn't acknowledge that fact quite humorous because the individual was unwilling to accept the fact that we as humankind need to change. We need to change how we think. We need to change how we learn, and we have to accept this isn't going to stop.

Pushing against AI is like the stablemaster, the guy who bred those horses saying, I don't think cars are coming. The difference between Ford Motor putting out cars and eliminating the horse-drawn carriage and what's happening today is the pace. What happened in decades is happening in weeks. And this is something that we're going to talk about a lot today. How do we embrace that change and make the most of it because we will put you to the front, game on. That's why we invested all this money to get to this point.

And that investment is managed by what you tell us. I still remember when Carl, our Chairman, recruited me into Calix. And I had multiple choices. I was working for Salesforce. I had another huge company pre-IPO trying to get me. And then I met Carl and what he described was you. His biggest selling point about why to join Calix is because of what you do every day. You change your communities. You help the police, fire, ambulance do greater things. You invest in places that no one else invested to ensure that everybody is connected. So it doesn't matter what your economic strata that you can be successful, raise yourself out and do great things.

And so when he talked about that, what we really built on in my last 10 years is how to make sure programmatically that everything that we do is a partnership together. Shane and his organization spend a huge amount of time from a product discussion point of view, debating with you, talking about things, collaborating. And I -- this is my favorite statistic of the entire show other than when you, all your successes. And it's all the things that we did together, over 12,000 engagements, over 352 collaborations. We're still running massive customer engagement processes that allow us to communicate together. And this becomes really important as we go through the stage of AI because unless we communicate and do it together, we won't succeed.

Again, where you need to come together as a community is when change at a rapid pace. It's easy when things are going well. It's, but when changes are all around you, we must talk a lot. And so if there's things on your mind, I encourage you to call me. People send me a text, people call me, send me an e-mail. Glad to respond. Might be a little slow in e-mail, sorry, planes get in the way of that, but I will respond. And if there's things that we can do better, make sure you tell our team. We have a team here whose only job is to make sure we understand what you need, what we're doing well, what we're not doing well. That's what this conference is about, innovation and your success.

And so I want to also say thank you. Thank you because if you look at all those engagements, that's a lot of your time. And if we're not listening, then that's not good. And so what I will show you as we go through this conference is just how much, we're going to listen this year because we finally have a massive amount of capacity to do what you need to do to be successful. So huge thank you, a big round of applause for yourselves, and thank you for the partnership that you've allowed us to have.

One of the speakers is going to come up at the end of the day, of the morning is actually Juergen Lindner, our new Chief Marketing Officer. And what he's going to talk to you about is the massive transition that we're going to have with regards to partners. I talked about this last year at ConneXions that the future of artificial intelligence is not just language models and those things, but it's also these core technologies that shift us from, away from APIs and allow us to engage with partners in a new way. Those core technologies are A2A, which is agent-to-agent and MCP, which is Model Context Protocol, which is the ability to leave data where it exists and just harvest what is the context that an agent needs to do great work and share the context and then into knowledge.

And we put those in place. In fact, we built out an MCP server. So if one of your partners is not actually moving fast enough, you can drop an MCP server in front of it, and we can harvest that context. But we've made a big investment. And as you can see, the ones in orange are the ones who are actually moving fast to also ensure that MCP works between our partnerships. The second part of it is these partners are the future. Working together is very important. Not only do they, are they making these investments to get to A2A and MCP, but at the same time, they're here at the conference, they're in the partner showcase. Please take the time to go and talk to them because every single day, they're focused on making you more successful in driving your business. So let's give them a big round of applause and thanks.

And as I said, there's no future that doesn't include AI. And I put this quote up last year, AI won't replace humans, but humans who use AI will replace those who don't. I would trade humans for companies. AI won't replace companies, but companies who use AI will replace those who don't. And to all the first movers, couple of hundred of you out there. Those of you who have actually jumped in with us and are collaborating deeply on artificial intelligence, you've actually adopted what we're doing end-to-end from a platform point of view. Thank you because what you're doing is you're helping us go faster so that everybody else can benefit by collaborating very closely with us around all the workflows and the agents that we're releasing at a very, very fast pace. So let's give these first movers who actually have signed up with us and are embedding their business with AI, a huge round of applause. Well done. Thanks to the community.

And look, I'm a CEO. The pressure just keeps going up. And this pace of change thing and actually made it causes a lot of tension for all of us. Our teams, our customers, our employees, this is a huge pressure cooker. And I was reflecting back is that if you go back 5 years ago, just before COVID, the big conversation we were all having was, well, I'm going to have a multi-fiber market. That was probably the biggest thing that we were worried about, the multi-fiber market. Then we started to see the big guys put together, they call it convergence, which is just a price bundle. Then we see the advent of wireless satellites and governments not stopping them from controlling the skies. So those are spreading out.

And then you got Amazon. And as I have asserted over and over again, Amazon is the biggest enemy. Why? Because they're great. We actually looked at their NPS. I think my second job is breaking down Amazon boxes every night. Who doesn't buy Amazon? I do. I'm a very, very happy Amazon customer. The NPS, we actually searched out their NPS, and it ranges somewhere between 47 and 73. I don't have an alternative. I love it. And so when Amazon eero shows up and they're in the home, and if you see what they're continuing to expand on devices, what they do is they knock you out and they turn you into a dumb pipe. When you are a fiber behind an eero, you're irrelevant because the cheapest guy who comes forward is just simply going to plug it in.

To move from an eero instance on one fiber provider to move to another eero instance on a fiber provider involves this. Unplug WAN, plug WAN in because all the loyalty is with Amazon. This, to me, is the high watermark and what you need to compete with every single day. Then we've got cost. All of us are feeling it. We did it, we actually did some quick math. Interest rates in the last few years are up almost 5,000%, that has an impact on all of our businesses. It has an impact on our homes. It has an impact on our kids. We're all filling that crunch. Memory costs, thanks to these AI nutbars, are up 5% -- 5x. We're all getting screwed by the AI companies when it comes to memory. It's through the roof. What cost $1 cost $30. It's insane. That will bust. It's coming. I'll explain that later.

But this is, we all feel this pressure. And then on top of it is the pace of change. The pace of change is so rapid. It's something we've never seen in history before. And we're all worried about what's going to happen to my kids, what are the jobs going to be like, all those kind of things, all at the same time trying to run a company while our Board is saying, get going faster because if we don't do it, someone else will. And the key thing I'm going to, I want you to think about as we go through today, as we go through the next 2 days is 1 word. We're going to do this together.

One of the things that I'm proudest of in my 10 years at Calix is that, yes, we've made mistakes. But the enemy of good or the enemy of good is great. You have to do these things, you're going to make mistakes because, frankly, if you think back through your career, and I say this all the time, I think back through my career, my biggest learnings are when I screwed up, not when I did it the right way because I already learned that. It's actually when something went wrong. So we're going to work through this together. And if we try things and they don't work, then what do we do? We move on to the next thing, we try things and then we make them work. That's the power of a platform that we can actually do these things fast and control them and be safe and trusted and do it together. And I cannot amplify enough that we're in this together.

And look, that shift is big. And in your mind, the thing you really need to think about is capacity. The next 2 days are all about how do we give you capacity to do more things. And I made the statement, how do we free you up instead of playing with technology and building things and those kind of things, taking that headcount and putting it into sales because you can grow your way out of any problem. You can't touch your way out of a problem. You can grow your way out of it. And this, I have put this up every year, is a simple example of what you can do to grow your business tomorrow because we're not getting it done. And so we did a little bit of research with AI, fascinating. Then we back checked it because it lied. And what we did was we went through, it does. It's called a drift, but it's a lie.

So we went through it and what we found out is that 8% of homes in the United States -- smaller in Canada due to ice, but 8% of homes in the U.S. have a pool. Then John, in the conversation said, "Yes, but we're in rural America, there's a lot of ponds." And we found out that ponds are actually classified as recreational ponds. So 4% of homes in the United States, single-family units actually have a recreational pond. Who knew? I didn't. 12% target for outdoor WiFi. What is our collective attach rate on outdoor WiFi for every GigaCenter and GigaSpire that's been installed across the base? 0.5%. You might as well burn a $10 bill every single month. Because if we want to create the capacity to win more, build more, be more successful, if you have members who want to show profit or you have investors who want profit, $10 a month is being burned if your attach rate isn't higher than that.

And we can argue what the right target number is, but you're going to hear someone come up on stage where he went from that to 2% to 4% and is climbing his way up, whether your number is 6%, 8%, it's a heck of a lot better than that, and that will put hundreds of millions of dollars in the pockets collectively of this group. More importantly, it crushes churn.

Who's going to change? I have outdoor WiFi, 4 outdoor WiFi systems at my house. And if someone came along and said, you could save $10 a month on your fiber if you swap, but you have to rip everything out and put up all the antennas and make it all work again outside, what would my answer be? Have you met my family? Is they're going to guarantee you say, I'm going to screw it up somehow. And so no, that's not happening. It's not happening. It is the ultimate churn preventer.

And the key thing that I hear from everybody is, I need capacity. And so through the day, what you're going to see is how we are going to add capacity so that same team member can do more, run more campaigns, do better segmentation, understand the subscribers. You're going to see videos today that are going to blow your mind because we did them for a price that you can afford.

It is a massive shift and a great opportunity for us to rethink where is your capacity today and how do you drive good outcomes? SmartTown, 16% of people still have SmartTown turned on. I hear you. There's all kinds of things that we use as excuses around why it's not turned on. It doesn't quite turn on fast enough, these kind of things. We have capacity to work through those workflows to ensure we get it perfect, but it should be 80%. It frankly should be 100%.

There is no excuse for us not partnering with police, fire, ambulance locally so that they can have an ancillary benefit from WiFi on any of their devices if they're in an area. It doesn't cost you a penny. We made it free. You can flip the switch like Scott Hendrix did at Tombigbee, and overnight, he put on 35,000 routers, 0 problems. And a survey that we just did went through buying preferences of customers with regards to broadband and 75% of them said, "I would love to have a community WiFi experience." It was a preference because we chose ranking and what are the preferences, and that was highly up there. So it represents an opportunity to make money, opportunity to reduce churn, and we're going to work hard to make sure we give you the capacity to do it.

And that capacity comes from this. What you're going to see from Calix in 2027 is something you have never seen us do before. So I told you about how we started AI not allowed to touch the screen apparently, I'll break it. But November 2023, we started. And then what happened was we peaked in our delivery of 918 in 2024. And then in 2025, we changed. Last year was a slow year for putting out product that you can consume. Why? Who's running IT software project? Because everybody pivots over and humps through the end. And so we had to hump through the end and we did. March 2026, we launched the new product. We launched the third generation of our platform.

And Shane stood in front of our Board, Shane, our product leader and made this commitment. We will deliver more capability, AI, PON, all these different elements, automations in 2027 than we have in the last 2 years. Why? Two reasons. One, platforms in. And we're going to walk through a lot around how our AI and security and all those component parts allow us to go slow to go fast. Second, artificial intelligence is changing our organization, too. I'm a CEO. I have 2 businesses. I have a product team who's serving you. And then I have an enterprise business, just like all of you, I have a CIO, I have these different people, and we are deploying artificial intelligence in everything that we do with our partners.

We're not building it because building it is dumb. We're using Salesforce. We're using ServiceNow. We're using Oracle. We're using all our partners and everything that they give us from an AI point of view, and we're consuming it. We could build it. Shane's got 900 engineers ready to go and who understand AI deeply than most people, but we're not. Because you know what we need to do, we need to focus on you, help you sell, help you market, support your success. We need to be out there humping in the field and helping you crush your competition, not building stuff. It's not tinker toy time. It's actually focus on the customer and get it done. And Shane gives a great example.

In our product team, he actually had a product, a product feature that was scheduled inside our organization to take 15 man-months, and they did it after our platform, leveraging AI and our processes and our platform in 3. So when he told me that he was going to tell the Board that we're going to do over 1,400 next year, the equivalent of 2 years of work, it's actually more. That adds to 1,300. It's significantly more than we've ever done. I said, game on. Let's make our customers successful.

And as we step into this next stage, the thing we want to talk to you about over the next couple of years or next couple of days is how do we support your success? How do we help you take what we've done with SmartHome, SmartTown, SmartBiz, SmartMDU, Agent Workforce and all the AI that we are going to be laying out for you to consume as fast as you can to transform.

Because in the end, just like with SmartTown, just like with selling outdoor WiFi, it can't get done if you don't make the choice. You need to move capacity to get selling and leading, you need to actually make those changes, transform your team, transform your business and then transform your community because that is something I talk about all the time.

And from a focus point of view, we are not going to chase the shiny nickel and head over to the data center. We're here. We're not on, I'm not on public investor calls talking about how you're not important. When on my investor calls, the one thing I'm talking about is we live and breathe and die with you in the trenches to make sure you compete and win. That you can take to the bank. And so as we do this event, it's all about how do you compete and win at a faster and faster pace, and we got your back. It's game on. Let's start to show.

[Presentation]

I always wanted to do that, come out with the roar of the crowd, right? Good morning, everybody. It's my favorite time of the year because I get to be with all of you. And I'm so excited to share stories today about 3 companies that challenge the status quo, transform how they operated, to beat the competition and continue to win and win and win.

But before we get into the stories, I want to recognize the people that make this conference what it is, and that's all of you. Thank you. Because this, to me, this is not just an event. This is our community. This is a chance for us to come together, right, representing this entire industry. It's a chance for us to learn. It's a chance to us to share best practices, to challenge each other, to collaborate, to network, to meet new friends and have fun. Did anybody have fun last night at the concert? How was the band?

So every year, new people join this community and bring new energy and new ideas, new thoughts and new voices. And if this is your first ConneXions, could you please stand up so we can give you all a warm welcome to the light up. Give a warm welcome. Welcome to our community. Thank you. We appreciate you coming. And many of you come back year after year after year, and you not only shape this industry and grow this community, but you keep the momentum going.

If this is your fifth ConneXions or more, will you please stand up? Let's see. Okay. Thank you. Now if you've been to 10 or more ConneXions, please remain standing because you were the ones, you were the pioneers. You were the ones that made this industry what it is. Be recognized. Thank you. I'm so inspired by what you do and proud to be part of this community.

And what I appreciate about this audience is how much your work matters beyond your own business, right? You keep your communities running, connected, you help businesses operate, you help kids learn, you help families stay connected. And we're honored to do this work with you. But having a mission does not make the work any easier, right? We all know that. We still have goals we have to go and deliver. And I've been here 4 years, and none of these goals have changed, right? Growth, customer expectations, creating efficiencies, but most importantly, competing and winning.

And Michael talked about this earlier, right? We've never been in a more competitive environment than we've ever had. And I think it's because of those transformation technologies. We're all focused on AI, but there's a lot of other technology innovation that's occurring. It's making it difficult for us to compete the way we've always competed. And our customers have changed as well. They have more sophisticated expectations that are based on their experiences in other industries, right? Other industries have made it really easy, and they expect us to deliver that as well.

And the last is these cost pressures that Michael hit on. It's making it more and more difficult to compete. And this makes me think of the Tour de France, okay? Stay with me here, you say, why are you going with this? But in any race, that you've ever watched, I know many of you watched the Tour de France and know the riders, Lance Armstrong, but maybe you don't know about the race dynamics. Well, you're leaving some beautiful town in France and you're riding out the countryside and the road is flat. And you're in the pack, if you're in the middle of that pack, it becomes a lot easier. You use 30% to 40% less energy, right? And so your kind of weaknesses are hidden.

And that's what happens when a strong market is happening, right? We may have some weaknesses, but we're pulled along by that market. But that all changes when market conditions get tough, just like what happens in the tour when they hit the first climb. And I think a lot of us would say, this is the time when you start to get hard to sit in and conserve energy, but waiting has a cost, the winners actually change the game. They accelerate. And if you don't change, you don't stay with them. And they open up a gap.

And what happens when you open up that gap at the top of the summit and they start to go down and business momentum changes to a positive, it's very difficult to catch up. In fact, if you watch these races, the riders who are trying to bridge the gap have to take huge risks, right? They go into every corner, no breaks. And what happens when you take huge risks. The chances of something bad happening go up exponentially, right? They are out of the race. And we've seen that happen in the business world as well, right? BlackBerry fell behind. They tried to catch up and they were out of the race. Happened with Eastman Kodak, right? We know all of those stories.

And so I went on the search of finding companies that were in challenging positions and took the opportunity to move now, right? And they actually were meeting the velocity of the market that they were in. I looked outside our industry and 3 companies stood out. Each one questioned some belief and said, maybe there's a different way. We'll change how we operate. And the first 1 I'm going to cover you, I guarantee everybody in this room has done business with them, both at home and at work. And they didn't get off on the right foot. They had a product problem, and this is what their customers are saying about it. It's Domino's. Let's hear what the customers said.

[Presentation]

And you can see, look, most of us as executives would say, hey, we have to protect the brand. What are we going to do? Let's run a campaign that talks about all the great things we do. It takes courage to go and say our core product is not very good. But that's exactly what they did. They took ownership and they committed to that, and they took those cuts and they made them into commercial. So they really had to back that up. So let's see what they did.

[Presentation]

Now that's great. Their employees were saying very positive things about the product. But does that matter? Absolutely not. What it matters is what the customers thought. And what the customers thought that it was really good pizza. And within a year, they had 14% increase in sales year-over-year, which I would take that any day. And most executives said, "Hey, our challenge was it's all about the pizza, and that would be the game over. Mission accomplished, we're done."

But what Domino's knew was that was not the game that they were in. The product had to be good, but what was more important was the experience. And so they went looking for problems and friction anywhere between when you order a pizza and when you get a pizza. And they looked at that. And you heard them say talk about blank slate starting completely over. And the first thing they did was create the pizza app, right?

So you could order digitally in any channel. And what was great about that? Well, customers could reorder. They could go in and see I order this yesterday, hit the button, makes it a lot easier. Order processing is better as well. Well, if that's going smooth, what's the next question you have after you order a pizza? We all have the same 1. When is it going to get here, right? And they created the pizza tracker.

Now what's crazy about this? This is back in 2009. And if you think about it, we're in 2026. And there are companies that still don't do this, right? You have no idea what happens between when you put your order in and the outcome you're looking for. And so they are way ahead of the game, right? You could put your order in and you knew when the chef was making that pizza 1 and the oven and it will be in your house in 7 minutes. Now we all love pizza, right? I love pizza in the office, I love pizza at home. But we also love pizza at the beach in a park, in a parking lot at a tailgate. And what they did is, hey, through dropping a pin, you can get this pizza delivered anywhere. And they made it again easier for them to get the pizza. So I challenge you after this conference, go out on the street corner in Vegas, go to a park, see if you can order it, get your app out, give it a try.

Now what were the results of doing all this, changing that experience. They were phenomenal, right? They went from 30% to 85% digital channel. And why I said this earlier, why was that important? Because they knew more about the customers. They knew all kinds of data, what their buying behavior was and when they were getting orders, how frequently. And there's a story when I was researching that actually didn't believe. There was a gentleman that ordered pizza every day for 10 years. And I'm thinking, boy, that might have killed them. Quite the opposite was true. He didn't order for 4 days. They noticed that. They sent a pizza delivery car order house he was having a medical emergency. Pizza saved his life, which is crazy, right? And that's how they became the #1 pizza company in the world.

Now last year, I was on stage saying I missed the opportunity to invest in Amazon and Google. And just for kicks, I said, well, I wonder how Domino's did. What was their growth? Let's take a look. Is that nuts? Back check me on that. It's true. I couldn't believe it either. So let's wrap up. What was the conventional? They said, "Hey, we're a pizza company." That's what most people said I make pizza. The only thing that matters is the pizza, and they said, no. The pizza has got to be good, but the experience wins every single time. And I think we all can learn from that. Every lesson that I went through when I was doing this research was like we need to apply this to the Calix as well. This is not just about you.

All right. The next story is about, I would say, how we work. Everyone of us in this room doesn't have enough capacity to do all the things that we want to do, right? But we're often hesitant to change how we work, right? We say, "Hey, if it's working, don't fix it, it's fine. Just leave it alone. It's fine, right?" And that sounds like discipline, but it's actually neglect. It's actually neglect because there's a huge opportunity because a lot of the things that we've done started years and years and years ago. And if you think about how many business conditions changed, how many products you added, how the business is approached today, well, you just added all that stuff on to the work. Well, this company, Shopify, did something different.

Now if you know Tobi Lütke, he's a bit of a Maverick, and he had this blank slate mindset. And I work for a similar CEO. He always said to me, start with the beginner's mind. Everything you do should be thinking about how do you disrupt our own company. Like if you had, if you were building a company, what would you do to compete against us? And then whatever that is, we should be doing that. Well, his COO is inspired by these words of a blank mindset. And what did he do? He went into their scheduling system and he deleted every single meeting that had 3 or more people, immediately creating 320,000 hours. It was the equivalent of adding 150 new people to the organization. Think about what you could all do if you got 150 new people in your organization.

Now look, I know that they were going to add meetings back, but it was a forcing function. The easy thing would let business continue on. But what he did is he challenged them and saying, are these meetings important? Are we working on the most important things, right? And only add the most important back in. So they really looked at that so they could make a bigger impact. But it didn't stop there. I think you guys all remember this last year when Tobi's memo got into the media and Tobi had said, no one can hire a new employee until -- unless you can prove to the leadership team that you can't do it with an agent, okay?

And what was important about that is the easy thing is to continue to add people, right? I did it in my last company. There comes a point when that's not a good idea, and he was trying to stop that before. He was trying to make people think, is there a better way? Should there be something else we're doing? Should there be a different way of working. But he just didn't do a mandate because mandates really don't work, right? He put friction there, but then he also democratized all of the tools. And it wasn't just the tools. He provided training, he provided resources, he provided experts.

And what happened is, of course, the engineering team led the way, and they got a lot of productivity, just like our engineering team led the way when we were doing this. But then the other functions did as well because they knew where the problems were, and they could solve them themselves. And this is great. They had a high adoption of AI starting to get into the organization. Until we understood that mandates and adoption weren't probably going to be good enough. He actually had to tell people what should we be doing differently? And what are we still accountable for, and Michael told us this the other day, he's building this game app, asked him all about it. He's very proud of the work he's doing with it. I say welcome to the game, Michael, some of us has already been doing this for a year.

But he built a Chief of Staff AI tool. And that Chief of Staff AI tool would call other agents, agents around finance and product and operations. And what he was doing was collecting information. He was trying to have different points of view from different experts. And when he told the organization, this is helpful, but I still own the decision. It's still me. And I want to have different points of view. That's still very important.

And then the last thing that occurs in any organization, we all have a few people that aren't very productive and we give them AI, okay? And what it actually does is ruin the productivity for the rest of the team because why? They just use AI and then they just put it out. And this happened last week. I don't know if you saw the article. He said no more swap, right? He said, everybody that's using AI, we think it's great, but you have to have accountability for the output that you're creating. You own that. And so that was very important.

And so they adopted another framework around making sure that people weren't doing that. We've all seen that, right? We've got a presentation. You could tell that somebody just went to AI and said, build it. The same sentences in there 4 or 5 times. We can't do that, right? We have to change everything.

So what they did, right, is had a mandate and then they trained people, made it easy, changed the operations. What was the outcome? Well, the outcome was they had 20% more productivity. So all these projects they weren't getting to, they could do new products that they wanted to introduce to the marketplace. And what does that drive? It drives huge growth for them. And they were able to scale their business without adding people. And we're all in that same situation. So I think we can learn a lot.

So what conventional wisdom did they question? If it's working, don't fix it to saying start with the beginner's mind. And that's difficult. We're doing a lot of transformation at Calix that I'm responsible for. It's very hard to change people's habits. But if you start with that beginner's mind or a blank slate, it can happen. The next story I want to tell you about is around adding more value to the customer. Here's a product that probably many of us had back in the day, was a Fitbit. Did anybody have a Fitbit? Probably many of you had a Fitbit. And it told you how many steps. That was revolutionary.

But after a while, you said, why am I walking 10,000 steps? I have no idea, right? They were giving you data, right? The conventional wisdom was that data was important because it tells customers something, but they were leaving the responsibility of my health of interpreting that data, making a plan. And so that's not everybody's kind of jam. So there was a lot of attrition. Along came Oura, who asked a very different question. And they said, what should the data tell you to do, right? Give you insight, give you action. How many people have a wearable that lights up, band, okay. More important question is, how many changed their behavior because of that? Let me see how many hands.

All right. I want you all on my team because you're all very coachable. The rest of us, including myself, are not coachable, and we need a lot more help. And that's what Oura focused on, right? And I'm going to share my personal data that's coming off my ring leading up to ConneXions. It's very ugly. The first one is data, averaging 5 hours and 40 minutes of sleep. It's not great. I knew that. The ring didn't need to tell me that. It's been a terrible week of preparation and no sleep, okay?

But what it did tell me was, hey, John, this has been happening longer than this week run-up. And you're going to have a serious health condition if you don't take care of this, right? You're working in 15 hours of sleep debt. You're not showing up at work at your best or at home. Well, that's great. I realize the importance of this. But what's really more important is what it told me next. It didn't tell me go to bed at 11, right? That's a directive. It said, "Hey, you need to adopt a wind-down routine. And if you don't have one, let me give you some tips of how that works."

Now many of you may have had a band or a ring and abandoned it. You put it in the drawer and didn't use it, most likely because you didn't have an adviser. And what's great about this is you can ask this adviser through AI to really help guide you. Now many of us are not going to take all of our guidance from an application. So what did they do? They connected this data back to your primary health physician. And that primary physician has a lot more data and probably can convince you that you may need to make behavioral change.

This is a very competitive landscape, right? And so how has this gone when they try to make more and more action with the data, do something with the data? Well, I think the most important metric here is this one because the first year is free, right, when you buy your ring. But that 85% of people continuing on with their subscription is enormous, especially if you know the industry average is 20% to 30%. That's 50% higher than any other company in that space, right? So they're really getting it right with the insight to action.

And so what did they do? They challenged this conventional wisdom that data is going to tell your customers what happened and they're going to be able to act on it. And we know that's not the case, right? What it is, is insight amplifies value, which we all have to do. Now look, all these transformations that we just talked about, they are not easy, right? They're hard. Nobody wakes up on a Tuesday and says, "You know what I think I'm going to do? I'm going to go look at our life cycle, both product and customer, and start over." And we are doing this at Calix. It is hard work. It has a cost.

But by doing it now, you can be like the cyclist in this video and you can break away, right? This is where it happens. This is where transformation can put you ahead and continue to have you win. So there's a really easy framework that you can follow. One, I would ask all of you to think about challenging conventional wisdom. There's something you're doing today that may have been something you've always done that may not be the right thing. Second, how would you transform how you operate? And then lastly, Michael talked about this a little bit, technology can help you accelerate, right, pull away from your competition and win, right, and continue to win.

So what's your takeaway? If you're like me, you're still probably back on Domino's thinking, God, I'm hungry. I wish I had a pizza or more breakfast, or you said to yourself, I wish I knew my readiness score. Well, the folks who are sitting right over here should look underneath your chair because 46 of you are going to win an Oura Ring or some Domino's pizza. So take a look, turn the lights up, see who the winners are. Underneath your chair. There you go. All right. If you want something [indiscernible] up. There's 46 prizes under there. And by the way, you guys should know about me, every time I come here, I give out a prize. So congratulations to all the winners. Thanks, and enjoy the rest of the show.

[Presentation]

Please welcome back Michael Weening.

All right. Congratulations to all of those who won an Oura Ring. I'm going to let you in on a little secret. There's more at the front, so next year, if something happens, perhaps that's a good little hint around where they'll be. Just saying. John was really inspiring, what he talked about was transformation and what the payoff is. This is flat out absolutely every single year, my favorite slide for us to put together and my favorite slide to present. Why? Because you're awesome.

John talked about the fact that we're a community. John talked about the fact that you go into your businesses and you change them. Nathan Stooke, all these other folks, everybody is doing this every single day. They're going into places that were neglected and you're changing how those towns and cities operate. It's filled with all the awesome things you can do. And as you can see, our platform formed through this partnership is helping us do amazing things together where we deliver results that, frankly, are the envy of any industry, flat out. You tell me an industry that can put up customer after customer after customer who can say, my NPS is over 75. It doesn't exist. It doesn't exist.

And so I look at these numbers, 4.9 out of 5, launch score satisfaction at Blue Stream Fiber, who's been partnering really closely with us to make sure that SmartMDU helps you crush everybody in every apartment building and do it at an incredibly profitable level. 50 gigs in the trial with Astound, 200% increase in SmartBiz subscribers, 64% SmartBiz adoption goal, 80 markets in the ecosystem with Conexon, 16% growth in ARPU.

Everyone's talking about the ARPU pressures we're under. Well, there's a one 16% growth on and on and on. 133% achievement on their small business goals, 50% unnecessary truck rolls, God. This is what we do today with a platform that can do anything by working together to understand where you want to go, what are the KPIs that you have and how do we make them better, 40% reduction in service calls per month at P River. These translate to one thing, profitability. Because capital cost is not the focal point if you want to run a long-term business. Everybody knows, you can go back to the days of IBM when IBM got turned around. It's about one thing, cash flow, profit. And you know what, if you're a member-led and you're saying, well, I'm a member-led cooperative, nonsense.

You know what your members want to hear. They want to hear that we're making more money, put some money in their jeans, do more things for the community, transform more. And if you're investor-led, I'm investor-led. That's the question every day. And let's be really clear, you can do great things and still be great profit. That's what the platform does, and that's the power of what we do every single day. And let's give you a big round of applause because these are awesome results. And for the other 20 slides of these numbers that I couldn't put up, know that we went through them all. There are so many of you accomplishing these types of goals every single day that I couldn't put them all up. And this togetherness is what roots our company and the success that we've had with you. It's why you're successful because you're a community.

If I go back to the engagement, you've invested the time around talking to us, you've invested the time in our advisory boards. You've invested the time with our success teams to understand problems and make things better. We have done the same thing and invested over 15 years into our platform. We've invested over $2 billion. This year alone, we'll put over almost $200 million into our platform to do one thing, not to go chase new markets and data centers and all those other things to do one thing to make you successful. And so it's worth taking a moment to reflect on what you have because what you have in your networks, in the subscribers' prem is about to be unleashed at a level we've never been able to do before. But to be really clear, we've always known is coming.

And so in that network and in that prem, you have 2 pieces of it. The first is everything that we're doing on access. Let's be really clear. This is the most profound shift that we did 8 years ago from an architecture point of view that Verizon has chosen that Brightspeed has chosen and many others to transform the network. And it starts with investing, I believe we invested about $1 billion to build this operating system roughly, and it has these 4 capabilities. And the first is the most important, functional consolidation. If you are running a network today that has a Nokia BNG or a Juniper BNG in it, you are disadvantaged. If you're running access aggregation, BNG and you don't run a tiny itsy-bitsy Cisco PE router because you put MPLS on our stack, you are disadvantaged.

Why? Because if you run 4 boxes versus running 1, who's got the advantage in a world where automation is the future. If you can virtualize the data path through the network through a single E9-2 extended with an E7-2 and an E3-2, you're going to crush everybody from a cost point of view. Why? Because you don't need 4 teams to go to 4 conferences and take 4 training things, you need 1 team. They can run the whole thing. And anybody who tells you that you can't have a plan to rip your Nokia and Juniper BNG out of your network over the next 5 years is wrong. And if they want to have that challenge, Shane and I would gladly meet with you because Verizon just went through a massive RFP to actually go through the next stage of where they're going with their network and you know what they did, they did it again because this works.

If I can go from 4 boxes down to 1 box, I am saving a fortune. But more importantly, that is an AI beast because now that entire data path is in under control of automation that's never been seen before. It represents a massive opportunity. And if you're not walking out of here and saying, how do I kill my BNG, you're missing an opportunity. You're missing a huge opportunity. And so we built the modular operating system. That gives us the flexibility to run different functions in a container. And then inside of that, and this is why that virtualization of the data path is so important, we have telemetry policy, content and cyber sitting in that system that gives you the flexibility to do incredible things because now what you have is the flexibility of physics and economics.

We're going to talk about the future of AI in a minute. Let's be really clear. AI is not going to be in the cloud. AI is going to be on every single device. And it's going to sit on an E9-2 in your network, stopping Russian hackers. That's what it's going to do. But you have to make that choice because if you actually daisy chain 4 boxes together, you know what happens with that stuff. It just breaks. It just breaks. And everyone is selling you, how do I put an aggregation layer on top of it so I can orchestrate across the 4 boxes, that's death, simplicity wins and it drives profitability so that you can actually run your business successfully and make your community and your investors happy. And if you don't make the hard choice to step up and get it done, you will fall behind because of Brightspeed or Verizon, if they come into your market, they're going to crush you because their cost level is going to be dramatically lower.

Verizon has clearly quoted 80% lower cost to run a network than when they had Nokia and Juniper BNGs, when they had the big Cisco PE routers, we run MPLS. And if we can do it for Verizon, who's bought Lord knows how many E9-2s from us, we can do it for you. So you've got to make the hard choices because you got to free up that capacity to sell because the future is all about selling and marketing. Because you built your network, now how are you going to fill it? How are you going to make sure you got 90% market share? Because you can do it. You can do it if you have the right cost structure.

And artificial intelligence gives us the flexibility to decide where do we put AI because with the physics and economics model like we built, which is [ in-silicon ] technology on an E9-2 or on an E7-2, we now have the flexibility to say, you know what, I'm going to run a small containerized AI at the edge, and then I'm going to run some functions in the cloud, but I have the choice. You decide from a physics, how fast do I need to do it, and I can decide from an economics, that's a free processor, waiting for me to leverage. That's the future. And we've been building towards that for 15 years. We did the same thing on-prem. So people can go on about WiFi this and test that and you can put it in your basement and I'm like, "Oh, geez, it get a little bit better by the pool." It doesn't matter. It doesn't matter.

What matters is the operating system that's running on top of it, which does 2 things. One, it gives you the flexibility regardless of use case. I can use all of these systems in a home, in a business and in an MDU and soon, in a hotel, in an event, all these different spaces. I can mix and match them infinitely to meet any use case. And then I can run different software, SmartHome, SmartTown, SmartBiz, SmartMDU and the other products like hospitality and things we're going to provide you. I can run them wherever I need to run them using the same systems. So what does that mean? Well, that means that where I used 1 vendor, Ubiquiti to do business, and I ran SmartMDU with RUCKUS, Sayonara. I don't need that anymore. I don't need those teams. I don't need that complexity in my business. I can run all of it with 1 team.

And what does that mean? You crush everybody because you're simple. And what do your customers want? They want you to be simple. And yes, we will do things like Shane in his organization, we're rolling out right now the ability to manage ADTRAN. We're rolling out the ability to run Nokia with Operations Cloud. We'll do that. So we'll partner with you as you go through these transitions to get to the right place to set your business up to be successful for the next 10 years. And on this case, so we've got the operating system with the same rich telemetry. We pull 300 data points a minute out of every single GigaSpire. Why? So you can deliver the best experience possible. And then same thing, physics and economics. The future of AI is at a local level on the edge, and we've got all that processing power just waiting for us to leverage together to give you the best experiences.

And then over top of it, we have everything we're doing on the cloud and where we're going with AI. And on the AI front, last year, I walked you through what we were doing for 2.5 years. Well, we are building this. And this stack has a couple of important parts to it. The first is we went down the path of an open-weight model to make sure everybody understands what an open-weight model is, an open-weight model, if you look at what AI really is, the magic in AI is how you train it and then how you weight that training. So in other words, the AI is learning how to judge, how to make decisions. And what's fascinating and the reason why, from my perspective, Anthropic and OpenAI are screwed, and you saw Anthropic lose $0.5 trillion worth of its market cap, I think it was last week, is because of the fact that the future is open-weight models.

Why? This is really important to understand because the beasts who are running these open-weight models and making them available to big companies is actually Google running Gemma, Meta running Llama, Mistral, Phi by Microsoft and Nemotron by NVIDIA. And so they were available for the companies who can actually leverage them to be successful. And Shane and his organization started there. They implemented the RAG model so that we could take these open weight models and put control around them. But more importantly, what do you think that those guys are going to do? They've got more money than God for crying out loud, like they have so much money. And so they're going to pile money into it, and they're going to compete. And one day, Llama is going to be ahead, the next day, something else is going to be ahead. They're going to be pingponging.

And the great thing that we built in our architecture is we can run one of them or we can run all of them based upon who's best for a use case. But most important, we can rip the brain out. We can rip an open-weight model out quickly and easily and switch to someone else. It gives us the ultimate flexibility to stay ahead as they go beat the c*** out of each other. And they will invest. The reason why Anthropic and OpenAI in trouble is because you know what, those guys don't need to do, make a penny on AI. All the revenue streams are somewhere else. So they're just going to keep investing and that benefits this community in a huge way. So we put that in place. It was hard. It was hard, hundreds of millions of dollars, 2.5 years of work to get to where we are today.

And then what we did was on top of it is we built the layers that allow you to have something that's trusted, secure and predictable. First, we built the data layer. The data layer was a single database aggregating and it's bringing all of that great information from your access network, from your subscriber solutions. We've got standards to go and get third-party information. And then back to the pool and the pond, well, we can collect that information and put it in the data layer too. So we cleaned up that data. Then we extended that data through something called MCP. I talked about MCP. MCP is the ability to get to knowledge. And in the end, how does an AI engine work? It works through knowledge. Data by itself, any of those of us who have run data warehousing projects and I've run some really big ones through my career know the data by itself is worthless.

What has to come out of it is what are the correlations, what are the insights? What are the actions I'm going to take to make my business better. And that's what knowledge is. We built a full knowledge layer to look at all that data and do the correlations. A, plus F, plus Q equals an outcome, equals an opportunity, equals an unhappy customer, equals churn. These correlations is what's in the knowledge layer. And then through MCP, we extended it so we can grab the correlations that other systems are actually leveraging and bring them into our knowledge layer so that our AI engine can make smarter and smarter decisions with your humans. Because in the end, this knowledge is all around how do you augment the performance of your teams. So we put that in place.

Next, big next, we acted with AI as if it was an employee. Just like in your businesses, you don't let all your employees go in and change everyone's salaries. You can't do that. You have to have a trust layer in place, an identity layer in place, which means that every single agent, every single workflow has tight controls on what systems can be touched, what, whether it can be edited, whether it can be deleted, whether it can be updated, all these different component parts, that was a huge, huge investment because if you haven't read the news about OpenAI and Anthropic talking about these AI agents going crazy and escaping, that's what we had to control, and we did. Then we put orchestration in place and orchestration is just how we work.

Everything that we do every day, when I show up in the morning, I execute workflows. I have a goal, I have a process that I do it with. I work with different team members. We interact, we make decisions and then we have an outcome. That's a workflow. And it requires an orchestration layer because orchestration requires you and AI doing all these different things to drive the outcomes. So we built the trust and orchestration layer and then that finally led to the agents.

And the agents are the ones you started to see. These are the folks who are actually executing every single day with your team members to make them great. Operations, service, marketing, subscriber, you know what you're going to see soon, cyber, a couple of other things popping up there. Why? Because they're part of your team, but they're tightly controlled to ensure that what we do is right. And that control is really important because the opportunity ahead is significant.

I go back to my statement, there is no future that doesn't, isn't buried in AI. AI is everywhere. And the opportunities, look, they're massive. 29% reduction or increase in breast cancer detection. That's incredible. 2,000-year-old scroll that all the scholars behind their tenured leather desks couldn't figure out. 80-year-old math problem solved with 1 single prompt. The story about that one is he kicked it off before he went to a football match during the World Cup, new DNA. The things that are going to happen are going to change humankind. But at the same time, sadly, bad people do bad things faster. And we got to make sure that we're stopping them. We have to stop. We have to put layers in place to stop the intrusion of malicious AI into the network, into our stack. And as you see, the risk is getting bigger.

The biggest threat as we go into 2027 is not like some bombing or thing like that. It's actually nation state attacks through AI, cyber attacks, where they go shut down an entire state and knock a grid down. These are the things that we have to protect against. 89% increase in AI attacks, 200 organization breached, 700 autonomous agents. That big red scary thing is what our Board talks about for 2 or 3 hours every quarter. That cyber meeting has expanded from a 30-minute meeting into 3 hours of deep analysis, and it's what Shane's team wakes up every single day and thinks about. And that stack helps you manage both the opportunity and the risk. And it delivers 3 things: trust, security and predictability.

And trust, I have a funny story. So there's this guy, Jackson Jones, who I heard about a month ago, it came up to me. I'm not sure how it came up to me, but someone mentioned that a kid tried to convince our AI agent that it worked at McDonald's, which I found quite funny. And so I started to dig into what did Jackson Jones do. By the way, I have his permission, let's just say he freaked out a little when I e-mailed him. And I said, could I put you on stage?

And so what Jackson Jones did was he said, okay, let's test trust. Will the Calix agent just do what it's supposed to do? And what he did was he actually tested a human theory that is used by lawyers, 3-letter organizations and police to break people. And it's called repetitive exhaustion. If you actually go look it up, human nature is that when you get asked the question 3, 4, 5, 6, 7 times, the same question, bang, bang, bang, question, question, question, question. What happens is humans will start to break. You'll become emotionally overloaded and you'll start to get confused in your brain. And all of a sudden, you'll start thinking, okay, what did I say? No, maybe it was this and then you start to get confused. It's a proven tactic used by these organizations and by lawyers in court.

And so he tested the theory, can he apply repetitive exhaustion to an agent to convince it that it should answer a McDonald's question? And the question he asked is, how many calories are in a McDouble. Now I am a Canadian. So when I heard McDouble, what I thought of was a coffee with 2 creams. So I didn't actually know what a McDouble was because I only eat egg McMuffin and if I'm going to have a Big Mac. But I figured it out, okay, it's a 2 patty cheeseburger, right? And he pounded it and after 51 times, it relented. And it gave up the ghost. It said, you know what, 390 calories.

But most people, that was, in essence, a malicious attack, an intent by a human to try and break it. And so we've actually, we learned from it. Shane and his team saying, how that happened? So they actually put it in. So that's not happening again. So thanks to him for helping us all get better. But more importantly, how many people in your call center are going to take the time to pound on something 51 times to try and break it. They're not. If they had asked that question 3 or 4 times, the trust is in place with regards to what our system and our platform does to ensure that it would only give the answers it should. And the answer every time was, I don't do that. No, I don't work at McDonald's, right? It actually made the right moves.

Now more importantly, because our platform is incredibly secure, again, unless you got a couple hundred million to spare and a lot of knowledge, that's what it costs to basically also make sure that Jackson didn't see customer data, wasn't able to execute an action and no system was impacted. Because in the end, that's the most important thing is that your employees do the right things that they're allowed to do with great insight. And that great insight leads to the last one, which is predictability. And predictability of outcomes is really important, but also predictability of costs. We've all been reading about the cost of tokens. And how budgets blow out. Uber here wrote they blew out their AI budget in 4 months. More importantly, I don't know if they got an ROI because it only was participating in 10% of their code. That's not a lot.

And the ROI is the big thing because it's great to go do AI stuff, but if it isn't actually focused on what you do every day, it's of no value. It's playing with tinker toys. And so what we need to do is what you do all the time that we do together. These are results you're doing without AI. 500% boost in monthly recurring revenue, 35% reduction in support calls. NPS at share in value of 88. That's what we do today on a platform that is just rolling this out. Imagine what we're going to do when we go to that next level and apply all of those engagements and workflows and insights into how we partner into building out the greatest workflows in the market, which now leads me to the last piece to understand that the future of AI, there is a monster change coming.

And look, I talked about these guys over here, these open-weight model guys. I'll get to him in a sec. So these open-weights are fantastic, right? But they're 30 billion and 40 billion parameters. They're running in massive data centers. And even if you have big checks to write, you're not guaranteed you're going to get an outcome. The latest one from Meta was like, I think, 0.5 trillion parameters. These are huge, huge models. And while it can paint John on a unicorn in a pink suit, which is a lot of fun, and it is funny that he wore a pink shirt with his jacket as an Easter egg, you don't need that to run a broadband provider today. You don't need it to create the cool videos that we've been showing. What you need is network insights, WiFi, you need the things that you need to do every single day in an AI model.

Which is why the next wave is for those of us who have the investment capacity, the monster teams, we are in the process of going through a next stage, which is how do you take these massive overcapacity capabilities and how do you drive them down into something smaller and more consumable so it can exist anywhere. How do you do specialized domain expertise? How do you make it cost effective through specialization? How do you make it faster? Because it's not thinking about I can paint John on a unicorn. We just know that it's going to run a great network. It's going to find you new subscribers. It's going to drive your upsell, and it's going to help you be wildly efficient because we know broadband. That's the next stage of the market.

And it's rightsized for the use case. Which is why I'm proud to announce Calix Communications Language Model Foundation. That is the first and last time you will ever hear me say Communications Language Model Foundation. We will call it CLM Foundation. And what CLM Foundation is our AI teams investing a significant amount of time and money into building out how do we take that from a process point of view and drive it into something that can be consumed and it just cares about your business. The difference between that and this is the insight, this insights into 5 billion workflows, insights into what's important in your business, insights in what it takes to run a broadband company. This is a huge amount of work, but what it's going to do is pay off because all of a sudden, we're going to free up a lot of capacity in your networks to do great things.

And these foundations, it's not just 1. There's 1 to start. There's going to be 10, 15, 20 of these because of the fact that as this changes, you have to keep up with the pace of change that's never been seen in human history. We have to go fast. And so our teams have built out repeatable models to take 30 billion parameter models and turn them into 3 billion, 2 billion, 1 billion, 100 million, actually really different.

And what those are is what you're going to start seeing in your release cycles. They're called Calix Gems. And what a gem is, just think of it as a category, marketing, security, repair, troubleshooting. And what we're doing is we're taking those foundational language models, and we're running them through a process to make them even smaller. And there'll be sized, large, medium, small, extra small. And a good example in cyber is going to be an extra small language model that we at Calix have curated and trained to run on a GigaSpire to stop all the bad things from happening inside a subscriber's business and home.

A medium one maybe which is going to run on one of our managed network products so that it actually can protect all your business subscribers. And what you're going to see is that over the coming months, you don't have to really care about this. You just need to know what we're doing and why we're doing it because the way it's going to show up is new workflows, new capabilities, new advancements that your teams can have that our success team will work with you to understand how you can move faster and faster and faster, how you can drive cost out of your business and how you can win more customers. And this is a big step forward for us. And what these gems are going to do is sit out in the network.

And look, the reason why we're doing that is back to the pace of change. Because we have invested so massively in your business and you've invested in your business putting E9-2s, E7-2s, E3-2s and putting GigaSpire's, all of that technology in your networks and in your customers' premises and then run with our clouds, what we can do is we can beat this together. And what this is, is that every week, there is going to be yet another titanic shift in the world, wild.

Last week was like one of the biggest weeks in history. If you think about some of the things that are going on with regards to AI. So someone stole all of Adobe stuff with AI and basically created an AI knockoff of Adobe. Bigger yet, a hacker went and hacked into Sony PlayStation took all of their IP just before. If you're a gamer, you know GTA 6, you don't want your kids playing that. I'm just saying. But if you know GTA 6, and it's just before that launch, that thing prints money. It's more profitable than drug running. That's for sure. And so in GTA 6, when that comes out, if every PlayStation game is now available, well, GTA 6, good luck making money. And it was all done with AI.

From a human point of view, I've been theorizing on this for, on LinkedIn for quite a while. Apple is a dark horse in AI. Why? Because every Apple device has an M chip. If you want to really understand what Apple has been doing, they've been building out chips onto all of their devices so they can do one thing, run AI locally.

And Meta came out this week in an announcement with Apple, with Apple developer in a couple of clicks, you can actually run their open source model, that open-weight model, a version of it, which does certain things on your desktop. And you're going to see more and more of this. And then Meta to compete with a bunch of big companies out there like Kimi and others, released 1 of the biggest AI models and most capable AI models and open-weight model ever. It's like 0.5 billion parameters, or sorry, 0.5 trillion parameters.

And so you're going to see these types of titanic shifts every single day. So the question becomes, do you actually try to chase that horse or do you partner with us because we've done it all. And what we spent in the last 3 years and over $2 billion, we've got another $200 million going into it this year to make sure they don't have to worry about chasing that horse. We're doing it for you, and we're doing it with you. Because, again, back to our capacity, Shane and his organization are ready to listen, and we have a lot of capacity to make sure that you can crush your competition with what we're doing every single day.

And look, this is where that's going to sit. You're going to see significant shifts of AI coming down to the edge. And we made it simple with an enterprise agreement, so you can just consume it off. And what is going to happen is all this localized AI is going to start popping up there. It's going to start popping up there. And then tagged in with the agents, you're going to start seeing automations pop out. And your biggest thing you're going to have to work on is which of this abundance am I going to pick first to help my team understand and grow. Because in the end, most of us are the same way, we want to see operating costs stay like this or go down a little bit and we want to see revenue go like this. It's about how do we help our teams do more with less. None of us are not busy.

And look, the question we get all the time is it's great. You're up here and talking about AI. What all about all the other stuff? You do hardware yet? Heck, yes. Best in market, flat out, absolutely 100%. And you look at what we're doing on 50-gig PON, we have managed switches coming out. Go to the innovation showcase and look at what we've done for managed switches. Why do we do managed switches? Well, you want to do them in MDUs. In fact, if you look at an MDU, what is an MDU? It's actually a network ecosystem. And in fact, if you run E7-2 at the bottom of an MDU and run it with all the different technologies, whether it's copper or fiber or whatever it is, you can actually run the entire building in a very unique way. You're going to see us doing that.

We're actually already on the path of well down the path of doing it, but also needs managed switches because just like in your network, Juniper and others are there and they shouldn't be. Grip them out, put in a single system running software and actually making it so that MDU can actually run with a single stack and a single team. There's no room for Nokia or a Juniper in that building. Out. There's no room for RUCKUS, out, put a single system right into the subscriber and give them the greatest experience, more importantly, give you incredible profitability and to sit down with a building owner and say, you are going to have people loving it when they live in your rental apartment.

And so we have a full managed switch portfolio that's come out. We also have some small ones so that you can put them into consumers' homes. And it's not the fancy people who have 10,000 square foot houses who need switches at their house. That's nonsense. Actually, I was asking somebody who has a 2,500 square foot house because I was in this argument and the product marketing team was saying, you can't say prosumer. And I said, I'm not going to say prosumer, I'm going to say consumer because it's nonsense. And the person was there and she goes, hey, I overheard your conversation. I have a 25 (sic) [ 2,500 ] square foot house. Here is my basement and she had 3 crappy switches downstairs from NETGEAR that are unmanaged that cause problems. So what you're going to be able to do is when that, and how many of us have had that call, all of us. So now we're going to have managed switches, so you can actually extend through Service Cloud. So if they're having a problem, you can, you're running it as if it was a bespoke network. And you can see everything top to bottom.

We'll be the first on WiFi 8, workflows and agents. We've talked about that, everything we're doing around SmartMDU. We have, how many people have launched SmartWatch. SmartWatch is identity protection. It gives you the flexibility to give it to all of your customers for free, so gramma can't get hacked and then you can upsell to ScanWatch Pro. A great service if your brand is about, I care about my community.

And then last, we're going to come out with significant investments in grid monitoring for utilities because we've been asked. Many of our customers are broadband companies, but they're also utilities, and they want us to actually put SCADA and all those other capabilities into the network so you can run the most unbreakable network if you're running a utility. And that's all coming because Shane's team has a ton of capacity and now we go fast. Go slow to go fast. Now we go fast. And outdoor WiFi, the new WiFi 7 outdoor unit is in mass in February, lots of people -- lots of customers are already testing it. So you can go get back that $10 a year owed.

And so as we think about this, there is going to be an abundance of choice. We are going to give you everything that you ask for at a faster and faster and faster pace so that you can work with your teams, the operations, service, marketing, subscriber teams to change how you run your business so that you can go to that next level and frankly, compete and win. And after the break, we're going to have 4 amazing leaders come up on the stage, and we're going to talk about how they're using what we're doing on the platform and AI and how they're envisioning what happens next.

And so with that, let's go have a break. We'll see you back here in 10 minutes.

Thank you, everyone, for joining us this morning. This is a 10-minute break. We will begin promptly. You do not want to miss the opening of the next session. So please be back in time. Thank you.

[Break]

[Presentation]

Please welcome back Michael Weening.

Well, I'd like to start by saying in no way, shape or form did I condone being eaten by a zombie, but I got overruled. Look, I started out with this. There's no version of the future where AI is optional. Did you see what we just did on that video? To understand the magnitude of change, I think this is a great example because for us to assemble that today versus what it took us 2 years ago, 3 years ago to do 3 videos for this conference, which we gave to you to help you amplify your sales and marketing cost us $800,000 to $1 million. It took days and days. It took like 50, 70 people. We can now do this with 3 or 4 really smart people using artificial intelligence and look at how incredible it is.

The change is coming. And while we can push back on this and we can deny it and we can take -- think that I've got more time, get don't. Get don't. You either embrace artificial intelligence or you get run over by someone else who does. And the great thing is we saw this coming. We started playing with neural networks 10 years ago, and we started to understand them and then build out what you needed to be successful over the long time.

We built that relationship together where we learned how to collaborate, how to share, how to understand what you need to be successful to lower your costs and improve your profitability to win subscribers and change the communities you serve. That's what we've been doing together for the last 15 years. That's what our $200 million this year, just for you, not chasing after some data center because that's the shiny nickel, just for you because you're really important, that's what it's going to do for you as we go through 2027 at a pace we've never been able to match before.

As I said, we will do more in 2027 than we did in 2025 and in 2026. Significant jump up, and it just comes down to you have to choose to transform. And so to go to this next step and talk about how do you transform, how do you lead your teams through this? What's the opportunity ahead? I have 4 incredible customers who are going to -- who collaborate with us every day, who push us to be better so that all of you can benefit and that their teams can benefit.

With that, I'd like to invite the first person on stage, let's kick it off, Shane West, the new CEO of Allo.

Allo serves just over 250,000 total subscribers across its footprint in Nebraska, Colorado and Arizona, where we've seen the most significant increases in ARPU, have really been our switch to DirectTV, a streaming platform that we use for video service as well as business-to-business security platforms, which allowed us to better serve our commercial subscribers. SmartTown is a key part of our strategy. SmartTown has allowed us to differentiate ourselves from our competition by extending our broadband service beyond the home and into the communities we serve.

So when our customers leave their homes and go out into their communities, whether it's the park or a public event, they take that great Allo experience with them, and it's a real differentiator in our communities. The relationship that Allo and Calix has is probably one of the most unique relationships I've seen between 2 providers in this business. I've been in this industry for 30 years and have not seen the level of partnership and coordination and focus on being successful together than these 2 companies.

Thank you, Shane. Nice to see you. Welcome. Welcome to Connections.

Thank you, Michael.

All right. So let's tell everybody, the first thing is you came from a multi-vendor environment, right? You saw the complexity and all those different component parts. You became the new CEO of Allo. You move over into this deep partnership that we've had. I want don't you share kind of how that's gone and what your observations are.

It's been great so far. Michael is right. You heard about a little bit earlier, but I'm used to running multi-platform networks. A lot of complexity there. But one of the things I can tell you, complexity isn't free. Our teams, when you start running multi-platform networks, our teams are spending time troubleshooting, integrating systems, just simply spending time moving data from one side to the other to figure out what's going on with their network.

Why? And who's broken?

Absolutely. Nobody knows -- you don't have visibility into where it's broken, what is happening there. And ultimately, what that does is drives up the total cost of ownership of the network. We spend a lot of time being less efficient. And ultimately, it negatively impacts the customer experience.

All right. So the first statistic I'd like you to share is that in your previous company, you had 400 -- how many people in IT versus how many people in IT you have here?

Yes. So this complexity that I'm talking about is the difference between having a 25-person IT staff and a 400-person IT staff building integrations and simply moving information from one screen to the next for our teammates.

Well, I'm trying to figure out if -- back to the B&G and all these other component parts, I got to figure out who's culpable and who broke it.

Absolutely. And then you end up pointing fingers at each other trying to figure out what is happening at that customer experience.

Well, and I remember when you first started because we've known each other for a long time, right? And so can you share the story of you're like this can't -- the data can't be right. So you look at truck rolls, and it was fiber to fiber, Allo with Calix and then another company with multi-vendor and all that complexity with those 400 IT people trying to manage the mess. What was the difference? Because you got to talk about how you didn't believe it.

Yes. So the one thing I did here, when I came to Allo, the first thing I did is I looked at the trouble ticket index, the percentage of customers that have a trouble in a particular month. And I'm looking at this, I'm like the numbers just are not right. They're not wrong.

Someone is lying, I'm the new CEO, someone is lying.

Like something is off here. And the trouble ticket index at Allo, where we run one platform is 40% less. Than a multi-platform network. And the first thing I did was call somebody I knew and he's like, do you realize what happens handing off from a Nokia network to God forbid homegrown middleware, to something at the end, whatever that in-the-home solution is. And he's like, no, it's the end-to-end solution.

And then you also looked at NPS. And so they're running multiple platforms per subscriber. And the difference in NPS was what, 0 and...

40, right? 60 here. 60 at Allo, actually, 0.

60 inside, like, I think there's 60, 70 and then versus 0, right? And so there's a profound shift in difference. And again, the difference is people, right?

And it's the customer experience showing up in NPS. It's the customer experience showing up in churn, and it's a cost structure component because you're spending time building these integrations, that stuff doesn't cost. That's not free, especially in a world where we're all more competitive for IT resources.

Well, especially if you're homegrown.

Absolutely.

What happens when -- like we all go through this is what happens when those people start to retire, right? It's like the COBOL. I still remember when all these people are freaking out. Are you a COBOL programmer -- because if you're a COBOL programmer, you can make $1 million a year because no one is a COBOL programmer.

Absolutely. That talent resource is getting more and more restricted, and it's going to go away. And it's this platform that allows us to do that, retain that knowledge.

So we had you and your team like when we talked about the launch of artificial intelligence, it was actually you guys who spurred us on to reveal it all, and that was a year ago. And then since then, we've got together many, many times. We've been running pilots. At one point, we had 14 AI pilots running with you. So what's your view as you see this now and you see what's possible? How do you look at AI and where it can go? So because you're already doing really well, but how do you go to the next level?

Yes. So let me talk about a very specific instance with AI and some of the work we've done. Operations Claude has got a ton of capability, but it's really about how you impact the customer and how you impact the business. So the specific instance I'll talk about is that thing our companies all hate, that customer that calls in with an intermittent connectivity issue, right? It's just a nightmare because that customer calls in and half the time when that customer calls in, it's working when they talk to -- they talk...

Of course, more people...

Absolutely, absolutely. And then our teammates or our employees spend 15 minutes in some research project trying to replicate what happened with the customer, figure out what happened. We were actually able to put operations agent like in an actual customer experience to do that. the teammate with operations agent, we were able to actually resolve or understand that customer's issue instead of 15 minutes in 30 seconds. So we knew where the service was degrading, when it was degrading and get to servicing that customer faster instead of 15 minutes flipping through screens with a technician in the home or a teammate on the phone.

So then when you go through that, then it also comes down to you, then you can also look at, okay, now how do we fix this so it doesn't happen intermittently, which is a nightmare in other places, too.

Absolutely because that's the worst -- you end up with an intermittent issue, but there's 37 other intermittent issues with 37 other customers having that same experience.

All right. So you as a CEO, you're pretty AI forward, right? And over dinner, you told me a funny story. So apparently, he was a little worried about coming on stage with me because I can at times go off script. So why don't you share what you did personally with AI to kind of solve that problem?

That's a personal use case with Michael is he's not wrong, right? Even this version is not the same script that we went through. So...

By the way, these questions are purely for guidance, relevant...

So we're practicing, and I go to Claude and I'm like, okay, this is what I've got to do. I got 4 questions. Go out and take a look at everything you've seen Mike speak of online over the last 3 years. And Claude comes back and goes, basically, this has the opportunity to go off the rail.

And so literally, literally, Claude tells me if you've ever seen the show between 2 firms, don't watch it at work. But it's like be prepared for an interview like that. But what I was able to do personal use and how the world has changed from AI, I was able to use that data, have a really quick back and forth with Claude version of Michael and get up here and have a good conversation.

Well, and it actually came out with some, oh, that's a good question, right? So I'm going to ask what I think was the best question that Claude came up with. So look, you're PE-backed, right? And then you have all of these customers and you have incredible results, you have the NPS that you've delivered, how do you balance driving profitability and EBITDA? And can you do it with a great customer experience?

So my answer to that question was I reject the notion that those are 2 things are mutually exclusive. And I'll tie this back to why you're on stage, why we're here on stage. When I look at where we're going as a telecom industry, it's the combination of the guy on the right and the agent on the left. And I think we are going to be able to use the technology in concert to provide better customer service and drive profitability in our business.

Well, you think about it, if you can do with 25 people, what others are doing with 400, absolutely, right? That puts you in a unique competitive position. But then the other part too is as you deploy this AI, which is going to flow out to you quickly, it allows those 25 people to operate like they're 400, right?

This is an augmented.

Yes, augmented human.

This is an augmented team, and this is the future of where we're going.

Right. Well, let's give Shane a big round of applause and huge thanks. Congratulations on the success.

So what Shane talked about was I don't know what I supposed to do with those cards. So what Shane talked about is that from an operations scenario, how they took what was 15 minutes in an intermittent scenario, which actually is the worst scenario because those 15 minutes are reoccurring until you finally solve it, and Lord knows we've all gone through that, is actually talking about how do I really drive out this operational workflows. Here's an operational workflow that's coming out in November that you will just get.

So simple example, I'm looking -- it's going to be analyzing the operations agent is going to be analyzing what's going on in the network, service connections, performance thresholds and it sees an issue, it's going to diagnose it. It's going to bring it over to a human because in the end, this is about how do humans and agents work together. How do you actually bring it to someone, one of your incredibly smart network architects and say, here's the data that you need to make a great decision to reconfigure something, to make a change, maybe it's roll a truck. And they click it. And at the same time that, that's happening, we identify the subscriber and a decision matrix will decide, do we actually have to notify the subscribers that something is happening in the network, Hey, you're not diluted, there's an issue going on.

So we notify the subscribers, "Hey, there might be a slowdown. We're working on it." It gets fixed and up comes to the applications, the subscriber agent says, "Hey, you're fixed." And then this is the biggest part. After all that is done, because we're often running around like chickens with our heads cut off, solving problems, we don't have a lot of time to stop and say, what happened? How do I change my business? What processes do I have to change? Instead, what I can do is I can bring all of that knowledge from everything that was collected as we went through this from all the different agents as they interact with subscribers, as they looked at the network, as we identified what's going on and bring it together into improvements. And it's interesting.

The power of what's next is an interesting conversation I had with our CIO just before I came to Connections, and he was talking about how one of our vendors actually gave us AI and put it on top of a bunch of our operations, in this case, on top of how we run tickets for our employees, which is not unlike what you do when you support subscribers because that's what a CIO is. They serve the business. And so he was on with his team and they were going through all the tickets for the last month. And then there was this category called unknown. And he said, "Well, what's the unknown category?" And they're like, "Oh, we're not sure. It's unknown. And he said, "Well, you should have showed up with that answer, but that's fine.

So they said, okay, we know what, we'll go away and we'll come back and we'll let you know what it is." He said, "No." We're on -- we're looking at this data with an agent, ask the agent, asked the agent. So they did. The query the agent and it said, unknown is consists of MuleSoft integration problems and a number of other issues. So in the case, the AI was already there. It was ready to do it. In that case, what he learned, he's got a process and a people thinking process issue that he has to work through. He has to help his teams understand these things are here to serve. But unless you start thinking different and basically issuing how you used to work before, looking at reports, generating reports that no one looks at and get into this mindset of everything is at my fingertips to research as I go, you're not going to make the most of it.

So we have this big shift ahead. Now if you see this workflow and you're like me, you're going to have the same reaction I did. My first reaction when I saw this workflow is great, but none of you are McDonald's who have a handbook and implemented exactly how we say we do it, right? You're all different. So I'm proud to announce that we're launching Workflow Studio. And what Workflow Studio is, is the ability to customize workflows for your business. And it works like this. You have Workflow Studio, and it will show all of the different elements affiliated with your business.

So it's going to include everything you've done that connects A to A, MCP servers and then all of the agents that we have available. And what you have to think about with all the workflows that I present over the next 3 customer stories is think of them as like templates as reference guides based upon the best practices of over 1,000 customers who help us understand what is the best operational workflow, what is the best marketing workflow, what is the best subscriber workflow. And then what you do is you say, well, that's not how I work. And I encourage you through this process to do this.

You need to say, do I work right? Do I work right? Because how you did it before, this goes back to the BNG. Just because you used to do a BNG doesn't mean you should have it. You shouldn't. 5, 10 years from now, they should all be ripped out of your network because you need to think different if you want to be successful in the future. So you use this process to go through your workflow and you then lay it all out using all the different component parts, out comes a test campaign, you deploy the agent and off we go.

And the great thing that you're going to see through 2027 with the massive amount of capacity that we are unleashing to help your business be more successful is a significant work with partners to make sure that can happen. So now let's look at what does that look like with that old workflow. Well, now what I'm going to do with regards to what's going on in the network, I'm going to augment it with GIS data, National Weather Service, other systems using A2A and MCP. Then what I'm going to do is I go through that diagnostics, perhaps it requires a truck roll, and I happen to be using Salesforce or ServiceNow or NISC or whomever, Gaiia, whatever, pick a partner, right? I have my partners that I'm doing this work for. It actually uses Agent-to-Agent, sends the truck roll and the communication and then we go through it.

And the great thing about these agents is that in our knowledge context, they will store all that MCP data so that they have the broader context, which includes what the partners are doing. That's the future of workflows. And so we heard you, this is all coming. I would encourage you to go to the innovation center. We can actually talk to our teams about it, but this is the future of work. And all of you in the room need to rethink how you run your business. You need to rethink how you run the business because this is a great opportunity to completely change and uplift everything. And, so, next to stage, let's bring up Brooks Goodall to talk about service. Roll the video.

[Presentation]

All right, let's welcome Brooks. Welcome to the stage. Nice to see you again. I made a joke that Brooks has the first name of where I grew up. So Brooks, you've had some great success. Your customers are doing great. You're growing at an incredible pace. But you have some complexity in your business. One of the things we talked about was that your customers have a lot of devices and peculiarities that you need to deal with. So why don't you share how you're thinking about this?

Yes, Michael, we have around 15,000 broadband subscribers with an average of 20 to 25 connected devices in every home or business. At that scale, it's just not simply possible for humans or people to continuously monitor every network and every device. So we want to get to a place where we can identify those issues sooner and be more proactive and solve those problems before it impacts our customer experience.

Right. And so when you think about productivity and where we go with that, walk us through how you're starting to think about how do you get proactive with agents to solve those problems?

So again, I got a couple of examples. One example was, we had a local school. We had a volleyball game on a Saturday that was going to be live streamed. The broadcast crew showed up at 6:30 for a 7:00 game. The connection was down in the gym. So broadcast crew is scrambling, the school scrambling. They got a hold of our support team. And luckily, in that town, we have one employee, and that employee happens to be a technician, and thankfully, he's a sports fan. So he was on his way to the game when he got the call, and he's able to restore the service a few minutes before the game got broadcast. The pregame was kind of cut short, but the game went on without a hitch. So...

Yes, but like we talked about, you can't run a business on luck.

That was luck.

Right. So, I was lucky that he was there. It's lucky that he happened to be going to that volleyball game, right? But that's not a way that you can be repeatable. Plus what if he wasn't going to the volleyball game, he was going to someone else and he had an incident, right?

Correct. And we did get lucky in that, and there's a few grandparents that had no idea who were -- couldn't make the game that were very excited to watch the game and had no idea that they almost didn't get to watch the game. So that was a fortunate thing. But when we looked into that, Michael, that connection went down a few days earlier. And the school didn't notice it because they don't use that connection every day in the gym. And although we have visibility into that, it just wasn't at our fingertips. It just didn't jump out and say, service in the gym is down. So with the proactive agent, we kind of got ahead of that trouble, fix it earlier in the week, and [indiscernible] reduced a lot of stress.

Well, like if you think through that scenario, too, we talked about the fact that imagine if you wouldn't have been there, like what would have been the brand damage that you would have faced because everybody goes to the local games, whether it's a football game or a volleyball game, right?

Right. And that's about being proactive, not reactive, not waiting for the customer to call us when they have a problem. A recent study I read, Michael, was 24% of broadband subscribers do not reach out to their provider if they have an issue or a problem. So you talk about churn or high-risk people leaving to a competitor, that's your group right there. And we talk about competitors and competition in our small communities in rural America, competition has never been stronger with Starlink, T-Mobile, Verizon. Verizon, they're advertising in all of our communities, cheaper rates than where our current price points are. So we talked earlier about change, about using AI, and it's not an option. I'm confident that our team, along with the Calix agents can beat down the competition and that's...

You call them the silent sufferers...

Silent sufferers, right?

Yes. So you've been starting to work with what we're doing around service and agents and those things. If you think about that, what are your goals? Because you've set some pretty clear goals with your team on what's going to happen in 2027?

So our goal is we're excited to take the next -- to take the Calix agents, the service agents and take them to the next level. Along with being proactive, there's also customers that call us. A lot of times, the customer isn't educated on what to tell our customer support team. They don't really understand technology. So it takes a while sometimes to find out what the root of the problem is. With an agent working in the background, they can identify issues sooner when we have someone on the phone. It gives the support team confidence, it gives them knowledge and then also resolves the call quicker and the trouble quicker, and that helps with first call resolution. So when we talk about first call resolution and the other efficiencies that agents can create, I mean the price of everything is going up, like fuel, for example.

The price of gas is something we all think about right now.

And so you take -- talking churn and truck rolls. And you know where we -- the area that we serve is you got to roll a truck, you got to pack a pretty big lunch and make sure you got a full tank of fuel, right? So reducing truck rolls is very important as well. So...

You're gone for the day?

You're gone for the day, right. So I think at the end of the day, we really are looking forward for the agents to help us be more proactive to help us be more efficient. And really, that helps us save costs and time that we can reinvest back into our communities.

Well, they have a lot of devices like you talked about all the devices. You dropped a managed switch that can be seen by Service Cloud and fully managed, and that's just another level of control that reduces trucks, right?

Correct.

Right. Let's give Brooks a big round of applause. So Brooks talked about service workflows. Here's the reference workflow that's going to be coming out in November. And we just talked about it. Hey, intermittent anomaly detected things are happening. I'm confused by what's going on inside the network. I identify there's a churn risk. So I'm starting to see some incremental packet losses. The customer might not know why they're unhappy, but they're unhappy. And in this case, they actually have an unmanaged switch that's been detected. And I put this one up because this is actually something that happened to me, and I worked with the product team on it because of the fact that they couldn't really -- they couldn't see the crappy piece of device that I bought from Amazon, to quote them, was that the challenges it was happening and apparently was causing a loop. And they didn't have that insight because of the fact that they weren't running that managed switch.

So there's this great opportunity to identify and again, go back to the innovation center, and we'll show that to you where we can actually now drop in a managed switch as an offer and say, "Oh, Mr. Customer, Mrs. Customer, we think you're having some problems. Here's what's happening," and they go, "Oh, yes, that is happening, right? Well, the reason why is because you bought something that doesn't really work very well. Here's an offer. Would you like a managed switch, we'll drop it off. And because we've done a great job of helping you, thanks to the collaboration that we've gone through, self-install, shows up the next day, they plug it in. And if they have a problem, you can see everything that's going on. Just another level of extension of controlling the home, controlling the small business, controlling the MDU, so you can be successful.

And then as I said, just like with the other workflows, Workflow Studio is going to give you the flexibility to start integrating the different technologies and different partners that you use in your service workflow. If you don't run your call center with Service Cloud, if you're using different products using Salesforce or NICE or Gaiia, all the different folks out there that are doing these technologies, if you need them, they'll give that to you. And then at the same time, you can also bring in different pieces of technology as you communicate with customers. Maybe what you're going to do is they have a managed switch, but you can't get a hold of them. You're trying to reach out to them where you can start buying ads and pop it up on their feeds through HubSpot or through Facebook or Instagram so that they can actually get to that purchase point. And then once again, getting to a better outcome with the customer.

Because in the end, all these service opportunities at the same time represent a great opportunity for you to elevate your brand and also to seek out sales opportunities that allow you to grow profit, and get sticky. I cannot say this enough. When that person is making that call, they should ask or they should be armed with the information. By the way, notice you have a pool, would you also like to have better WiFi by the backyard? And it was funny, I was talking to someone, actually the next speaker, where we're talking about barbecuing in the backyard and he's amazed the people he brings over to the backyard are amazed by how great his WiFi is in the backyard. This represents a great opportunity that we all need.

And with that, let's go on to marketing. Let's bring John Walburn from Conexon out. Big round of applause and show the video.

[Presentation]

Big round of applause for John. John, welcome. Welcome to the stage.

Appreciate it.

All right. So you're a little different, although I'm sure you can relate to what Shane was saying, right? You guys had the opportunity right from the get-go to build a new company from the bottom up, right? So why don't you walk us through how you do that, how you built that team, what it was like the decisions that you made?

Yes. It was really specifically around the marketing team. It was on purpose. So when the team was built, we were looking for folks that were very engaged. We were looking for folks that were going to be agile, right, willing to pivot. And then, of course, folks that were going to be able to listen to our current customer base, new customer base and our employees, which is very important because, by the way, if all of you don't realize in the audience, you were all marketing experts. You may not know it, but you will wake up at some point in your career, as Michael and I probably both have, and you will have an epiphany for the greatest marketing campaign possible, and you will feel the need to tell marketing that. It actually happens to me a couple of times a month.

Now luckily, they don't take many of my ideas, but -- and so -- but by building a team like that, as we've continued to progress for the last 5 years, when AI starts to become available, it's amazing. They jumped right in. They wanted more and more data. How do we understand who our current customer base is and how can we support them better? And how do we understand what our passings are and what those potential customers are desiring in the systems. And so that's really helped us with our growth.

And that's how you're really taking this AI-first approach to things because of the fact that the other part, too, is scarcity is good because scarcity creates the need to not do it the same way and actually think and do it differently, right?

Yes, absolutely. I mean, again, we're willing to pivot. I mean you go out and you look and say what's working, what's not working. What's at your disposal with some of this. And so through some of the new marketing agent that we've got out, we've been able to segment now, and we understand what our customers' needs are when it's relationship to the outdoor WiFi especially. So we've really embraced the outdoor WiFi over the last 90 to 120 days. And we're now able to pull in these segments to see who has things out there like pool pumps or spas or something that we can do more tactical targeting to because when you really think about it, we were really doing a shotgun blast before for outdoor WiFi. We send it to everybody who wants it.

And now we can really get a little bit more down in the weeds with these folks and how we offer that product to them. With these new recreational ponds, I'm going to use that, but I'm going to steal that with the marketing team, like it's my idea. But yes, so folks with recreational ponds, as you guys saw, we're in Southeast in the United States. So there's a lot of ponds. We're in true rural America. And so that's going to be a great opportunity for us.

Well, you -- we were talking about your barbecue, right?

Yes.

And how many people come over and are just amazed by what it's like to have a barbecue at your house?

Yes. My personal home, I get like one bar. I don't know if anybody else does that. I get one bar on my cellular service at home. So it's horrible. And so when I have friends and family come over, we're enjoying the backyard, they'll ask me like, how do you have WiFi signal out here the way you do? And so I talk to them about the outdoor WiFi solution that we have.

Always selling.

Always selling. And so it's really fun because they then go back and they start talking to people, and it's really -- you get neighbors talking about all of these services, and that's going to help you sell it for sure.

So, let's apply this to everybody else. When you first started, you were kind of like in the bad state that we talked about. You were at like the 0.6, 0.7, right?

Yes.

That's where you started. And then you saw a jump and then another jump. So why don't you walk people through that?

Yes. So again, as we took more of a focus to it, and again, we segmented out these customers that we said, okay, these are the absolute customers we want to go after. Not that we don't want everybody on the outdoor WiFi. Everybody has some solution for outdoor WiFi. But again, when we kind of did the shotgun approach of scattered, we'll just do it to everybody out there. We didn't have the results. We were -- I think on our current customer base right now, we're at about 0.72% with our new subscribers we're bringing in outdoors.

That's attached to outdoor.

Yes, attached to outdoors.

0.72% of his base actually has an outdoor unit.

Which -- less than 1%, that's tough. That's a tough number. And so we know we can continue to grow that. And now we're looking at our new attach rate is about 2.1% as we go forward. And we just did a new e-mail campaign with our customers.

That was the segmentation work you did with the agent over the last couple of weeks?

Segmentation work, that is right, yes. Utilizing the teams together on this. And what we saw was about a 2x on that. So as customers were buying for the previous 3 weeks and then we did our e-mail campaign, we did a 2x response on our next campaign.

That gets you to like 4%.

Yes. So we're doing fantastic. And we're really excited for it. And look, it creates the customer value that we want our customers to have, the experience that we have for them. And then, of course, it's working for us because it's helping us continue to increase our ARPU and our revenues.

So as you think about the future and you think about what's possible with AI, how do you start thinking about what are the business outcomes you're going to drive?

Well, we really want to take that now to the next level, to your point. So right now, we're e-mailing our customers and trying to get them to sign up for service. What we want to do is continue to work with you guys as partners to not only take that segment and e-mail them, but we want to now put it in the hands of our technical support team and our customer support team. And so when a customer calls in, we can pop up on the screen for them and say, "Hey, this is a great opportunity for this customer. You should offer them an upsell campaign."

And it's not only with outdoor Wi-Fi, by the way. We have 200 meg and 1, 2 and 5, as I stated earlier. And so we take all of our 200 meg customers, and we want to kind of wrap them up. And as you look at how many devices they have in the home, 50, 60 devices, it's a perfect opportunity for that CSR to now offer an upgrade opportunity. I mean every call that comes in is a churn mitigator and every call that comes in is an upgrade opportunity for us.

100%. Every support call is a sales call.

Absolutely.

100%.

Yes.

Well, thank you, John. Congratulations on your success.

Thank you. Appreciate it.

Give him a big round of applause. You heard what John is doing. They're starting to think through their processes. They're starting to understand, look, how do I go from 0.7 attach on outdoor and get myself to 4. And that's just the start. If they're doing that from 2% to 4% in the last 3 weeks, how is it going to get to 5%, 6%? And this is money that helps you fund other things. And so as we think about marketing, you're going to see a lot of focus from Calix on this area and how we help your teams do more quicker and quicker. So simple workflow, right? You're going to see developing the campaign goals and parameters, working with the agent to understand what's possible, then look at ideal customer lookalikes and be able to profile.

The key thing, which I talked about with regards to Ed was that query ability. How do I actually -- if I come in as a market, I'm starting to think about what are the right things to do, what do the agent could tell me who's the highest propensity to buy. What if I can actually look at a different market and start to understand the nuances between why does this market like outdoors? Why does it not, right? If I'm in a southern state versus a northern state, what are the implications of those different demographic shifts.

Then going through and starting to scrape out what is your competition doing? What are their offers? What does their website look like? If you haven't played with AI and asked it to scrape a website, you should. It's highly powerful. But it's most powerful if you also align it to all of these other insights on what your subscriber is doing today, where the market is going and then what the competitor is doing. And then you can make smart decisions as you build out an incredible campaign and you launch it with a flick of a switch. And that flick of the switch is going to become quicker and easier, and quicker and easier as we put that power at the fingertips of your teams.

And then like every other workflow, you can then go and map out and really challenge your marketing teams on how do we market today. This, in my view, is probably one of the most important things the CEO is focused on. If you do not understand how your sales and marketing organization works, you are going to get run over by someone who does. I used to love competing with people who don't understand how important this all the time because your sales and marketing organization, along with your success teams, the support organizations, everybody engaging with the customer need to be your focus. And we're going to make that easier and easier and then at the same time, giving you the augmentation of incredible capabilities by integrating all of these different systems, whether it's Experian, LiveRamp, there's a myriad of ways and places that you can pull information from, build out those great campaigns and then decide, do I want to launch it on HubSpot? Do I launch it on Google, Meta? What are my different choices? But most important, as that campaign launches, how do I bring it back to the start and really farm what happened?

If I bought an ad doing this, that and the other thing, will it actually drive outcomes? Because in the end, advertising without a correlated ROI and outcome, you might as well burn the money. And now we make it a full loop. And so this is the next step. Again, go to the innovation center. We'll be able to show you the things that we're doing and the marketing workflows are on their way out in November.

And so last, let's talk about what's most important, which is the subscriber. I'd like to welcome to the stage, Chris Rhodes from CoastConnect to talk about where do we go with building great subscriber experiences. Run the video.

[Presentation]

Let's welcome Chris to stage. Welcome to ConneXions. Welcome to the big stage. All right. Let's start by saying, look at that NPS. Big round of applause on an NPS. Come on. Right? So, to achieve an NPS, we go back to what Shane West said. He said, "I think that great NPS leads to great outcomes." Right? So why don t you share a little bit about a philosophy of how you ran the company to get to achieve that?

We do. Well, first of all, this is actually the second year that we've been over 90 at least on our NPS. We're very proud of it. I hope you all are proud of it. Because [indiscernible] team has been a big part of that. But also our employees work very hard to provide the best service that we possibly can to our subscribers. We committed to have our subscribers' issues resolved, all their questions answered within a 24-hour period. And we have been very successful in that.

99.9%.

Actually, it's 99.9% is the actual number. So we're almost hitting 100%. We're very proud of that. But like many of the people in here, we're a new company. As I said in the video, a company that's trying to become profitable. Working hard to that. We're getting very close. We continue to grow. We continue to add subscribers. And as you add subscribers, there's more issues that have to be resolved. There's more questions that have to be answered. And as a new company trying to move toward profitability, how do we continue to maintain that level of -- that resolution rate without necessarily adding people. And I really think that's where the subscriber agent through this -- workforce agent is really going to come into play. We're excited about that to really help us, as I said in the video, kind of do more with less, continue to provide that quality of service.

And profitability is about -- it's great that you build it, but they're not going to come. You better get good at sales and marketing, right?

Absolutely. And that's one of the things that when you remove your attention from answering simple questions, taking care of simple problems, you can focus on things like that.

You can free that capacity and everything that we're going to do can go and fill that network.

And that's exciting. I would love to have people just sitting around thinking about how can we better sell this stuff.

How to sell more, right? So one of the things you have done is you have 70% of your customers using the app.

We do.

That's pretty incredible.

We're very proud of that. Our folks do a very good job when we sign up a subscriber, when we get in their homes to do the install of going ahead and getting the app loaded, giving a brief tutorial on how to use it. We really do a good job of pushing people towards it. But even still with the app, they have to navigate a lot of screens to use that app.

You're right.

And if that doesn't work, then they'll call us, call our call center line. If it's after hours, they may have to wait for the next morning to receive a call back, not the best ideal experience. Another reason we're excited about the subscriber agent is that's going to allow our subscribers to really use this normal language, even if you sound like somebody from the south like me, you can use the normal language to ask questions to see why they're having the issue they're having and really get immediate resolution. And again, continue with our high resolution rate we want to see.

Well, and if your team members, as long as we make it controlled, simple, trusted and predictable, right? If your team members can query an agent to get answers, there's no reason why in a mobile app with 70% of your customers, why they can't have the same thing.

I agree with that. And I think that the fact that we've got 70% using the app like they are is a step in the right direction for them to really buy in to using the subscriber agent and interacting with an AI agent like they're going to need to.

Yes, we talked a little bit about the younger generation. They don't want to phone in, right?

They don't. Look, I'm 54 years old and...

We're getting old.

Yes. By the way, today is the first day I've ever worn makeup. Thank you for that.

There you go. That's first to remember.

The lady in the back said we got to do it to take the shine off. I said good luck with that. But you're right. And look, as an electric cooperative, that got an Internet business, we're used to working across and communicating with members that are generational, have the young members all the way up to the old members and doing that successfully. We'll be successful in this. But I will say this, even at somebody at my age, this is really new to, if I have an opportunity to solve my own problem, I want to. I'm going to do that. And I really think that's going to be something that our subscribers are going to buy into. We're really excited about. The biggest thing is being able to focus on other things that will help make us be more successful by using subscriber agents to take care of the more simple things.

Well, it's like a self-install. All the data shows the same thing. They don't want to wait around. They'd rather do a self-install. They'd rather -- they're going to do the next-generation product. They'd rather do an upgrade. And if you can actually make it seamless and hey, plug the WANs, now, obviously, playing with fiber cables might be a little bit more tricky. But you make it simple to do the upgrade or when you add on an outdoor WiFi system, those types of things, that's what they want.

I agree with you 100%. We're excited about it.

Well, and this now transitions into your primary communication method with customers, too.

Yes, sir.

It turns into your primary communication method with customers, too.

Yes, it does.

Right? And then you can get more proactive with them. And then when you're on the call, you can talk about the important thing.

We do, being able to kind of walk them through things. It will make the whole process quicker. We'll be able to see the issues they're having even before they call in. And that's going to be in fact, being able to reach out to them before they ever call us is important. That's going to be huge. You want to talk about reducing churn is to be able to do that and be proactive in that way.

Let's give bigger -- Chris, a big round of applause for all the achievements. Well done on 91. Great job.

What's amazing is, again, so proud to be your partners because stories like that achieving 70, 80, 91 NPS, where you all in this room are best in industry. And what's great is that we're building from this position of strength where we can now go to the next level. So as we think about the subscriber workflow, what's going to change is that, first of all, CommandIQ, go to the innovation center, go take a look at the fourth version of CommandIQ, it's coming out. It's ready to go, and it's subscriber first with regards to an agent queries and how it works.

Don't try to find out how many calories are in to make double. We have made sure that 51 is not enough to get that answer. And so we have a queryable discussion. The agents come together. They're looking at all the different elements. It's not just good enough around what's going on in WiFi. Maybe there's low light levels, maybe you had a fiber cut, while these groups, the agents, operations, subscribers, service coming together to understand what's going on. Then what they do in this case, they identify, and this is what we've always really been focused on. It's great to solve the problems, but how do you take problems and turn them into opportunities to drive higher revenue and greater customer loyalty.

So in this case, we go back to the networking situation. "Hey, you have a second router. It's not working so well. Here's what you want. Can you want to call us or here's the offer click and boom it gets installed." And then through that flow, obviously, you're going to have many partners. Many partners who are going to -- you have to map into what are your data sources, what's your -- for example, do you have someone that you use for intent? What are they saying on Instagram? Are they happy? Are they sad? All those kind of things? And how do you bring that into your workflow so you have better and better context with regards to the engagement with the subscriber.

So we bring all that together. And then you can decide, for example, in this case, hey, the customer is going to get that router, but they don't want to install it themselves. They are generationally someone who would prefer someone who came in and fix those things. No problem. You can auto dispatch using agent to agent, ServiceNow then sends it out to somebody else and boom, they get up and running and they're happy.

And so -- what we showed you was how we move across operations, service, marketing and now closing out with the most important, the subscriber to build incredible experiences and help you do more. And as I stated before, as we go into 2027, we will do more in 1 year than we have done in the last 2 combined. You are going to face a richness of choice. And that choice is going to be centered on one thing. What is it that you want to change today? What are you going to evolve? What are you going to change in how you work? Because we can put it out, but if you don't embrace it and really use, for example, what we talked about, how you map out your workflows, how do you make long-term decisions and rip that B&G out of the network.

So 10 years from now, you don't have access aggregation B&G and a big fat PE because we do MPLS too, you have a tiny PE on a single system run by AI and your team members are really happy because what they're doing is helping you farm for opportunity. And then at the same time, as we bring out more capabilities on the subscriber push, we've talked to you about MDU. We now do business, we do MDU. Both of those, we're going to see a radical expansion in capacity. You add in that managed switch, and you can run a small home, a big home, you run the camp ground because we have indoor and outdoor, you can run an office. And we're now running in the biggest MDUs in North America.

And then at the same time, we're going to add hospitality so that the local towns, anything that's in there that has a hotel, no problem will be managed. At the same time, we're going to continue to expand. And so I'd encourage you to go to the innovation showcase. There's a lot to show. And our sales organization, our service organization, they're here to help to ensure that you understand what's next and you build up that plan to rearchitect not only what you do in your networks, but how you work in your call centers and how you go to the next level.

And I would highly encourage you to go get a demo of CommandIQ 4 which is releasing, ready to go. So you can see everything that we're doing from an interaction point of view. This continues to have a lot of interaction with customers around how this evolves. You can be guaranteed that Shane and his team are going to continue to evolve this as we go forward. So we give you more and more insight into how to engage with the customer. They'll show you the AI control center, so the evolution of how we really understand what's going on across your business. They'll give you insights into where we're going in the first half of 2027, around the workflow studio and then a view of where the agents are going to continue to evolve because what's going to be coming -- what's going to be happening is now that this suspenders and a Belt platform can manage trust and security and give you predictable outcomes, we are going to pile agents and workflows into your business to make your team more and more successful.

And in the end, the most important thing I want you to take away is the reason why we can put up insane numbers like NPSs of 91, where Shane West was up here and talked about how fiber to fiber, we're 40% better from a truck roll point of view, which really matters with the price of gas today. The reason why we can do this is because we do it together. Everything that we build is based upon insights into your business and how we collaborate to take your business to the next level. And as we go into this massive stage of AI that is moving at an insane pace. All of our investments come together to do one thing, have your back. You can feel comfortable that while everybody else is worried about AI is escaping and doing crazy things, and I'm not sure how much my tokens are going to allow me to drive an outcome that we've got your back, because we've had your back the entire time and the numbers that we put up together are unmatched in any industry.

And so as we take this next big step forward, you can be guaranteed that our success organization, our sales organization, our marketing organization, our product organization, all of us as a team are going to be in the trenches with you fighting and helping you win. And the evolution of that is together has always been us. You, us collaborating, doing all these great things. But as I shared with MCP and where we go with A to A, there is a big step forward with partners, too. And those partners are amazing. They're in the partner showcase. Please embrace them, take time to talk to them because together, we're going to elevate your business even faster and faster.

And so next, to celebrate that togetherness, we're going to kick off with the Customer Innovation Awards, and then we're going to follow up with Juergen, who's going to come up on stage and talk about where we go with partners in 2027. Kick off the video.

[Presentation]

Please welcome Chief Marketing Officer of Calix, Juergen Lindner.

Good morning, everyone. This is the last segment of the show. And you didn't see me sprint on stage like John did. I didn't want to pull a [ ham and cut ] it artificially short actually. Now you know you're in a great conference actually if you learn something new. And hopefully, you all took something away from this early segment here, the mind-bending innovation that we have delivered on and that we're continuing to invest in because we tend to look around corners. We want to go and proactively invest where we're going.

The other thing is you learned from John how vitally important it is to lean into transformation right now. There is no more pushing down the can, the curb. It's really essential that we're all leaning into transformation. And I also learned something that I am wearing one of those sleep trackers. I learned that I am coachable, call it rule follower, call it competitive. I like to stay with competitive actually. But I clock in average, a solid 95 every night. And that is pretty spectacular if you compare it to John Sleep Score of 52. So I have quite a leg up when it comes to that. But I love my job. I genuinely do. The reason why I love my job so much is, yes, I get to work with rock star talent here at Calix. But in all practicality, my team works for you and your teams. Help you win in your markets, enter new markets and win the heart of your subscribers over and over again. That's part of my job description as well. I take that very seriously.

Now I didn't get to meet everyone just yet. I hope we can change it over the course of the conference. Please approach me. Please let us know how we can partner up. It's vitally important that I'm going to become part of this family, and it's great to see that we have such a long tenure here attending the event. This is about as formal as it gets with me. You will not see me often. In my natural habitat, I tend to be the guy with the sleeves rolled up and quite proud with the grit under the fingernails of really tackling business problems jointly with you.

But this is also what brought me to Calix. It's this focus on execution, this focus on the trusted, secure and predictable platform because if it comes to my history a little bit, -- here we go. 30 years in transformation. Yes, I'm aging myself. I look on stage maybe [indiscernible] more younger. I hope I do. But it is something that is deeply ingrained in me, I always try to look as to where can I be part of a transformation. Is it within a company transforming their own operations? Is it helping customers guide transformation at scale? And ultimately, I get quite a kick out of technology and trying to apply technology and scale that globally. That is what I take a lot of oxygen out of. I love that.

Now a lot of those logos you might know, they might be partners of your as well. But I also got to satisfy this entrepreneurial itch several times over my career. I was part of spinouts. I cofounded an own AI start-up, and I got deep into the valley of AI. And I love it. I'm highly convicted actually that this is the future. And when Generative AI came out, we applied it to a business problem, changing the world of consulting. Now technology is a catalyst, and we should always see it as such because it forces us, it liberates us to think differently about how the future can unfold.

So those business outcomes need to be paramount and technology needs to be somewhat ambient to those conversations because if you don't know where you're going, the best technology is not going to help you. Now to illustrate that, allow me to introduce you to the pinnacle of inconvenience actually.

Good morning, ladies and gentlemen. This is your gate agent for Delta speaking. We regret to inform you that Flight 8929 with service to Las Vegas has been canceled due to mechanical maintenance. We sincerely apologize for the inconvenience.

We've all been there, right? It's just 4 words, but they upend everything. They rock your world and not in the most pleasant way. They upend your ingeniously conceived travel plans that you're so proud of. And actually, it is help hazard, right, because your blood level might be rising to downward hazardous levels here. Now statistically speaking, since we're in Las Vegas, there's 2% of flight cancellation every year in the U.S. It doesn't sound like a lot, right? But for the gamblers among us, there's a 1 in 61 chance that it impacts your personal travel. Compounding impact, of course, if you travel more. And if you add flight delays, the odds are forever not in your favor. It actually gets worse. It's 1 in 4 flights. By the way, show of hands to anyone in the room who did not have that happen to them.

Seriously, I'm going to rip up my mic. We're going to go to the gambling tables right now. You are one lucky person. We don't see that very often actually. What typically happens to mere models of us is this. You have 2 or 3 mobile phones, if you can afford them, trying to navigate several applications in parallel, right? Typically, you also have your carry-on that you're dragging and likely by the time now, you have a mood enhancer spiked into your drink. We've all been there. I'm not judging, okay? But if we take a not-so-fictitious employee, Scott Neuman, who hopefully all of you know, not Scott is back there, he looks very distressed in this picture, rightfully, though, because he's experiencing the fatally nonintegrated nature of those applications.

Individually, they all work great. But he has become the physical interface for all of those applications. The point I'm trying to make is this is painful. I could have prompted him with his hair on fire, but I wanted to prevent that as well. But you have now an airline to deal with, you have a hotel to deal with, you have the rental car potentially. You have those fancy dinner reservation that you were planning on and you have a travel and compliance system to take care of. All of that needs to be orchestrated.

Now what if magically, the team of AI agent came to your help. They work for you on your behalf. They understand you. They know that your flight is canceled. They can convey this information to your travel agent. They can team up actually to find the right itinerary for you. They can inform your rental car company that now your new flight touches down after midnight, so they better hold the car, and worse, your hotel better holds your room because now you're at the risk of a no-show, a cancellation. We don't want Scott sleeping on the streets, God forbid, right?

So it is really important that we think differently in the agentic world how experiences can unfold in a very, very different way because I like that picture so much more. Scott in a zen state. We want Scott in a zen state. And all of that is possible with A2A and MCP. So you're going to hear those 3 letter acronyms very often. But the thing is about this integration technologies that you don't need to know where the data resides. You need to have those agents teaming up on your behalf. And this is actually good right now. Scott is very happy. The Bills won yesterday. He is a confessing Buffalo Bills fan. I'm German. I'm a soccer guy. I would have more fun with that likely, right?

But what would have been extremely cool if Scott would have had those swanky seats here, and he connected with my agents because the system knows, I have a lay over too. We could have both gone jointly to the game, and that is contextual intelligence. That is how you need to think about the next best offer. Don't think in the confinement of your current data sets, think ecosystem of intelligence, think context. Those contextual experiences are really, really important. That is pixie dust on top of an already good working workflow but the best workflow can potentially take it over the top. If you have one agent that is potentially too helpful and gives Scott the trip of a lifetime, the same fail guards, failovers, they all are in place in that agentic ecosystem as well because if this one agent is eager to please and you have Emirates, you have all the luxury rentals here. The expense agent would have certainly catched this violation of the expense policy. So the same failovers are in place. Sorry, Scott, not happening this time.

But the intent here is really that we need to think differently. We need to think bigger. We need to think exponentially. What I have learned in 30 years in the industry is that workflows -- business workflows don't ever stop at applications boundaries, vendor boundaries or system boundaries. They have potentially been architected technically this way, but the flow is not complete. Now you can do this. Now you can integrate across a vast ecosystem of your investment and stitch together an experience that is unparalleled. And the other thing I've learned as a founder, very painfully actually in the AI space is that your best AI architecture can be rendered obsolete overnight. We had to reinvent ourselves several times over because today, Gemini was awesome. Tomorrow, OpenAI was better, and we found out that the partnership we had was labeled a global supply chain risk. It can happen overnight.

So please, let us help. Let's work together. Don't do it alone because now we can work as an ecosystem. Michael has just shown you this workflow, so I'm not going to go deep here. But what it allows you to do is think differently. Don't think within the confinements of what we're shipping today. It's already mesmerizing what we can do with our workflows. But as soon as you operate across the vast ecosystem of your investments, you can unlock scenarios that we haven't even thought of yet, right? So we will always try to keep the ball as much in front of us as we can.

But you have the utmost flexibility to cater to your individual IT nature, the partnerships that you have. You can access any information out of those systems, and I'm not going to geek out on you, but MCP servers are a thing. So even if your current providers maybe not as fast, we can help you with that. Call 1-800 chain, and we can set you up. We can really get you going pretty quickly here. So if you have all of the subscriber information, you can architect marketing workflows so much more efficiently. You can architect experiences segmentation and then activate it through every channel of your choosing. There's very ones that you're using today, but you're no longer confined potentially by application to application integration, but agent-to-agent integration and the technologies and the workflow studio that Michael was explaining just earlier. You can modify what we are shipping, you can extend it, and we can do that jointly.

Now this speed that Michael was talking about, let me put that into context. Why is that so important? In the past, it's been oftentimes curvy roads. It took us a long time as an industry to find our roof. And I'm going to take one example. Some of you in the room might know those standards here, right, Kubernetes, OpenID, those are the integration standards, the protocols that allow us to really operate in this world. But in average, it took multiple companies, years to align on those standards. In average, we have seen 2.5 years as an agreement type of framework to get this done. This means governance board, hundreds of hours of meetings, several hundred companies needing to agree globally on a standard. If you contrast that to what just happened in 10 weeks, 10 weeks was to agree on an application -- agent-to-agent type of framework in the protocol, that is a 10x cycle time compression.

And that is the speed that allows us to orchestrate this agentic ecosystems in a very different way. And we are enthused about this type of speed because I mean, look at this map. These are the partners who are on this journey already with us. And this ecosystem is going to grow so much faster because now we can move at this machine speed that I was hinting towards. That is really, really important for us. And this integration standard of agent-to-agent, model context protocol and the workflow studios are the unlock to this particular event. So if you are a partner, we haven't partnered up, now is the time to have the conversation.

I know I'm standing with you and a break here, right? So let me wrap up. Today, you heard all about why transformation is essential. You saw John on a pink unicorn, which is also something that's likely going to be imprinted on your retina for a long time to come. But transformation and the examples that you picked were very well chosen, Shopify, Aura, Domino's Pizza, they all did something very remarkable. They realized that they needed to lean into transformation, they did it. Michael gave you in detail an explanation as to how have we invested so far and where are we going to invest? And how can you use that when you get home with your teams to accelerate your own transformation. And we just heard from a glorious panel here of customers, how they're putting technologies to use, how they're leaning in jointly with us in going at that together.

Tomorrow, a little bit of a preview. I'm going to start with 10 minutes giving you a little bit of market insights that we have gathered. And then the meaty part starts with Melina Palmer coming on stage. She is a behavioral economist. It's a pretty rare name and as a title. But what she does better than most is she connects the dots as to why customers behave the way they do and how you should be behaving as a company to connect with your customers in very different ways. So I look forward to that. You'll hear more from your peers and your partners. So there's more customer interviews, there's more partner interviews. And Nancy is going to close with shoulder to shoulder as a team, how can we team up like never before. She's our new Chief Customer Officer. And I look forward to hearing how we can do this. But in essence, what we have done, you cannot buy this toolbox at Home Depot at Ash or your hardware choice.

We tried to give you a transformation toolbox that you can apply readily. Everything that we do is packed into this transformation tool, our platform, our agents. It's about the success offerings that we have, the partner community. Everything is here for you to accelerate and lean in jointly with us. And I leave you with a heartfelt congratulation. Now you might say, did I miss that promotion e-mail while I was traveling to Vegas SL? Close to that. You are the first generation actually. We are all the first generation that has an infinite bench of talent all of a sudden. Your existing talent paired with agent gives you a rock star bench of talent. And trust me, I wouldn't want to be on the other team.

So with that, I'm going to go into the post-game show. Enjoy the rest of the conference. I hope we can connect over the course of the next 2 days as much as possible. Look forward to tomorrow. Thank you.

Greetings, everyone, and welcome to the Calix Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nancy Fazioli, Vice President, Investor Relations.

Nancy, please go ahead.

Thank you, Darryl, and good morning, everyone. Thank you for joining our second quarter 2026 earnings call. Today on the call, we have President and CEO, Michael Weening; and Chief Financial Officer, Cory Sindelar. As a reminder, today, after the market closed, Calyx issued a news release, which was furnished on a Form 8-K, along with our stockholder letter and is also posted in the Investor Relations section of the Calix website.

Today's conference call will be available for webcast replay in the Investor Relations section of our website. Before I turn the call over to Michael for his opening remarks, I want to remind every -- but on this call, we will refer to forward-looking statements, including all statements the company will make about future financial and operating performance, growth strategy and market outlook, and that actual results may differ materially from those contemplated by these forward-looking statements.

Factors that could cause actual results and trends to differ materially are set forth in the second quarter 2026 letter to stockholders and the annual and quarterly reports filed with the SEC. Calix assumes no obligation to update any forward-looking statements, which speak only as to their respective dates. Also on this conference call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in the second quarter 2026 letter to stockholders that was posted yesterday. Unless otherwise stated, all financial information referenced in this call that will be non-GAAP.

With that, Michael, please go ahead.

Thank you, Nancy.

Much like the dot-com revolution before, the AI revolution is changing our society functions and will transform business model in every industry. The key difference between the dot-com era and the AI is a racing -- the AI rate of change is unprecedented, and those who move fast will lead the industries they serve. The second quarter was the beginning of Calix, the AI leader. -- as we began realizing the value of our 15-year investment through the first full quarter of our AI mated Calix platform being live. .

Calix is access to data, insights and the ability to autonomously or through team member augmentation improve operations, marketing, support and subscriber experiences for our service provider customers regardless of size. These expanding Calix 1 capabilities to enable our customers to address the threat of broadband commoditization through differential experiences resulting in winning new subscribers growing revenue, higher retention across consumer, business, MDU and the medical segments they serve, while improving operating costs with a predictable implementation of AI capabilities.

Customer interest in Calix exploded in Q2, driving record RPLs, record software and services revenue, while the strength of the platform was evidenced by the significant jump in software and service margin as we had all customers live. We also tripled the number of customers that signed up for agent workforce cloud. More important is the makeup of those customers. They were not only the invaders. We partner with Calix early in the product life cycle and are committed to the value that can be realized in their business model by being first to market -- the customers who signed up in Q2 span the entire adoption life cycle from early adopter, which is expected to late majority, which signals a significant Agent Workforce cloud-enabled ship across our base.

The shift is that every business leader knows they must have in the strategy or they will be at risk. The late majority adoption crude that Calix 1 is a secure, trusted and predictable approach for every customer to adopt AR. It is secure and trusted as we have invested [indiscernible] years into the platform and domain now to meet our customers' needs. Since November 2023, we have evolved the platform to be AI native while ensuring that our processes, culture, security and governance expanded to meet the needs of the AI era for our customers.

It is predictable as our AI native platform architecture allows us to use any AI model and is our belief that hardened open service models meet our workflow, use case and industry needs. That means Calix for the largest issue that is raging across all industries. How do you use AI predictably as one cannot calculate an ROI on a cost that can quickly run out of control. In our architecture, we have a true tokens through hardened open serve AR models and the acquisition of Pure Compute.

Paliton customers are adopting a platform that delivers AI capabilities that can be trusted are secure and are offered at a predictable cost which will yield an that will grow every month with their subscription as we acquire new subscribers a low revenue, reduced churn and lower operating costs through the power of Calix agent workforce cloud. At Investor Day, I shared a slide that showed our rate of innovation. On the first generation of our platform, our annual feature rate peaked at 181 in 2018.

Our second-generation platform featured sorry, our second-generation platform feature rate, PD18 in 2024. With the third generation of our platform launched, our customers can expect that our past innovation velocity will be quickly suppressed with Agent Workforce filing, which brings me to the Calix team. This team continues to win awards as one of the best cultures in any industry. Having outlined a subset of awards in the investor letter, including Fortune recognizing Calix and the 100 Best Companies to Work -- for list. The strength of this culture has never been more important.

While AI is a powerful technology, it requires teams to get the most of it. Our customer success organization will help our customers leverage agent workforce cloud to transform and inside Calix, our leaders are taking a human-centric approach to AI to ensure that Calix transforms internally by understanding how we work so that we can identify those portions of our business that will benefit from it. We are using AI to gain operating leverage across Calix.

In summary, we are committed to transforming our customers and ourselves through the power of AI. With that, I'll turn it to Cory to cover the details of an amazing quarter. Clark?

Thank you, Michael. We saw continued strong and broad-based demand in the second quarter, delivering record revenue of $293 million, a 5% sequential increase and 21% year-over-year growth, exceeding our guidance range. Importantly, this quarter, we experienced a return to strong software growth. Service and -- software and service revenue grew to a record $50 million, up 7% sequentially and 16% year-over-year. as customers began to realize value from Agentic workflows on Calix One.

Last quarter was the completion of our platform migration -- we set our focus with pivot to identifying our BSP customers, and RPOs would accelerate...

Sorry, Cory, can I please cause you. Daryl, on this operator, I understand from some of the people on the call that the call has been dropping. Could you please come on and let us know if we should restart.the call.

I am here, and I have heard everything thus far.

Okay. Apparently those who are participating by webcast or having the portions of the call that dropped. And I'm wondering if we should start the call once again.

I can confirm as well the webcast has been stable. And I've been spot checking and I have heard as well through the webcast.

Okay. So you can confirm that the webcast is acceptable and there are no issues on -- for the listeners?

As far as I can tell, there are no issues.

Okay. Pala, Corey, you can go ahead with where you are continuing.

Importantly, this quarter, we experienced a return to strong software growth. Software and service revenue grew to a record $50 million, up 7% sequentially and 16% year-over-year as customers began to realize value from agent workflows on Calix One. Last quarter, with the completion of our platform migration, we set our focus with pivot to identifying our BSP customers and RPOs would accelerate in the second half of 2026, Our customers moved faster than anticipated as we saw record RPOs of $386 million, up 3% sequentially and 11% year-over-year. .

Current RPOs were $162 million, up 3% sequentially and 21% year-over-year. Based on the strong momentum exiting the second quarter, we continue to expect RPO growth to accelerate in the second half of the year as we deliver additional identic workflows and demonstrate the value of Calix One. Furthermore, as we discussed last quarter, we would be running on a single cloud infrastructure this quarter. As such, having garnered the corresponding cost reduction, -- and when combined with the Gentek platform-driven demand, we yielded an 810 basis point sequential improvement in non-GAAP software and service gross margin. And to give you a sense of the continued leverage in the model.

I will break the precedent and say that we expect software and service gross margin to set a new record in the third quarter. As the AI leader in the broadband space, we are also focused on being the leader in human-centric AI deployment inside our own company. We've demonstrated meaningful operating leverage in the second quarter of 2026. Non-GAAP operating expenses were approximately $122 million or 42% of revenue, down from 45% and in the prior quarter, reflecting both leverage in our growth model and early productivity gains from our human-centric AI investments as well as lower incentive compensation and timing of certain expenses.

Turning to appliances. Appliance revenue was a record $243 million, a 4% increase sequentially and a 23% increase year-over-year. Non-GAAP appliance gross margin was 52.9%, representing a decrease of 460 basis points sequentially and 170 basis points year-over-year due to higher memory costs, which was partially offset by memory surcharges. As a result of the above, non-GAAP net income was $31 million or $0.47 per diluted share, above our guidance range. and we generated free cash flow of approximately $12 million.

Our balance sheet remains strong. We ended the quarter with cash and investments totaling $194 million after deploying $69 million to repurchase 1.6 million shares. DSO was 42 days, and inventory turns were 2.7%, reflecting deliberate investments in inventory to secure supply and meet continued strong demand. Turning to guidance. For the third quarter of 2026, we expect revenue between $301 million and $307 million, up 4% at the midpoint over the prior quarter. This reflects continued strong broad-based demand even as customers are more tightly managing their own inventory in response to higher memory costs.

For 2026, we expect annual revenue to grow at the higher end of the 15% to 20% growth range provided last quarter. Our third quarter non-GAAP gross margin guidance is 2% at the midpoint reflecting higher memory cost impact. As we navigate this industry-wide exogenous event, we remain focused on supply to ensure our customers can continue to meet strong subscriber demand. while we maintain a footprint aggressive stance. As you are well aware, there are many inflationary cost pressures across all industries. In our space, memory costs represents the most extreme of these pressures.

As we partner with our customers on surcharges, they value certainty. Certainty on the costs and most importantly, certainty of supply. Our surcharge program is structured to deliver exactly that with the goal to recover the incremental memory costs without adding profit. This means over the long run, memory surcharges will be gross profit neutral while remaining a headwind to gross margin. Given the implementation of our memory surcharge program, we expect appliance gross margin will bottom in the third quarter of 2026.

The third quarter of non-GAAP operating expense guidance is $124.5 million at the midpoint, a sequential increase driven primarily by the timing of expense and higher incentive compensation, partly offset by continued productivity gains from our human-centric AI investments.

Michael, back to you.

Thanks, Cory. .

And last year, there's been much debate about AI agents and the effect it will have on customers and the markets they serve. We believe that Calix is uniquely positioned to take advantage of the AI market opportunity in the broadband market based on our 15-year investment in the Calix platform and our work since November of 2023 to evolve the platform and our processes for the opportunity ahead. Our customers all know they need AI, and we are best placed to deliver subscriber or revenue growth, churn reduction and cost improvements with Agent Workforce Cloud in a trusted secure and predictable way. predictability of AI cost is the biggest issue gaining AI adoption.

And our architecture has solved that problem for our customers. trusted, secure and predictable costs are now possible for all customers regardless of size, and we began to see the results of Calix 1 and Asian Workforce Cloud in Q2. tripling Calix 1 contracts while delivering record RPOs and record software and service revenue is just a start. This is the beginning of Calix, the AI leader and now that the platform is live and running, we are excited to the opportunity for our customers to grow in the markets they serve and for our Calix team members as they leverage AI to transform how we do business and deliver operating leverage for our shareholders.

Nancy, let's open the call for questions.

Gary, you can open the call for questions.

[Operator Instructions] Our first questions come from the line Joseph Cardoso with JPMorgan.

For my first, if I may, I just wanted to touch on your expectations for gross margins to bottom here in the third quarter. totally appreciate it's a difficult operating margin -- or operating environment. I guess what's just driving the confidence here relative to calling the floor? Is it largely related to cycling past the grandfathered backlog relative to the surcharges -- or are there other levers you're seeing relative to inventory, product redesign, et cetera, that's kind of driving your confidence here in terms of calling the floor in 3Q? And then I have a follow-up.

Yes, Joseph, it is exactly as you outlined. It is the fact that we have grandfather a certain portion of the backlog and as we go through the next few quarters, that backlog as a percentage of the total will shrink. And so new orders are being -- the surcharges are being assessed that kind of our current cost structure. And we're also adjusting those now on a monthly basis as opposed to a quarterly basis. And so over time, we expect that gap to getting to gross profit neutral to improve. .

And I should say that our goal for the whole surcharge boring is to get to gross profit neutral. And as we partnered with our customers this quarter to address these higher memory costs, it became clear that they value certainty and certainty of cost and more importantly, certainty of supply. And so we had to modify our program to address this. And so consequently, we did not raise prices on backlog for a second time.

And meanwhile, new orders, we will we will adjust to reflect our actual costs and adjusted monthly instead of quarterly -- so as more revenue comes in from those new orders, we closer we come to being gross profit neutral. And that's why I believe in Q3 we will bottom in the client gross margin.

Got it. Makes sense, Corey. And then maybe as my follow-up, you raised the full year guide to the higher end of the range, which if I take literally at the high end implies a pretty solid sequential ramp here into the -- well into the upcoming fourth quarter. First, am I thinking about that correctly relative to how you're framing the exit rate for the year? And if so, could you help us think through the drivers given all the moving pieces? Obviously, you've guys gone into detail around the new platform momentum. I believe bead should start kind of flowing through here into the fourth quarter in terms of a tailwind -- and I assume some benefit from the surcharging pricing there.

So maybe just help us think through if I'm thinking about that framing as well as maybe what are the drivers here in terms of the acceleration into the fourth quarter? -- well, I guess, third and fourth quarter, but maybe what's implied in the guidance?

Yes, -- yes and yes, I think is what's the answer to that. If we take a look at what we're seeing from our customers, the demand environment remains strong and understanding that we can see all their activity through our cloud. even though we're seeing these higher surcharges and then changing their ordering paths. The underlying demand environment remains very strong. So that has not changed at all in this environment. And if you think about it, the quickest return on investment is adding a new subscriber to an existing network. And it doesn't really matter what those higher memory costs are when it comes to connecting a new subscriber to their network, they're going to move -- we're going to go ahead and buy that premise is equipment and move forward. So number 1 is the underlying demand environment is strong. .

Two, you saw a return to our software growth. Exiting the second quarter, the momentum is very high. And so we reiterate the fact that we expect our software to continue to reaccelerate into the back half of the year. And you're correct that we expect to have some dead revenue pick up in the third and fourth quarters as we exit the year. No real change in terms of that demand environment. Certainly, in the beat environment is extending a little bit in a lot of areas, but as it relates to the impact to revenue for us in the second half, no changes in that environment. And so we're looking at a back half that is strong across the board.

Let me contextualize with a couple of customer interactions. I've been on the road quite a bit over the last quarter. talking to customers. And so the closest point I'm not adding a subscriber, it's a really salient point because we've been saying this at all times is that as organizations move to their build cycles, and, for example, they come to end of building fiber. Then their entire organization pivots away from being a really efficient construction company to how to become a really great sales and marketing organization that can win subscribers.

And so the first thing I would say is that I continue to hear that theme in a lot of places. In fact, I had 1 CEO conference and the panel I was on, he basically said he can see the end of really the baby builds in fiber for his company and everything that he's thinking about is how do I add subscribers. And for Calix, that adding in subscribers means that we install a new subscriber, we provide new services, and we have an incredible strong revenue opportunity and our customer success organization and the tools we're putting place are really great at helping on the marketing side.

The other side of it, though, as I said in my opening statement, which cannot be understated is that we've cracked the code on how to make AI predictable. And this means that customers all know I need AI-- and in fact, we, as Calix, as we look at the change of how we get leverage out of our operating model and how we transform our teams, we know we need AI. The biggest challenge that we had, frankly, is how do we do it in a predictable way. And this predictability cannot be understated where we believe that Calix will become the easy button because not only do we offer a predictable cost model we had 25, 30 CEOs in our office a couple of weeks ago, and we provided a very predictable road map over the coming quarters where we show workflow by workflow, here's how we're going to identify their business and where we see the payoff ROI and output.

And frankly, those CEOs all left feeling incredibly enthusiastic about the opportunity to transform their teams and how AI will very clearly with the strong ROI change their business, and that's just going to snowball as other companies see this implemented within their peer group, and then they adopt quickly to you because -- it's inevitable. We you have to adopt it. It's just about what's the fastest path with the most predictability and that's what we've cracked the code on.

Our next question is come from the line of Scott Searle with ROTH Capital Partners.

Cory, maybe to just dive in quickly the impact on the memory charges in the third quarter. I'm wondering if you could quantify both the sales and EPS impact. It looks like just from a cursory glance that EPS would have bracketed or maybe even been higher if you had fully implemented memory surcharges across the board in the third quarter. And then looking to the prior guidance from the Analyst Day for 27, 28.

I wonder if you could give some early thoughts in terms of how are you progressing in terms of the comfort on the revenue outlook? And particularly on the OpEx front, much lower in the second quarter. It sounds like you're going to be able to continue to leverage internal AI capabilities and efficiencies to carry that forward into the future. So does the model start to change or accelerate a little bit of when we should start to see operating leverage?

Great. So let's talk about that. We'll go ahead and talk about that first. So I think the revenue outlook is firming up. I think there are plenty of demand drivers as we look into '27, '28. Software is reaccelerating the power of the agentic workflows is resonating with customers. And so we see that we'll continue to drive our software and our software gross margins higher. We've got the tailwind of bead will happen at some point in 2027. And in the meantime, customers are continuing to add subscribers. So we're seeing no letup in terms of the demand environment. And so to reiterate our 15% growth targets for '27 '28, they're on track.

In terms of the OpEx leverage, we are -- we are a leader in terms of the broadband space. We're obviously going to continue to be an AI leader in the human-centric deployment of AI and sialic -- you're starting to see some evidence of that work in the quarter. We expect more of that to come as we're committed to that as a strategy. I would say it's too early for us to accelerate that OpEx improvement, but I understand it's a keen focus inside the company to accelerate that. But I'm not changing guidance at this point, which is we will drive OpEx at a lower rate than revenue growth next year, leading to operating leverage. And we'll see what we can do to get to half or better growing at half rate revenue or better leave that as a goal, not a commitment.

And Corey, just the memory impact sales and EPS in the third quarter, that would be helpful if you could provide some context. And Mike, if I could just quickly, the competitive landscape, there was a lot of talk throughout the second quarter about the StarLink impact, et cetera. I'm wondering if you could just update your thoughts in terms of, I'll call it, the terrestrial competitive landscape and then throw in the satellite impact of how that's impacting your customers and what they're doing.

Yes, it's Scott. Essentially, it was a flip, right? We overperformed on EPS in the second quarter and the impact on not changing surcharges on the backlog had an impact into the quarter -- the third quarter. So we picked up a $0.05 in the second quarter. We lost a nickel in the third quarter. So for the year, we think we're EPS-neutral. -- that was part of what we thought about in terms of partnering with our customers and trying to get through this event of higher memory costs.

On the competitive landscape, excess fully like overtime competitor versus a fiber competitor. -- that changes market to market time by town. So competition exists, and it really just depends on how many people are building in that market and what their offerings are. Our position remains the same is that if you're in a market and you deploy the full car solution, you're going to be uniquely advantaged because of the fact that -- now again, this comes from a number of CEO who have proven this term over and over a guy, if you just are in market as a consumer and broadband provider, your at risk, if you are the broadband provider who takes the approach that we've built with our customers to being the dominant provider with the dominant brand in a town or an allocation you'll destroy your competition because you're selling consumer, you're winning the businesses, you're in the MDUs and that entire footprint comes together to provide enrollment capabilities through Smart Town that allows you to be the dominant brand with regards to talking to the PTI and the local school board around how do you provide WiFi roaming for all students who are underprivileged and we just want to have access to broadband to do homework.

How do you provide roaming as an augmentation technology for police for inlands. They currently have their public safety radios but they could be in areas where there's worse coverage or they're using an iPhone that you've given them. And now whenever they actually hit a roaming network and whether there's WiFi coverage. Placements can actually have faster speeds and better downloads on their iPhones and the P25 radios. And all these things come together to you building a great partnership with the Mayor with the Head of Parts and Rod with all these different groups, the fire chief the police chief, and then lay become the dominant brand in your town and that brand dominance makes you local and helps you win subscribers.

With regard to Sterlink, as we've always been saying forever, and the satellite providers, whether it's Starling or Amazon have a place. So if you're in a super area, it can put $500,000 to run fiber then Starlink is a great option if you're out on the boat, Starlink is a great option.

And so where it won't be an option is or where our customers know that if they lost the Starlink and they're in the town and they've got a higher connection, then they need to really look inside their business and decide what's going on because no logical customer is going to pick a sterling over fiber. The capacity differences are as phenomenal. And so fiber is going to destroy them from an experience point of view. And if the service provider does a smart thing. And the smart thing, for example, is they have to offer outdoor WiFi. And if you have the tax rate that's 40% on outdoor lipid, that customer is going to be wildly sticky because you've now put WiFi in by the pool, you got WiFi by the backyard by the garage, all those different places.

And there's going to be no impetus even if StarLink uses their significant capital availability to run this at a significant loss as we expect Amazon to do that cheap off or will be beaten over by the fact that I have a great experience, I have incredible speeds I have Wi-Fi everywhere I need it. I have virus protection that protects me every day and hacking pre protection. And therefore, plus when I go to the local parks as my phone picks up and it wanders around town, why would I ever go anywhere else? So satellite has a place that 5% to 10% of the market, the matter really comes down to customer execution and they should crush.

Our next questions come from the line of Christian Schwab with Craig Hallum.

I just want to be clear on the no surcharges on backlog. It appears to me that customer certainty on pricing and the decision not to surcharge backlog was made some time during Q2 as gross margins now are implied a little bit different than the Analyst Day on the 23rd and -- in addition, we also brought a substantial amount of stock at higher prices than where we're going to open up this morning. Is that fair? Or was that the plan all along?

No, Christian, it was not the plan all along. Our plan all along was to be -- to do cost recovery right? That was the plan we outlined at the start of that was to get to gross profit neutral. And as we partnered with our customers, it was important for them to have certainty around price. So we've made a couple of changes. So backlog was adjusted in the second quarter. where we implemented the surcharge from the second quarter. So to say there's no surcharges on backlog is not an accurate statement. There are -- what we said is we're not going to adjust at a GaN as we move forward, right?

So we gave them that certainty because customers were upset about changing price after the fact. So that was an acknowledgment of that in our partnering with them. And so the second side of that is that we've gone to adjusting surcharge pricing on a monthly basis versus a quarterly basis. so increase the frequency at which we have a chance to adjust the new orders coming in. And so that's what we've done. It had an impact to Q3 gross margins -- but ultimately, our goal has not changed, which was to maintain a gross profit neutral stance. And over time, we will narrow that gap.

Yes. Okay. That's clear. And then on a go-forward basis, kind of reiterating the fact of 15% annual growth through '27 and '28 plus. If memory prices continue to increase and we have surcharges that 15% is an organic number, correct?

All our growth is organic. Are you saying -- it's included surcharge.

Right, right. So as we get to this time next year, if memory prices continue to increase than the top line growth rate of the company should be, to some degree, greater than 15% is my question.

We'll see about that. right? So at the end of the day, they have a -- let's break that up between access and prime. So on the premises side, I see no impact to the higher memory costs. as we talked about, as they bring on new subscribers, particularly in an existing built network, it's the greatest return on invested capital. They're going to do that regardless of whether there's incremental memory costs. On the access side, it's really driven by CapEx budgets. And as you know, we are only just a small part of the overall rising cost environment. Right.

There are rising costs on fiber, labor, construction, fuel, et cetera. And so our customers, as they look at their CapEx portion of the business, we'll reevaluate how much they actually spend. So there can be actually demand destruction with the higher costs as it relates to the CapEx. But fortunately, for Calix is that the large majority of our revenue does come from the premises side. and access is a small part of the overall business. So to say that all the surcharges is additive to our revenue growth rate would probably not be an accurate statement. -- fully, that helps.

That makes it very clear. No other questions. .

Our next questions come from the line of George Notter with Wolf Research.

I just had some questions about the Agentic Workforce Cloud progress here. I know you guys made a decision to bundle that with the other cloud offerings and not really charge customers on an a la carte basis for that. And I think the view was that you would monetize via increased subscriber penetration over time. I'm just curious like where are we now? .

You've got some early feedback, I presume -- do you feel like that's still the right decision to drive for increased subscriber penetration? Do you think that model is going to work well? What's the perspective, again, a few months into the Agenticrollout?

Yes. Great question, George. If anything, yes, we think that's 100% right. And if anything, actually, we're even more confident in that approach because of what our customers are doing is what we basically did was we took everything with her. So you would go and buy everything like you buy 1 of the 1, 2 or 3 of the clouds. -- add on 1 of our smart components, you bundle it all together and you do it all bespoke. -- which meant that customers had a lot of complexity.

So on 1 side of it, our customers when we actually haven't it all in, they would say, well, on to buy it a la carte. And then when you make it out carsales -- and so by going down this approach, there's a couple of reasons why this is right. The first 1 is that you can't actually deploy effectively unless you're across the entire enterprise. So if you look at the 3 functions in the business, operations, marketing and then everything that you're doing around service or call center and field support -- every time you interact with a customer, it requires all 3 of those elements to come together in a workflow to deliver an outcome.

So at the first level, we believe that this has to happen because we have to have everything -- so that wasn't really a choice. So we went forward with that and that's what we did. So that's a further part of it. The second part of it is now that we're -- we've been in market for a full quarter, our customers really know that they have to do AI and this provides them with a very clear approach to actually transform their business. Because what happens is whether or not like if I want to change my marketing team, I may or may not be ready to change it at this moment in time. But I now know that I have the dental workflows to allow me to improve marketing when I am ready, and I'm ready to couple implementing AI in marketing with a change of my team.

And so this also makes us so that our customers can go at a pace that they require. And then the third part of it is our greatest growth driver is when customers add subscribers. -- making a few incremental pennies on top of a subscriber is not really the growth area. But when they -- as we said, we're $1 to $10 per subscriber, they have a new subscriber we go from 0 to great cash flow. And as you saw with -- that our margins are going back to where they were before and we're going to achieve incredible software and cloud margins, that means that that's going to be at a very, very profitable rate. And so which brings me to the last point is it's very predictable for our customers. And frankly, it's now that we've had a full quarter. It's very predictable for us.

So we can deploy AI in a highly predictable way. And our intent is not to just win a little bit here and there. But as you saw by the tripling of the cloud contracts, our intent is to roll up market, and we have become -- and this will be proven with every press release that starts flowing out like crazy, which our customer success stories that we are the easy button for AI and for a path to winning more subscribers, increasing revenue per subscriber and then reducing churn, which is how they grow.

Got it. And then just as a quick follow-up to that. Do you have metrics or any perspective now on customers that are actually using the genic feature? What's the feedback look like there?

It's good we just started rolling out the workflows. And so we're starting to see the productivity numbers. We are now to -- it's a good question. We're now in the process with our success organization going through and doing clear measured ROI with customers. So everyone sees the value of it, but have I measured the -- we know it's there. It's just about actually getting the physical measurements done, which takes time because, hey, I know what it costs me today, what is that workflow and that process cost me 90 days from now is what we're focused on measuring.

And so what you're going to see through the quarter through Q3 and as we ramp up for connections in Q4, started seeing a lot of workflows as we get that data which allows us to share with customers. That's what our press releases are focused on, is that a customer who sees a return on investment of that Agentic workflow, whether it's 10% or 7% we'll start seeing those shared out of press releases at a rapid rate through the end of the summer and into the early fall.

Our next question comes from the line of Tim Savageaux with Northland Capital Markets.

And you mentioned a return to record gross margins on the software side, which I think prior were maybe 66%, so call it, 67 plus. I guess my question to start with, and I have a follow-up is -- where can that gross margin go? I think we have discussed the potential for that to have a 7 in front of it at some point in the future. But I'd be interested in your expectations for the trajectory of software and services margins a little bit farther out and whether there's a ceiling that we should be thinking of or how to think about that?

We clearly see a pathway to have a 7 on the front of it. So we'll continue that mark. Ultimately, where Asentotes to is a little bit of uncertain because it depends on some of our approach related to large customers. We could actually end up in a situation where we are driving a lot more software revenue. at incredibly high gross margins and especially with private clouds, if we're doing a private instance on a large customer, the margin in that environment 100 points. .

So it's hard to say kind of how fast that will accelerate or where it has and to out to but 70 is in sight, and we'll just see ultimately where it assets out to. But -- there's a lot of headroom still left to go on expanding that software and services gross margin. 70% is just a way station on to where it ultimately ends up.

Great. And over on the appliance side, I guess, was my next question, which was -- it seems like you're looking for that to bottom and maybe tick up a bit in Q4. But again, kind of the broader question, and I don't know that you're ready to guide here, but -- is it reasonable to expect appliance gross margins to make their way back, I don't know, to the low to mid-50s by the end of 27, I guess? Or what sort of slope should we be looking at there?

Well, Tim, I would love to tell you what that looks like. But if you could tell me what memory costs are going to do, then I can probably help you triangulate on that. But if you believe the hyperscalers and their capital deployment, I think that next year will be harder than this year. but that's only if you believe those CapEx numbers. And as soon as you break on those CapEx numbers, it changes the entire pricing dynamic.

So it's hard to say. So all I know is we put together a program which, over time, will get us to a gross profit neutral stance. And so kind of regardless of what those surcharges are, we're going to continue to march to that path. And we'll just see what ultimately happens next year as it relates to memory costs. And that's the best we can do at this point.

Our next questions come from the line of Michael Genovese with Rosenblat Securities.

Great. I guess given where we are with some Calix one's rollout, and that's just started, and you've kind of got visibility to that driving an acceleration. I guess if we just tie that into RPO, my question would be sort of -- is there a way to kind of say how many quarters in a row you think RPO could accelerate from here given the visibility that you do have to the Calix 1 acceleration and going out to more and more customers? Like should we just think about RPO going up through the end of the calendar year? Or I know RPA is usually tougher seasonally in the first half of the year. Is there reasons to think it would also be accelerating in early '27 as well?

Yes, it's going to accelerate for sure because if you think about the year that we've had, right? So Q1 was a hamper of sales because of the fact that we were in the process of converting 1,200 customers from the previous platform to the new platform, and it was highly disruptive. -- while we had exactly 0 subscribers go down, we had some challenges with regards to some of our workflows on, frankly, on customer implementations. And so we -- and as 1 would expect that's a disruption to sales because the sales teams then are working with customers and helping them get through that.

We crossed that at the end of March, which then meant Q2. While there was some cleanup that had to be done and the product team was turning off the old system, the majority of the effort got to, okay, where is the value? So we've got customers back on track, and then we started to have the conversation around, okay, what's this going to deliver? And customers are asking the same thing. What's in it for me. Why did we do this? And you saw the impact. The impact was the tripling of contracts.

And I made a really important point in my comments and in the letter. And that is with regards to what were the types of customers who bought Asian workforce cloud contracts, very different. In the past, we would normally go into this cycle. Q2 would have been you have the innovators and the early adopters who are jumping all over it. Why? It is I believe in Calix, -- they know the business value that we offer. They're trying to change and improve how they run the business. They're trying to get out of it. right? While the middle majority, late majority and the laggards all sit on the sidelines and say, "I'll tell you what, when you come with ROIs like a great question, George, shown on the ROIs, but I want to see 30 of them before I actually buy because I'm the suspenders and belt decision-maker. And that was the traditional cycle, which bluntly I've been living with as a leader inside Calix since the day I started across 10 years in May. And that's been probably the biggest gating element in our business.

This cycle was radically different. We actually had a customer who I have personally been trying to close for almost a decade on smart home a decade, I have called on that leader, more times than I can count to convince him to transform its business and actually deploy our virus protection and malware and all the capabilities of what we're doing in smart home and on a really good sales leader, and we could not get them over the line. that customer, who would then be called a late majority in our traditional -- if you take what we learned in Marketing 101 in University he would be in the late majority. He signed up for Calix Cloud and in fact, asked us to extend the contract beyond our normal 3-year term. Why? Because he knows that artificial intelligence is not a nonnegotiable. This is not a nice to have. This is not -- I provide my customers fiber, and I would like to differentiate my value proposition by adding virus protection and malware.

This is everybody on the planet needs to deploy AI in their business or they're scored. They are going to get crushed by the competitor that does it. is that level of pressure. And every CEO is under that same pressure. I need to sit in front of my board, and it doesn't matter if my Board is sophisticated or unsophisticated. They're all -- they all know that when I come to the next board meeting, the only question I need to be asking it where very high plan and how fast is it going to drive results. We did this in a predictable way. we have become the easy button if they want to deploy AI effectively because we have a 15-year track record of demonstrating that we can be trusted bars with customers, that we do it in a secure manner. And by the way, the scariest thing about AI is how dangerous it can be from a truck and security point of view.

And last, we do it predictably. And this predictability that cannot understate how important this is, it is going to be a huge inhibitor on deployment for companies who cannot provide their solutions in a predictable way. And I can tell you, inside Calix, it is stopping a bunch of our AI projects. because without the predictability with regards to what AI is going to cost and with the -- the craziness of tons -- it's very hard to -- when the team comes and says, "I'd like to do this $100,000 project to implement AI to change this element of my business. Oh, by the way, it's $100,000 to do the workflow and people transformation -- but I estimate that the token cost is going to be this, but it could be 30x as much I really don't know, which means am I losing money? Or am I actually getting a return on investment -- and I will tell you that in a specific example, we currently use copilot with all of our employees.

We have a co-work proposal in front of us and that over my dead body, am I going to approve that when it's all token-based. And frankly, we looked at our pilot project and the costs or through the root -- and the ROI is nowhere to be seen other than, hey, my employee actually did a bunch of stuff better. If I can't see what the head count gains are or the productivity gains -- it's just like -- and because employees are throwing everything in the kitchen sink into the AI engine, hoping that their job will get easier. So our predictability in the form of cost -- but also, we sat down with our 1,200 customers.

We know there are billions of workflows they're running, and we know what can be identified easily and what cannot, which leads to a quick ROI means that our customer velocity is going to go through the roof especially as, again, back to what George said. Great question, which is where is the ROI, well, I've got a customer success army that I talk to every single day, and they know that their #1 mandate is find out what the current KPI is, implement the workflow and get the change in KPI so that we know we can basically say, you implement this workflow, here's your ROI -- and the power that we are going to bring into the broadband market is unmatched because we have access to our customers' data in a trusted way.

We have access to all of their billions and billions of workflows and we are the best place to actually turn those into AI workflows at a rapid rate. And that's why we spent 2.5 years building it out. so that we can now -- we went slow. And believe me, it was painful to actually go slow because everybody is going III and our product officer was under constant pressure from me saying, yes, that should ever it up, right? But he refused to because we knew that if we did this in a uncreable way, then the AI would start loosening and we do a all job. So everything that we're doing is trusted, secure and more importantly, predictable, not only from a business outcome point of view, which is the delivery of the ROI. So they know that they turn that works long, they're going to get this output and this improvement but also from a cost point of view, which was the architecture that Shane and his team brilliantly implemented, which allows us to use hard and open source and eliminate costs.

And so all these things come together a long way of saying, at less on make money for our customers and then in turn for ourselves and our investors.

Awesome. Last question, just to follow up quickly. It just does seem like the third quarter guide sequentially is a little bit below historical. And so I'm just I just guess I'm asking specifically on bead, was there any kind of change from the second half of the year into the first half of next year? Or any other reason that's kind of holding back specifically the third quarter guide from being a little bit higher?

No. I look at the third quarter guidance is in line with what we outlined in terms of expectations for the year, moving to the higher end of our guidance range that we provided last quarter. So I think on the under line, everything is tracking according to our plan. .

Our last question will come from the line of Ryan Koontz with the Needham & Company.

Maybe just start with some housekeeping. I know you're not reporting on customer tiers here. But could you give us any color that you saw across your different segments there and maybe the source of your 12% customer concentration in the quarter and update on any new Tier 1 engagements that may be looking at your private cloud options.

Yes, we're not going to provide kind of any color on customer breakdown on mix. And the 12% customer in the quarter were liberally to disclose who that is. But the expectation is, yes, they were a 10% customer in the quarter, but they likely will not be a 10% customer for the year. So kind of understand that was a blip in the quarter and you wouldn't expect to see that happen again.

And then on customer engagement, I kind of gave a lot of color in my last answer with regards to what the engagements are like and that goes across the board. That's all sides of the customers. The contracts that we closed in the quarter were actually -- the majority of them were smaller customers, which is pretty normal lease. You see that, but we're broadly engaged in sales cycles across all customer sizes. .

And the great thing now is that we're about to sell in because we've done a 2.5-year implementation and we can actually demo it and show it. So with larger customers, they have longer deal cycles. So the average -- on a large customer, a 12 to 24 months on deal cycle. So we're now deep into it. And more importantly, we're not talking about PowerPoints perhaps showing things. So great momentum.

Makes sense. And then maybe on your RPOs, you talked about expecting acceleration there. We did see a divergence in 2Q between current picking up and kind of that long term, not growing as much. Can you maybe expand on that in terms of the long-term RPO expectations going forward? Do you think that will kind of normalize going forward if you get some renewals.

Yes, Ryan, it's always a function of the tail on those RPOs and subject to customers coming back up for renewal. My expectation is that with the Carson contracts, we'll see an early renewal cycle. So you will probably see that total RPO growth will continue. But obviously, the current RPO is the 1 is eliminates kind of the effect of the shrinking renewal, the tail coming in. So strength in the current RPO is really what you want to focus in on. That being said, with the power of the Callison platform, I would expect customers of all sizes to renew their contracts or relate to move on to the platform. And so I think you're going to see total RPOs grow. .

Makes sense. Great. And then maybe lastly on -- you talked about token costs and your use of open source and you've migrated to GCP. Can you maybe expand on that a little bit in terms of how you compare competitively with other options with your open source approach.

What other options in what regard ?

Well, just if you would implement this on kind of an off-the-shelf frontier model or something like this, I mean, what type of cost savings are you seeing relative to...

So let's talk about that Right. Okay. I get what you're saying.

So when a company goes and use our intelligence to decide to build it in a bespoke manner. -- right? That's the first thing is that the challenge they have is that they also are now entering into software life cycles and so they need to consider that. With regards to us using a Frontier model, we're using our hard notes, the differences that we don't really see we can see the gains of it. So if you compare the gap between what is a frontier model and what is not source model, it's a very small gap, especially if you look at the workflows that we're doing. -- we're not asking this system to go and quote a new back-office system or do incredibly crazy things.

We're asking it to take what is a well-defined workflow well-defined context that exists in our knowledge layer and then apply that workflow with agents to execute against clearly defined boundaries and drive great outcomes. And so our use cases, our workflows and the models that we're going after, actually, they lend themselves perfectly to this approach. So I don't need to paint you flying on a unicorn over mountain and maybe it was 3D Ascenti, right? This is not the use case. So yes.

You may disconnect your lines at this time. Enjoy the rest of your day.

Good afternoon, everyone. For the next section, we have Calix CFO, Cory Sindelar. Cory, thank you for being here. Appreciate the time spending with us.

So maybe just starting off, the migration to Calix 3.0 was clearly a massive undertaking, and congratulations on getting it done. Now that we're on the other side of this and customers are seeing what the AI native platform can do, how are those early conversations going about Calix One adoption?

Yes. So about 1.5 years ago, we made a determination that we needed to re-architect the platform. And so that culminated in the first quarter where we migrated off of AWS onto Google platform. And the benefit of us moving to Google platform was not only to improve the scalability of the platform in terms of cost, but it gives us the ability to enter into some new markets. Part of which was to help us to do a private cloud to go into large customers to go international, but it also enabled us to bring AI functionality into the platform and bring automated workflows to the service provider marketplace. And so that's what just happened.

So in March, we finished the migration from AWS to GCP. And as you know, we release our software every 91 days on the second Tuesday of the second month, which happened to be last week. So we've done our first major release with the new cloud platform, and we are now at that point, engaging with the early customers, those that had already bought the 3 clouds from Calix. And I kind of joke around saying, these are the customers that are all in on Calix. If we built a margarita machine, they would buy it.

And so these customers are now taking advantage of the 3 clouds that they had in the Calix One contract, and we are working with our customer success teams to go demonstrated the value and the productivity enhancements associated with the agentic workflows. And so it's going in a very controlled manner, meaning we're going in and measuring kind of where their productivity is today. And then as they deploy the new functionality, what improvements are they seeing.

So that's kind of where we're at. So still very early days in terms of bringing it along. And as you see, as we build to our show of connections in October, more and more of those outcomes will become more visible as we do press releases and share that with the public.

Got it. And maybe the flip side of this is one of the debates we hear from investors is around the defensibility in a world where AI tools are becoming more accessible, AI disruption, right? You talked about security trust and 0.5 billion workflows of proprietary data as is your moat. Maybe just extrapolate on that a little bit and expand like what is it about the way you've architectured the platform that makes it really hard for someone else to replicate even as AI tools become more commoditized?

If you're going to allow agents to actually work autonomously in the network, you're going to have to construct them in a way that they don't hallucinate and that they are in a controlled manner. And so building that trust and security layer puts the provisions in around them. And then you are using the collective data collected from our 1,200 customers to train the LLMs in order to allow them to take action inside of the service provider network.

The platform is obviously have to bring context from other data sources. So through AA and MCP, we're actually pulling all that data together, combined with the knowledge of our customer activities that allows us then to provide these agentic workflows in a way that don't hallucinate and get to the outcomes that we're looking for.

Got it. Maybe another aspect of this is you made the decision that customers can't access any meaningful AI features unless they sign up for Calix One and collapse all their contracts into one. Maybe can you just give us an update in terms of how customer discussions have been trending since that decision? How has feedback been on that front?

Yes. So customers do not have to go to Calix One out of the gate, right? They can still purchase our clouds on an individual basis. And maybe I kind of explained that just a little bit. So prior to Calix One, we sold our cloud offerings on a persona basis. Think about it as a job description. So if you're in the call center, you're using Service Cloud. If you're in operations or a network role, you're using Operations Cloud. If you're a marketeer and you're doing the commercial arrangements and you're looking to bring on new subscribers, you're using Marketing Cloud.

All of those solutions were oriented to a role to a person. But if you're using agentic workflows, it's really a horizontal workflow. It's touching all aspects of the enterprise. And so to get to that, you really have to have all 3 clouds. It makes no sense because if you take an example of any of these workflows, it's going to touch every bit of those different 3 clouds. So what we've said is as we migrate forward with these agentic workflows, we're going to sell it as Calix One, which is taking all 3 clouds, putting it together into a commercial model that then looks at it as all subscribers are equal, and we can move forward. It doesn't preclude you, you can't. You can still buy it the old way.

So those customers that don't see the value yet in terms of agentic workflows can still buy the old way. For the ones that are early adopters, it was easy. They were very happy to sign a Calix One contract. They're looking forward to seeing the value being created through agentic workflows, and we're in that DV proving stage at the moment.

Got it. And so maybe if we think about 80% of the base that does not leverage all 3 clouds today, how are you thinking about them transitioning then? Is it more going to be -- at least in terms of your viewpoint to date, do you expect them to move to Calix One as they think about procuring another cloud? Or do you see them doing more of the piecemeal until they get comfortable in moving to Calix One? And then I have a follow-up there.

Yes. So the way we want to monetize the AI is not through selling more clouds. That ultimately is not the goal. The goal of Calix AI is to increase their productivity so that they can do more and/or do things faster. One of the issues we have with service providers is their ability to do more things. Calix has been able to deliver a lot of different functionality and capabilities and the way at which they consume it is gated by know-how and/or capacity.

So the promise of AI is to unlock that, allow them to do more and add more subscribers at a faster rate or introduce new services that they aren't today. And so for us, that's the way we monetize it because all of our operating system platform managed services are on a per subscriber basis. And so the quickest way for us to drive more software revenue is to increase the rate at which they're adding subscribers, not so much selling that third cloud.

Yes. That makes sense. And so maybe as a follow-up to this is like what's the milestone that investors should be looking at? Is RPO the right number to be looking at? And then as a second part to that question, how should we think about the cadence in terms of a potential inflection in that milestone?

Yes. Out of the gate, RPO is the telltale sign is probably a leading indicator for the progress on our software contracts. You're also going to then see it in the service cloud margin line as we make more progress there. From an early day perspective, we're still now building and proving out to folks the benefits of the AI through the DV creation. I expect -- and like I said on the last earnings call, we expect that RPO to reaccelerate in the second half, particularly as more of those proof points come into the existence and being shared with others. And ultimately, it leads up to our Connections show in October down in Vegas where we typically do very well with our customers. And fourth quarter, I would expect to be a big quarter in terms of signing contracts culminating kind of in that experience.

Got it. And then maybe just on the pricing side, like for the average customer who's going from 1 or 2 clouds to Calix One, like how should -- help us frame how we should see the uplift look like?

Yes. I mean -- so each one of our offerings is fit into a price volume curve. So the more subscribers you add, the better price you're going to get. But generically, I'll speak kind of at a high level to give you a sense for what you're talking about, let's say, a cloud is $0.50. So if you had 2 clouds, you're paying $1 and you want to get the third cloud, you add a $1.50. Put a new subs coming in at $5. So like I said, chasing the $0.50 is really not what you're after. You're looking forward to bringing forward the $5 per sub forward as opposed to trying to sell that third cloud.

Got it. And as you bring in new logos, does the bundle approach actually make the value proposition clear for them? Or does it feel like a bigger initial commitment?

Haven't got to that point yet. But like I said before, the commercial arrangement is such that they do not have to buy it all at once. So if they aren't convinced that Agentic workflows are for them at the moment, they can start wherever they want to. They can start with just deploying our premises systems with EXOS. They can start on the access side with AXOS. They can take one of our clouds and start there.

So inevitably, we aren't gated by them having to buy the whole package initially. They can start where they feel appropriate. And you've seen that in some of our prior letters where we try to outline for folks those platform journey. And you typically see that they will start with support cloud. And ultimately, as they move forward from support cloud, they're then going to add managed services on to them. And so we would expect that a customer can come in and start their platform journey at any point.

Got it. So maybe changing gears a little bit here. When we talk to investors, the Tier 1 opportunity is one of the more exciting parts that we're hearing now from the investors that we speak to. You mentioned expecting to land an anchor customer this year. Can you help us understand what that engagement looks like? Is the entry point more likely through an MDU or small business where the barriers are lower and then it expands from there?

Yes. So we were moving forward with our Calix One platform in agentic workflow. And Michael went off to Mobile World Congress in March and thought that the conversation would gravitate around the use of AI and workflows with those large customers. And his takeaway from coming back from Mobile World Congress was that these conversations with large telcos inevitably move to MDU and small business. That's the pain point that they are experiencing today. And so we are extremely excited about the opportunity to develop our MDU offering into the marketplace.

We see it as a significant TAM expansion to the work we're doing today. It's another $10 billion market TAM. And we see that the profile of that business very similar to the existing business inside of the company with our regional service providers. It's a highly fragmented market where it's being served today by enterprise solutions coming down. And our approach will be bringing a consumer-led managed service offering from the bottom that is focused on tenant subscriber experience.

It's approached by the same way in terms of a sales force in terms of a direct model. And so we think we have the ability to double the size of our company by approaching the MDU and the added kicker is by approaching that market is that we can then also service Tier 1s. So if that's the way we go into a Tier 1, as Michael would say, we're going in the side door, solving a pain point, that's what we'll do. Our platform, once installed, makes it very easy then to extend anywhere else inside the enterprise.

So the fact that we solve an MDU pain point, our technology stack is fully stood up. They can then by definition through our platform, move into small business. They can add outdoor WiFi. They can add all kinds of things in matters of days and weeks as opposed to months and years because there's no incremental IT work involved once our platform is put in place. So that's our approach. We've demonstrated that in a couple of locations where we've been that easy button for large service providers. And as long as we continue to show that we are the easiest way forward, I think we'll have the ability to penetrate these larger telcos.

And so maybe can you just touch on the differentiation versus the competitive market? It sounds like there's less of a rip and replace motion if they go with you and implement it. But I guess why are they displacing the existing incumbent...

In MDU specifically.

Yes. Yes. Exactly.

Yes, exactly. Because it's, again, the way that market has been put together, right? They are serving it with enterprise class technology being pieced together. And our approach has been taking the residential package that has been consumer-oriented and bringing it up with our anchor customers like Zentro, who -- that's where they started, right? They were serving the MDU space. They were looking for us to come in and provide them a little bit more functionality to round out the solution. And ultimately, we can provide a solution that is managed at a lower price point than what is being offered today. And through the management, give that tenant experience a better option.

And you might ask yourself, well, why today? Why are you approaching MDU and why didn't you do that 2 years ago or 3 years ago? And the answer is the MDU is a microcosm of a small town, and it takes all of the technology that we have developed over the last 10 years to bring it to bear into the marketplace. A community in an apartment tower, for instance, has our apartments. Well, that's the smart home application. When they're in the property, they want to be able to roam freely. They want to go into the parking garages, the workout facilities, the tennis courts. Maybe this apartment has retail on the first floor, they want to be able to go down to the retail shops and their WiFi just works everywhere they go. That's SmartTown.

The property is going to have paywalls and different networks and that technology comes right out of our small business application. So the landlord property management company is going to have its own network. You're going to have a tenant network. You're going to have a guest network that has retail. They'll have a couple of different networks themselves. Managing all those networks and kind of the one cloud is what comes out of the small business application.

So you're putting all of that technology now together into an MDU package. And so it is here more so because it is there. It's now that we put it all together to have these pieces. And so we have to augment it with a few more pieces in terms of like the landlord app for managing tenants as they come and go. But we're at the point where we can actually sell this application into the marketplace. And so we're excited about being able to do that. So today, we've got tens of thousands of apartments under management, and we see our ability to get to millions in not too long a time frame. So pretty exciting. The economics are similar to our regional profile. So we are pivoting 100% and trying to make a lot of inroads into that marketplace.

Very interesting. And as you think about the potential because you described it as kind of like a land-and-expand motion once you're in, now it opens up the door to other avenues. Like is there a low-hanging fruit there that you think is going to be first up at that in terms of being an addressable opportunity at the Tier 1s? Or is it still a little bit opaque at this time?

The 2 adjacencies from MDU would be the small business. And then after that, then we'll have to see kind of where that evolves to. But ultimately, I think that's the easiest way in is through MDU at the moment.

Got it. And as we think about kind of the broader opportunity there, like what are the key milestones investors should be looking out over the next 12 months?

Well, going into Tier 1 are longer sales cycles. So the next 12 months might be an ambitious statement given the fact that they are usually 18-month sales cycles. But ultimately, it will culminate in greater RPO growth. Tier 1s typically do not like to have their name in press releases. But somehow analysts are smart enough to figure that out and somehow it gets out there. But that's how I think you would see it. I don't know that we would do a press release in particular, unless the Tier 1 was willing to share it, which they typically don't.

Got it. Maybe shifting gears to the international market. You mentioned Google Cloud partnership opens up the ability to do private instances in hosted market. How are you thinking about the sequencing there? Is Europe the first focus? Or are there markets in Asia Pacific where you'd further -- you'd look to? And how should we think about the revenue contribution time line?

Yes, that's great. We love our partnership with Google. Calix will be an orderable line item in the Google marketplace because we had talked about how GCP allows us to create a private instance within Google for our cloud. And if you look at us going into a large Tier 1, they're going to have their own contract with Google. Their volumes are going to be greater than what we have. Their pricing is likely to be better. And if you're talking to a CIO of a large Tier 1, they're going to want to be able to burn down that Google commitment by utilizing these workflows on their own private instance. So we facilitated that.

We will then just be a line item within that Google marketplace. The great news about that is the margin profile turns out to be 100% because large Tier 1 is actually buying the compute and the storage and everything else that creates our PaaS in terms of the cloud operation from it. So as we enter in the Tier 1 market, we are engaging Tier 1s around the world. It probably starts a little bit closer to home here in the North America market. But conversations are being held around the world with large telcos. I don't think one is more aligned with Calix than another, whether you're looking at -- when you say Asia, I'm using more of the Five Eyes as opposed to some of the other countries that may not be geopolitically aligned.

Yes. That makes sense. And when you think about that motion now going into these international markets and trying to kind of spread out there, how are you thinking about the associated investments to go after it?

Yes. We're making those investments in the selling and marketing resources. It's a small footprint to start in terms of people. You're going to have less than a dozen people that would be focused on adding those Tier 1s who have the relationships that are accustomed to hunting in that environment.

Makes sense. Maybe just sticking on that investment. I think you spent 80% of R&D on the platform migration in '25, which obviously constrains feature output. And now that capacity has freed up, how quickly does the innovation engine ramp back up after kind of that allocation there?

That's a great question. We had said about last fall that we would be ramping up forward investing in R&D to make these investments on agentic workflows. We did get the cloud migrated over and the funnel for new features is off the charts, so much so that we're actually looking at doing monthly releases, something that we've not done before. So I told you that last week was our first major release post the go-live on GCP but features are coming fast and furious. We'll do a June release, a July release, another major release in August, all the way probably through November. So sit back and watch, you're going to see a ramp in terms of the innovation engine of Calix as now we're -- all our engineers are focused on delivering on these product sets.

Sticking to Tuesdays?

Sticking on Tuesdays, second Tuesday of the month.

No, makes sense. And maybe just on the migration. You've been transparent that there were a few bumps, particularly around installer workflows. As we sit here today, are those fully resolved? And should investors think of the platform as fully stable and ready to scale from here?

Yes. That's true. I still think we're working inside the new model. And so I've explained to folks that it's a brand-new platform. We're optimizing it. Expected like, for example, the software and services margins to snap back a little bit more. But I think the optimization of the current platform will take a little bit more time than that.

So our current expectation for that is that we would be somewhere between last year's Q3, Q4 margin profile. And as we look to Q3 of this year, we should be setting new records for software and services. Obviously, we didn't go through this pain without expecting to see margin improvement on the overall platform and scalability. And so we should be able to grow from there as we move through Q3 and into the future periods.

Got it. Let me just pause there and see if there's any questions in the room. If you have a question, please raise your hand.

Can you walk through the factors that are impacting gross margins from the standpoint of the price uplift to account for the memory offset by the not having to run dual clouds and where all that kind of levels out?

Yes. So I think I just talked through the service and support gross margins. They bottomed, obviously, in the first quarter, and I think we get to new highs during in the third quarter moving forward. As it relates to memory, that's our favorite topic of the week, month and year. We are being encumbered by increased memory pricing, no different than anybody else in the industry. We have chosen to pass that along to our customers in the form of a surcharge and we did that as it changes, we can then concomitantly pass that on to our customer.

So if it continues to go up, surcharges will go up. If they go down, they will get the benefit of any relief that we see in terms of memory pricing without having to change price. Our estimate for margin impact for the year as a result of memory was 200 basis points to gross margin. Since we aren't margin stacking it, you're effectively pushing through a surcharge at 0 margin. And so that's having that headwind to it. At the same time, we took our revenue growth profile up as a consequence for that increased pricing through the form of a surcharge. Where does it go? I would say, ultimately, your crystal ball is as good as mine. I do not think we're at peak pricing yet in terms of memory. I do, based on from what we understand from our supply chain is that it will continue up into the third quarter and then flatten out a little bit in the fourth.

We do think in sometime in '27 that you'll start seeing additional capacity come online that actually helps up then with the supply. At the same time, companies such as Calix and others are optimizing their memory footprint, shrinking the software to help reduce that price. When memory was $1 a gig, you didn't care actually having an extra gig in your appliance. At $25, it's a whole different story. So you're going to make that change and you're going to reduce that footprint.

So I think those supply-demand dynamics will continue, and we'll start seeing something in 2027. Ultimately, I think this plays out that we'll get to a new normal for memory. In the beginning of 2028, we'll probably start seeing the first bits of WiFi 8. And I see this playing out in 1 of 2 ways. We'll simply take that new normal for memory pricing, embed that into Wi-Fi 8 pricing and as customer migrate from Wi-Fi 7 to WiFi 8, it just goes away. If WiFi 8 pushes out later in time or the new normal for memory accelerates earlier in '27, not what I'm thinking is going to happen, but if it did, well, then we would just simply increase the price on Wi-Fi 7 and put the surcharges behind us.

So this headwind that we're facing here in the short term actually unwinds itself, right? Because ultimately, what will happen is the gross margin, the revenue at 0 margin will dissipate. That 200 basis points will reverse itself. The incremental revenue growth will then contract a little bit. And it will be our goal to just continue to grow through all the other avenues we talked about in terms of BEAD and through the MDU, through the footprint expansion that we have in the business that will oversend that slowdown in revenue growth. That's how I see this ultimately playing out.

[indiscernible] memory pricing and other macro factors might be impacting your customers' cadence of deployment of fiber passing and fiber connecting? Are they -- are your -- is your customer set getting a little bit more reluctant or unable to deploy as much as they would because of component constraints?

No. I mean -- well, let me frame that a little differently. There isn't -- the component shortage hasn't led to a supply chain shortage. We can still produce and supply. The increased price has an impact on what they may buy. For example, if they had a plan to go deploy $2 million worth of CapEx during the year, fiber costs are higher, labor costs are higher. We just increased our equipment costs on them. They may not be able to pass 1,000 homes, might be 800 or the competitive landscape may be such that somebody is coming right behind them and they need to get it done and maybe they go back to their Board and increase the capital to $2.2 million. Kind of hard to say. But these price increases have an impact of some kind.

And so at this point, it's not because of the lack of supply. I mean our #1 priority is for us to be in a position where our customers have a new subscriber to turn on, they have the equipment to do so and start generating revenue. And of course, we benefit then from the recurring revenue from having that new subscriber on the network. And ultimately, we would like to be in a position such that if there's an opportunity to take share, we can. So we are aggressively in the marketplace, making sure that we have adequate supply not only to serve our customers, but take advantage of the situation if we can.

Any other questions? No, I don't see any. Okay. So maybe shifting gears from there and maybe your second favorite topic, BEAD. So I think is it fair to say that the peak numbers that you guys were estimating for BEAD has come down a little bit, and I'll caveat that with, I think some of the analysis that you guys were doing has changed a little bit. But I guess where we're getting a question from investors is around has peak numbers come down? Or has the timing changed in terms of when deployments are occurring now?

Yes. At the end of the day, we've been trying to caution investors not to really get in the stock because of BEAD. We don't need BEAD to grow. BEAD is a nice tail, breeze, tailwind if and whenever it happens. We don't feel any less bullish or more bullish about it. Our estimates haven't changed. Unfortunately, our stock trades quite a bit with BEAD announcements and sentiment, right? Somebody says something negative about BEAD and we're being traded down, and I don't understand that dynamic at all.

BEAD is a favorable line item that will happen in time whenever it happens, we'll benefit just fine. So specifically, nothing has changed from our estimates. Our estimates for low tens of millions of dollars of revenue this year hasn't changed. Backlog got coverage. I think it ships this year. That's great. Other people have their BEAD money slipping out into 2027. So be it, I don't think that affects us at all. And as we're looking out in 2027, nothing has changed from the tops down number. We just what we're working to is looking at what the backlog is, how it's developing. And I suspect that it will continue to mature.

I mean 2027 is a long ways away. They're still working through a lot of different things within the BEAD program. And I said I'm not any more or less bullish on the program. I think we'll just do fantastic as it goes along. And I don't really care when it starts.

Got it. Just on that same topic, though, you've mentioned that if BEAD does surprise to the upside, you'd want to reinvest some of that into sales and marketing for MDU and international opportunities that we just talked about. Should investors think of BEAD upside as effectively self-funding the expansion into these new TAMs with operating leverage still improving on the core business underneath?

Yes. I mean that was a statement of really our OpEx model. And our OpEx model, as we outlined at our Investor Day was one of, as we move into 2027, we will slow the growth of OpEx such that it is a portion of the revenue growth. And as we get to 2028, you're going to start seeing more of the full effects of AI being adopted internally at Calix in terms of productivity.

So the areas that you're going to see us grow is we're going to have to build a little bit more into the sales capacity to attack the 2 new markets that we're entering into, but it's in the context of inside the revenue growth. Ultimately, in 2028, we think the operating margins get into the 20s. That OpEx itself rolls down, drifts down to 40% or less. The margins stabilize and get back into the 60s overall. And so I think that's ultimately where we get to in 2028.

BEAD is just another source of revenue. It just fits into the model. And like I said, I mean, BEAD is a tailwind, tail breeze maybe, in which case, we don't really need it to grow. It's just -- it's there. When it happens, we'll do well.

Got it. And then maybe just on satellite technology as a competitive threat. Obviously, it's a pretty discussed topic. So maybe in the last 30 seconds here, help us think through how you guys think about that narrative?

Starlink is great. I think it actually helps. So for some of our customers, they need a competitive push to help them move along. Why would you try Starlink? You have a crappy Internet experience. If you enjoy your Internet and satisfied with your Internet, you aren't calling Starlink, right? So you take somebody like Tombigbee Fiber, who's down in Mississippi that has 30,000 subscribers with a 92 NPS, they aren't calling Starlink. However, if you're a service provider and somewhere in rural that you're the only game in town and you haven't been servicing your service providers and you suck, well, yes, you should have your margins compressed. You should have an ARPU battle. You should have a Starlink come in there.

Now what should that do? Well, I should invite them to come to Calix and talk about how you can actually improve your game, focus on NPS, focus on subscriber and keep Starlink get paid. So it's really incumbent on the service providers to provide a better service. And if they don't, gladly that Starlink is there to provide that competitive nudge to make them go do something. And the only other place we see it is really around a backup play.

So got an example of where my boss lives in an affluent community, and they had an 8-hour outage. Well, what do you think that affluent community is doing without their signing up Starlink as a backup alternative because they can't live 8 hours without Internet. So it doesn't matter when you're coming from that perspective. So Starlink is a good thing. We embrace it and know all the Internet traffic is not going to space. The economics just don't make sense.

No. Thank you, Cory. I think we're out of time. I appreciate it. And thank you, everyone, for joining us today.

Thank you, everyone.

Good morning. 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 in the end of March. So for 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 Calix going to go and what's the opportunity at? 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 4 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 Cory 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 2.5 years, which is the launch of Calix 3.0, which is our next platform. And I, 2 weeks from now, will actually finished 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 is founded with our Chairman, and he talked about this, how do we transition ourselves to our only company. If you go back to where we started, it was a networking company that had a single Wi-Fi product. We have kind of a cloud, but not really, but that was Calix 2.0. And we envision 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 [indiscernible]. And actually, it was the exact opposite. We found that over that period 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 $1 billion. 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 $1 billion in revenue, great margin profile, incredible cash but also significant innovation. 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 chart up there, we're going to go through that in depth. And in March '26, 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 2.5 years of work came to culmination and our elastomers left Calix 2.0 and we're 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 Calix 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 to clouds. We're not taking the cost affiliate with those. Thank goodness, we can close [indiscernible] but for our customers, this represents an opportunity where artificial intelligence really comes for, 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 entered 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 speed and lack of innovation, where that we're coming into it and [indiscernible] 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 regards to how our culture, how our team members, 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 out of technology. We hope it works. This is actually a long journey that we've been on for 15 years, like I said, $2 billion invested to get to this point, go slow to go if you look at the launch of Calix 3.0 Agentic platform, it was 2.5 years of hard work. And I will tell you throughout that process, and we're going to talk about innovation velocity, our customers are saying, what's the payoff? Why are you moving me over? How does it impact of my business?

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 send up here on stage with you and say, we have an AI native platform. We can walk you through all the steps [indiscernible] 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 on some slides, the greatest threat to our 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 [indiscernible] company, but 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 [indiscernible] is everything that we're doing with customers. You hear that when they come up on stage. One of the things we're most proud of is the fact our customers have a deep trust of us. We actually have a 94% renewal rate. We have over [indiscernible] for customers on this next-generation platform but more importantly, if you've been reading about artificial intelligence, what is the most important part of it? It's not an agent. It's actually the insights that you get from [indiscernible].

If you don't understand how a business works, you can't effectively apply AI business to transform it and drive rate outcomes. Last year, we did over $0.5 billion workflows. We run the customers' 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 will artificial intelligence have a really profound impact on their business on a go forward. And so that 0.5 billion workflows are critical to allowing us to go fast in this next day. Third, talent. We're very proud of our team. And I firmly believe myself that as we go into this genetic era, we need to stop with the value of AI is only how many people I can cut and say, how do I power 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 on 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, they wrote an article with fast company, which I actually talked about, we ran over 700 packs 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 I'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. There were 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 we'll 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 [indiscernible] last year are important to us and help us build a great team to do great things. And last, Cory is going to talk about this at the very end, our financial performance through what I would call very tumultuous times over the last 5 years, goal of pandemic and all the other things that are going on, we continue to execute through it.

The margin expansion, the free cash flow 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 Cory 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 entered this period with a deep trusting relationship with around how they view success. What are the things that they need us to do to change industries, change the way they go to market and help them build their business. And in fact, we believe in this so passionately and we see the opportunity to move faster than 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 of 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 2 choices. I can do what I said, I can simplify it and drop some agents in and eliminate some head count 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 of advertising examples that we did, which allow you to understand just how transformative this is from the 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, with [indiscernible], our Chief Product Officer, is going to talk about, but also how do we accelerate the adoption of those experiences, which John is 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 Big's 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 do for our customers. And I'm really proud to say that these 4 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 allow who deployed 23,000, now 23,000 students in Lincoln, Nebraska have SmartTown have the ability to get free WiFi as they roam around town every single day regardless of 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 4 months. So how do we really accelerate their outcomes? We'll have Lumos up here, Tombigbee, and Bluestream Fiber, who's a leader in smart MDU, 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. Starlinks launching, they're adding more capacity. They're throwing capacity everywhere. Amazon just bought Globe SAR, $11 billion investment because they were falling behind. And so they know they want to get satellite capacity. And really 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 of days, there's Amazon boxes at my house. They have a great NPS. They're convenient, easy to use, and they have a direct consumer relationship. Amazon Aero 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 wand 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 5, 6, 7 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 clear. You know what convergence is, Convergence is a bundle. I was at [indiscernible] 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 in a moment. And then last, look, artificial intelligence, anyone who doesn't believe this is going to change human kind 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% going to change our industry.

I gave the example of Tombigbee Fiber. So Scott told me, I talked to him just before Christmas and said, he said the biggest reason why I haven't used Engagement Cloud to deal with my customers is because that don't have the capacity and capability, the people in my market who can do that. And I can't hire that person because they're going to be in a big city and how do I bring them and what can I afford them? That's why I haven't gone forward. And so transformation and 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 [indiscernible] videos that we do. And we've been doing these [indiscernible] videos for 5 years. And the concept was we would do the video content with our decision council partners and [indiscernible] 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 2- or 3-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 3 days was $1 million to do 3 videos, a huge cost. And that's excluded like there's all the preproduction time. There's -- and you've got all the union workers, all those kind of things, right? A huge impact. What I'm going to show you is artificial intelligence that was done for allo in a couple of days for $20,000. Shoot the video.

[Presentation]

That was done with $20,000 using artificial intelligence and win 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 the 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 out 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's 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 3 discussion points.

So the first is what's the Calix advantage? Where do we sit currently and how 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? If they do not succeed, we do not get paid. It's that simple. If they lose a subscriber, we lose revenue. If they win a subscriber, we make money. It is customer-based success, which is our revenue and so how do we accelerate that at a rapid pace and that was what John is going to come up and how he transforms his business both as a customer success organization, but then also do we, Calix transform ourselves internally in everything that we do.

So let's start out with the Calix Advantage. First, I firmly believe that success starts with people. I believe in human center 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 3 out of 5. 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.

We've kicked off with a strong year [indiscernible]. We're really proud of the fact that Fortune recognizes us [indiscernible] one of the top 100 places to work against some of the big companies in the world. And we believe that, that ongoing investment in culture is going to be critical to us because not only are we going to help our customers transform their business, which there'll be a lot of resistant change. But inside our company, we will change as a company significantly and John is 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 that for 15-plus years. We've invested over $2 billion in the platform and we have those 0.5 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 think 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 futures that we released every single year since 2017.

So prior to being a proper platform company, 77 features, 180 features. We were a hardware integrated company that didn't have a platform. Then we released [indiscernible] what you see a massive acceleration of the rate of innovation up until a peak in 2024, where we build from 406, almost 1,000 features coming out. And so what happened in '24? Well, in November of 2023 is what 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, [indiscernible] 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 kickup are embedding AI into everything that we do, becoming an AI-native platform. And what happened? Well, as we progress 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 you saw feature velocity drop pretty significantly. And what's really great is 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.

The companies who haven't done this, they're already way behind. And there -- 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 expense, you're going to follow 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 '26. And for us, with that AI native platform, we are now going to see as a return to massive acceleration of our broader business. And so in the past, we led the market. We had 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, 2 awards in the entire year. It's pretty sad.

I know we were really happy with when we [indiscernible], right? So this year to date, we're already 5. 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 to take advantage of it. And so what is that platform? I'm not going to dig into that. Shane is going to come up and he's going to walk you through what the Calix [indiscernible] platform is. But at its core, is a platform that takes customers and their teams.

So everything you 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 for 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. Tombigbee is going to sit up here and they can say, I have an NPS of 92 for the last 4 years. [indiscernible] Al 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.

Have we just stayed in North American regionals? It wouldn't be at the revenue level that we're at. More importantly, we won't have the opportunity that we have in the future. So if you look at the revenue growth, it correlates to us releasing products. We launched Smart Home. We won Verizon, which was the launch of our next-generation platform with regards to networks. Back in 2019, you see revenue accelerating with the expansion of SmartTown, which is our role and the small business. And as we start on Calix 3.0, you're going to see a massive expansion of the potential TAM for our company and where we invest to 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 or an MDU, hospitality, events and all these other markets. And for us, they're adjacent markets, they don't require -- they require an expansion of our product, not a complete rerate of our products using the resources of our customers.

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. If you look back to where we started out, it's kind of like a is was the TAM in North America, right? And as we take the next step, global Tier 1s, it's a software-only play. So that's the TAM approaching $10 billion. And then just in North America, the multi-dwelling unit apartment buildings, just that alone is a $10 billion TAM [indiscernible] North America. That includes hospitality, that excludes events, that excludes all the other areas. There represents a significant opportunity for us to disrupt these markets and grow at a rapid place. And so with that, then pivot over to Shane sitting at the back and walking up here faster.

So Shane, our Chief Product Officer, Shane Eleniak, who's going to walk through our platform and innovation and how we make that real for customers.

So if you think about what we've built from a 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 edge and you think about the subscriber edge, it's telemetry, it's instrumentation, it's understanding quality of experience, so 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 and 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 embedding LLM, 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 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 experiences to the consumer, to the small business, in the MDU, WiFi roaming, venues, events, hospitality.

Those are the types of experience 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 a small business owner wants to do. And that's a 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 live through with cloud 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 dynamic workflows, actually having that contextual knowledge to understand what needs to happen and in what order and what sequence. So that's all platform and the hard work that we've undertaken in the last 2 years to evolve from a second-generation cloud to an agentic-orientated cloud. There's a high aspect to products, and there's a what and a win and a why aspect to products.

This slide really speaks to the how. How you do things matter. The shift from systems and OS 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 to agile and looking at a shift left in how we did testing in 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 process 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 cloud. And really 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 on the next slide about how you build products, the product development life cycle and how AI changes that is also an aspect of this.

So we feel very comfortable that we have the right how process this 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 didn't 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, your 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 pay walls. 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 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 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 is 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 is big wire frames and sat there with slides and sat there and said, hey, what do you think about these [indiscernible] Gemini 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 [indiscernible]. When I can see it and 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 missed this or yes, but if 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 very quickly.

You'll 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've 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 the 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 life cycle.

So we feel very comfortable when we say we built an engine on how to the -- how aspects in Calix 2.0 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 place to do this. We've got the processes in place to do this. But we also have better systems and tools than we did 2 years ago. 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 is pretty cool where we've evolved in the last 2 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 and 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 packing, hey, we've got ideas. We understand workflows, we do 500 million workflows a year. We've had 5, 6, 7 years of run time 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 is involved. Marketing has a role to play, engineering, operations, support the needs of the subscriber, all of that changes.

So we started testing our proof-of-concept. Q1, we released assistance. We have -- we want to help people. That was really our first agent. 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 [indiscernible] customer support needs to know about it. It touches subscribers in different ways. Same thing with churn workflow, same thing with acquisitions. 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 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 anomaly. 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 when 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 meantime 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 is 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 with the types of things that we start to deliver in our August really.

Okay. 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 perform. We understand the how. We understand 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.

Thanks, Shane. And at the same time, he's going to transform his organization. If you didn't see on the last slide, the productivity gains as you get from rapid prototyping from an accuracy point of view and a use case point of view, but also cogen is a simple thing. It's actually how do you go from use case to test to code and product out the door that transforms the customer. 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've got invited up to do a keynote. And so the keynote that I did was what's the AI future [indiscernible] 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 and our -- they buy our platform end-to-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 that 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 challenged. And so that is a WiFi degradation because they don't have coverage in the backyard. Maybe they want 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 unfavomable. You cannot scale that. So in this case, it's genetic work doing it at an individual level. Then it passes on an operations agent says, in this case, Brad and his organization also sell mobile phones. They sign up for an allo MVNO. So it also looks at that home and sees the devices. Well, there's 2 iPhones and those are on my MVNO. There's 2 iPhones that aren't, okay? That represents a mobile opportunity for Brad and his organization to upsell, there's 2 devices to be one there.

More context. It then passes over that workflow to a service agent who does all the correlation to what's been going on in that home over the last 30 days. It's moving back and out. And so sees things like he's been working sales force 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 grab and as we showed with that video, there's no reason why you can't go create 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 surface that ad.

So I buy an ad from 8 to 10 p.m. on YouTube. Should I add surface it on their mobile app if they're using [indiscernible] branded by the customer. And then when they go into [indiscernible], 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 then become a component part. We're in 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 want to identify as the pool, we may not be. That might actually sit with another agent in a data science 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 rearchitecture was also to ensure that we can serve any size of customers.

How? Because in the past, it used to be APIs, which we're great at. The new terminology for Agentic is more 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 -- we're very good at 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 a 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 a -- this is a transformation of your business.

This is also a transformation of 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 win more subscribers. I'd like to invite John to the stage, our COO, who's going to walk through how we accelerate their customer success. John?

Thanks, Michael. [indiscernible] So I want to share, first of all, how do we think about success, right? And at Calix, we deliberately align with our customers' life cycle around build, around launch and around optimize. What does that look like in practice? In practice, that may mean that we consult around our strategic funding. You have questions around that and maybe 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 optimized, right? What's the most important thing is this 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 MPS is not just because it's a great score, but there's opportunity in that score.

How do we continue to improve the experience and change that relationship? We're relentlessly focused on 3 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 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've created a marketing acceleration program, which helps them think about their offer strategy think about persona-based offers and really change how they go [indiscernible] to really focus on that experience. And we continue to them. And they said, "Hey, we need to help in this area." And we create a workforce transformation program and that was intended to help them attract talent, retain talent 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 2 years ago and said, "Hey, you know what, as we get into smart business, it's a really different selling to, and we're not that experienced in that. And so we created a sales acceleration program that thinks about what does 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 we're doing these things, we are partnering, right, with our customers in that continuous life cycle. Now the most exciting part is around AI opportunities 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 of driving adoption, but not only adoption but actually building agents, right? My team, in particular, I'm pretty proud of that, has a majority of 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 improvements in how [indiscernible] to go and build something for a customer, right? 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 3 biggest workflows and how do we reagent those so that we can apply AI not in an episode or on a functional basis, but across the entire thing to eliminate rework, right, 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 a 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 [indiscernible] 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. Then we're going to now take all of these learnings and we've built them into something we're calling the AI leadership playbook. And that's from our first-hand knowledge of how are doing this? How are we governing? 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 am I excited about this? Because 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.

Go ahead. Queue the video.

[Presentation]

[indiscernible] Thanks for being on stage with us. All right. So let's start out with -- 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?

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 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 but now the ability to work together at a true partnership or stakeholder level to solve problems because it can't be that the network performs better. It's -- every piece of our customers' journey has to work with colleagues, with some of our other team vendors teammates and great solutions that I can't even imagine. I hate to say it, but what our teams are working on was never imagined 2 years ago.

Right. So Brian, yourself, like you -- how do you think of it from a competitive point of view and where we're going to go as the next stage because you've gone through some big transformations in your business, too, right?

You really have. And it's been the partnership with Calix. Calix allows do this. And I'll be the first to say, we're not really the first follower. We're more of a fast follower on the AI. We leverage the work that the brand and you guys do leverage the things that you Team does. But it really helps us focus on our business outcomes. And I think what people don't fully appreciate, you talk about our NPS score of 84. 4 years ago, it was 77%, 78%, but we've grown -- I mean, we're building houses that we worked 4 years ago. We've added financial number of subscribers. We have not added new customer care agents to grow over and not have to add customer carriage 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.

So your point is, is that Brad and 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 head count flat and expand profitability and grow NPS and customer and then yourself, the conversation was around marketing that we had at Christmas, right?

Exactly. So we're the ones that -- with the smallest ones on stage, you may not look to be the small [indiscernible] so we're coming from a world where I have 6 CSRs and one marketing girl who just graduated on this a year ago. She's wonderful, 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...

And that's why you didn't do Engagement Cloud, you couldn't actually -- you're doing very basic marketing because of the fact you didn't have the capacity to do that.

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 [indiscernible] because of your help because of your partnership. We can do that, and we can reach people in ways we ever could. And as there was a gentleman ran for [indiscernible] running against somebody who had been an officer in the military and he said, all you [indiscernible] him. It's all your profits out for us. So I represent [indiscernible] your customers, of the 1,200 customers, you've got a lot of people who look at like me, [indiscernible] is amazing. These guys are awesome. But we're the meeting potatoes of what Calix does, and this makes us have the resources that [indiscernible] amazing. That's a game changer in roll Mississippi. .

Well is the democratization of AI, right? We are in this phase where technology is going to democratize at a pace we have never seen before where you not 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 LOMs 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 swapping 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 why don't you walk through kind of how we actually partnered with regards to the MDU market.

Yes. And look, our story with you all is really the last decade and 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 [indiscernible] new master planned communities. And we first started to see as you look at that product curve that was up here earlier around some of the innovation. We're able to leverage SmartTown for, you think, master planned communities, the pool, the gym, the pickleball court. All of that goes with that and really sort of have that ubiquitous as we started to really verticalize and focus on some of our 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 try to do is step back and say, think about it these are long-term contracts or truly partnerships with these communities, what is going...

[indiscernible] to her 10-year contracts, right? Like [indiscernible] and a lot of those HOAs, you're doing like long term -- it's not a consumer who's deciding month to men, right?

No, they want to know long-term customer experience. I want to know about what I'm getting today, but what am I going to get the end of that contract and think about a 99% renewal rate. This is a long-term relationship that continues to build on it. So we work with Calix, we really focused on the SmartMDU solution, and we've now rolled this out through a number of our communities, a number of our backlog, and you saw the scores in the video, some of the early communities are 4.99 out of 5. So even every single one, it's been a 4.9 out of 5 as we deployed this.

We think that differentiates and it gives us something from products 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. 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.

Yes. I mean I think that's right. About 3 years ago, we went on this journey, we called it as a company, customer experience excellence. It's about consistent scale, predictable processes, technology and talent. A lot of the similar themes you heard in today's presentation. And as we look at that, we wanted to make sure that we had product and brand standards reach the segments we're focused on. And we started to work with Michael and his team to really get Alantra around what makes the most sense and going back to the pure use cases.

And what we found was a number of these Calix solutions, particularly in the MDU segment were truly differentiated vendor or wide vendor and allowed us to have a solution sell that could ultimately scale for the test of time. And so -- and in your markets, -- so as you look at it, Scott, you -- one of the ways you differentiate. We talked about how you use SmartTown, Gavin to go across and HOA, so you can cover the eventing place, 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?

We started with football fields and because the ease of the platform had that in a 5-week period covered 9 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 at all part and we've hit our whole service area with Community Wi-Fi. If you sit in the stands and [indiscernible], Mississippi, a 12-person town in a football game, you have better service than the competition has in your home. Why wouldn't you switch to [indiscernible] Why wouldn't you want experience with us? And the whole Smart Home platform, we were -- Calix partners with you. We were one of the innovators of that. We were a lot what it was as well.

But we were out front. We were the first few to try that. We were the first few to turn 19,000 units on 1 day. And we have a first responder network from that. It's just amazing what impact you 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 at 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 care about communities. And that's what makes it special.

Well, let's expand out a little bit on that. So the power of the platform is that you didn't have to go. You talked about you only have 5 CSRs and a marketing person, right? So you didn't actually have to go like what Gavin said was, in the past, you cobble 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.

So on 2 occasions, we've done that with you with SmartTown and with [indiscernible], very easy. We turned [indiscernible] than 7 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 and 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 [indiscernible]. I'm doing this with a team that's good, hard-working 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 autopiloting that with you. I want to be like Gavin and get in your contract. He's not new here. How do you get a 10-year time -- that's a good deal.

So we're going to talk after. But that the ease of that is because your people care, 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 who wants them. So maybe you could share that. And then how do you think about scalability?

Yes. So you may have heard, we are now 50% owned by T-Mobile. It's a joint venture between T-Mobile, where we all T-fiber and EQT [indiscernible] yes, we've ramped up. We are growing it. Our builds [indiscernible] our pace and we're more than doubling our pace again on our builds and the installations are coming and have an ag service model and all that. But I would just -- I haven't even shared this story with you. So as part of the deal, the founding genesis of Lumos was [indiscernible] got sold to cash communication, Cox kept a B2B. They spun out the residential, the EQT. So we were exclusively focused as a residential business.

So that exclusivity has gone and so T-Mobile sales, the resident is responsible for selling 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 Calix provides us on our XGS pod. We can put some SLAs around it and sell it as an enterprise network with XGS was outsell As. So that's what we did. So we just about a month ago, launched that, it's been a huge success at a higher ARPU big contracts like Avid, we're working on those. And it was the easiest product rollout that we've ever did in my entire life because we just took what you already did in the back end we wrap some SLAs around it and now sell it enterprise.

Well, and that's the same thing that we did with Verizon. 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 -- I'd have to go build a separate enterprise put -- I'd have 2 fibers. I have my consumer fiber, I have my 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.

Well, we'll get to capacity in a moment. So Brad, you do that all the time because your belief is that when you go into a market, 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 is doing now for a long time, right?

Well there's ways that you differentiate your business and one of our -- and maybe it's my fear. My fear of a competitive threat coming in and...

Healthy paranoia. I think that's why Andy from Intel always said right, the paranoid survive.

Well, sometimes it's unhealthy.

[indiscernible] you have to really out to get you.

That's right. And so what we did is said, the most expensive thing we're going to do is put in fiber. So why not make everyone that, that fiber goes by a potential customer. from grandma's house to the Corner Store, the small business, medium-sized business, 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 PON architecture. Oh my gosh, that collapses. But guess what? Mobile ties into our company just simply streaming. All these things and then the SmartTown, I met with an electric last week, and the CEO, and it's a pretty large electric utility said, you know more about our electric grid than we do.

Can we share information? 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 is there. Well, we know no one is 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 while 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 you also have an electric utility. So that will get to you in a second [indiscernible]

[indiscernible] is doing good, but operating in an exceptional fashion right, is less expensive, 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 [indiscernible]. I think people like us. I think people like me, but no one wants to talk to their utility. We're a utility. And 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 the platform makes it very simple for you to do the things that you used to cobble together. That was one of the things you and I have partnered on a lot is that part of our product road map has been driven by build this, build this, build this, you can eliminate the complexity of incremental vendors and actually collapse everything onto a single platform, right?

Small business, what we did with 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 who actually think that Starlink is a competitor. And I know Amazon is a competitor. We've talked about that because they have 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, it's not binary. I have 2 subscriptions for a low orbiting satellite Well, one is in an aircraft and one is at a cabin that's down in the valley. It's the right tool for the job. My fiber isn't going to solve either of those challenges.

There's $10,000 or $100,000 you run it to that cabin.

And I'm not sure how you tether a plan 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 cars. It's more efficient.

But at the same time, build the experience so that in you are where you have capacity, you never lose, right? Is that how you think about experience?

Absolutely. No, absolutely. And it's been a little bit different since the joint venture, but prior to the [indiscernible] we learned pretty quickly because I came from the telecom industry where nobody liked us and probably for fair reasons. So it's going in the...

[indiscernible], Brian. I just want to say that. So when we came to 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 hate the cable company. So I said, okay, let's just provide a fair value. Don't -- our prices included taxes, fees and everything else, fair value, great customer service, don't chase the pricing game and just focus on customer rates and double down on customer experience, do everything we should have done at the telecom business, and it worked out great.

And that's why Calix is such a great partner because that's how you believe. You guys go above and beyond on the customer experience, you're with us almost every day, what can you do different? What can we do better? And that's the type of partnership that you have to be successful.

So now let's go back to the utility side. So you also run an electric utility, a broadband business and electric utility. And so there's a huge opportunity coming down the path with regards to utilities, too because you and 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 -- I've heard the number 1 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?

Because your teams have been pushing us around 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 control on.

So in the utility, we saw it coming. We have no option other than move to where we have the fiber to the home, move to where we have the experience, where we can control the thermostats, where we can roll the water heaters. It's a capacity issue. It's a cost issue. There's only so much electricity. And every time you're adding all these EVs with gas going to $6, right? If every house has 2 cars and they're both EVs, that 1 transformer that powered 4 houses now you need 6 transformers, unless you manage the [indiscernible] so we need to manage the load for that. And that is a strong possibility on inability 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 had efficiencies.

[indiscernible]

[indiscernible] like that, right? So the next logical step of that is we need to manage the network, the management of the network needs to be consistent across all aspects. And it is going to be the Tesla managing the house or [indiscernible] we need to manage the network. The only way we can do that is build the fiber. Well, from my system.

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

Well, that's right. But the only way we could afford it is monetize the network by providing the service we provide. And that has opened the door, I built 2 fibers to every house, if I have a fiber fed a 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 will 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 is commodity. We sell service. And I sell service that you and Brad, pilot, my goal of doing business is the same as [indiscernible] want to give you that customer experience that you deserve. I think you can have it in a big city, and you have that in a tiny town in Mississippi, this is what we get with you. And your team as 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. If you [indiscernible] one of those is [indiscernible]

But from a profitability point of view, how has it changed your profitability across -- because your investors are different. Your investors are actually your members.

Absolutely. So there's a massive profitability gain here. So my electric coop is very unprofitable. We break even. We have a very, very thin margin and not far enough. I've been in the business for 6 years now. My fiber margins or 6x what my electric margins are with half the customers. And it's allowing to add infrastructure back. We transfer $1 million a month back to the electric go up 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 TV go up. I provide better service. I have better products, I have more employees and we invest in the system in ways we never could have before without this.

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 the future that you see?

Well, I think it does go back conversation we had to start out with around smart MDUs and some of the new verticals we're focused on. Classically, we've leveraged a lot of the experiential build references and HOAs and kind of associations. We're really focused now the MDU and asset owners a channel as well as new homebuilders and developers in order to really scale up to new markets. If you do it really well in this market in that market, it starts to be more and more again about just what is the value proposition how do you offer in that space. And 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 line, more MDUs that come online. And ultimately, that leads to a major increase in our EBITDA over time if we can maintain our fair share in margins.

So that market is one that hasn't changed for a long time. And in fact, I had an investor ask me that question saying, okay, so you're -- as you enter in the MDU market because you're early entrants into it. 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 step forward in partnership with us guiding us to how do we actually drive differentiation and spur that market on to allow you to win more?

I think it's twofold. When you go back to some of the -- just the core fundamental 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 no different than our road map with you as sort of every year, we sort of brought out the latest and greatest technology. It's smart MDU and similar platforms when you get to 30 of that one, too, they'll continue to iterate and we'll have more access control and the property managers can do new use cases that they could before. All of a sudden, that creates a value proposition that we're allowed to go in and speak about that as FlowStream 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 [indiscernible]

[indiscernible] add also just especially with look, this is not a -- the MDU space coming back to reset some of these have been in place for decades plus 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 allow you to offer a better service and a better resident experience, we think that's different.

So [indiscernible], what's next?

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 tech and we'll have better informed service crews. We're going to get to problems before they exist or before the customer knows they exist we're going to have better knowledge of our network. 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 something. It's hard for them when the grandmother calls and said I need fiber service. That base package is all you need. Once you may need more the grand kids 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 are going to have more fun that can gain 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 [indiscernible] either prompt it or send a customized e-mail 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 by 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 increase that service. I'm not happy with the [indiscernible]

I'd say, yes, well, by the way, that's almost a cult. As you know that -- it's almost a cult. And so Brian what's next for you?

Yes, it's a little bit of a complicated world right now, as you might imagine. And so I'd say this really wrap it into 3 things. Number one, we have one single customer. It's a very, very big customer. It might be one of the world's largest customers based on equity market or equity value that we have to provide performance, operational performance and 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 kind of number one.

Number 2 is as we grow exponentially. Number 2 is we are now evolving into going to be getting more involved in the MDU space, getting more involved in the enterprise space where we are more opportunistic, that's becoming more and more of business core. And then thirdly, it's going to evolve as our new marketing agent learns the fiber sale business versus the wireless cell business different processes associated with that. I think you'll see this continue to evolve and get a lot more intelligent about how we'll go about doing it collectively. So probably the 3 pillars I would say.

And so Brad, you're actually coming out of [indiscernible] office in a couple of weeks. And we're actually going to do what we do annually, which is that the planning on how we do [indiscernible] innovation. So as you think about what's most important for you in this next step, especially with all the talk that we're -- and the partnerships that we've been doing on AI, what do you want to -- what's next for you? How do you see this evolving out?

Well, A lot of it is -- we're just crawling with AI and crawling with the partnership there. And hopefully, over the next year start walking. And then it's a run after that to torture the analogy. The real thought process is moving from efficiency, efficiency, efficiency. I don't know what efficiency means. We haven't added to -- even though we grow at 25%, 30% per year. We haven't added to our service and that. But it's making them smarter, being able to push more products through them. delighting the customer, I think the pace we're really missing is an industry that I think is maybe a bigger opportunity than all the network work and all that is what products should we be delivering to the small business or the home that allows another $10, $15 of our [indiscernible] and not in a transactional format in much like the mobile phone is developed.

There's a so-hard 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 cost 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 2, 3 years is enabling that and allowing us to be [indiscernible]

Great. With that, let's thank them very much for their time. We really appreciate it. With that, I'm going to welcome to the stage Cory Sindelar, who's going to walk us through our financial model.

Thank you, Michael. Good morning. I 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 Agentic 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 3 years and ultimately, what it means in terms of return to shareholders.

You have seen us talk about these 4 financial objectives. We've been talking about it since we began our platform journey 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 term dollar business has improved and is near an all-time high. You might be wondering why we say that and what gives confidence in saying that. So let me share this with you. But this 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. And 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 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? Well, 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, there are chances of improving their success of landing new subscriber goes up.

You saw that the workforce agent workforce is going to free up additional resources. Those resources you've heard the panel up here today, talk about how they can redeploy those resources to go deliver new services. Maybe it's SmartTown, maybe it's MDU, maybe it's smart business. They're going to additional roll out additional new services. And of course, we're never going to stop adding new customers to our base. And with this genetic platform, I think we're going to be able to track 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 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, we're going to continue to grow sequentially, and we still believe that's the case. And then we'll provide you a range. In 2016, we said we'd be at 10% to 15% yesterday. We just took it to 15% to 20% on the back of the kind of the memory surcharges. But for '27 and '28, we're going to call it right up down the line at 15% growth. It's based on all the visibility, our 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 3 years, we've done really well. We've exceeded that target greater than basis points in each of the last 3 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 the 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, the kind of price increases that you've seen over 10x increase in cost. Somebody is going to lose out.

The music is going to stop playing and somebody is not going to have a chair. Our #1 priority is to make sure that we are one of the 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 [indiscernible] 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 top line problem. So now you have to deal then with the cost side of this equation. So it's unfortunate. So what we've decided to do was to go ahead and pass along those costs in 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 as I said yesterday on the call, I size that headwind for 2026 out of 200 basis points. And that's just the fact that you have 0 margin business running through your P&L, right? You're putting a whole bunch of incremental revenue at no margin on top.

If we take a look at the second headwind, [indiscernible] dual cloud costs, the best new 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 yet had some headwind to us on our annual numbers. [indiscernible] 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 to do it internally. So you ought to expect us to see some improvement in terms of the way you run business should be some OpEx savings as a result of it. So as we look into 2027, we are still forward investing in some of the things that we wanted to do for AI, and there's a couple of new markets that we're going after in terms of large customers, MDU 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 it's kind of a recap. The end of 2026, we'll be back in that old financial target model. So 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 OpEx, '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 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 cash. So that cash is going to go to the balance sheet. 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 livable Inventories, no change. Let's stay to 3 to 4, and we're running it on the higher side of inventory level for 3. 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 our 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 our cash conversion cycle. No real changes to it. We'll continue to operate in a very clean balance sheet. So what do we do with all that cash? I personally would love to have it all stacked up around me. I have visions in my head of either think of scar face or pinky blinders or something like that.

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 3 buckets: our operating cash, our strategic cash and our rainy-day cash. And over the next 3 years, we would anticipate that we need some additional cash in that operating bucket, not only to grow the growth in the company in terms of expanding the balance sheet but to have those inventory investments. If I think about the strategic balance, 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 them to you, 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 3 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 need a cash bucket at a faster rate and will be 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 treating plant 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 3 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 2 employee stock purchase plans.

Going forward, we are pivoting to performance stock units and collapse those 2 employee stock plans into a single plan, which creates more and more of like a stock -- employee stock or 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 in the form share repurchases should more or less offset the share being issued through the equity plans when we become dilution neutral. Obviously, in 2026, with the large purchases that we did in the first quarter will probably dilutive negative.

So just recap. We are the only company that has built an genic workforce platform capable of transforming the service provider industry. The tau is enormous. We have a proven model that works. We are asset-light, and therefore, investors should expect significant cash return to them over the next 3 years.

Thank you. With that, I invite the leadership team on up here.

Shane and John are going to join us. All right. Can [indiscernible] the mic, put your hand up. Glad to take questions.

So maybe a couple of questions. You've been selected the managed services opportunity. And you've talked about it since like Calix stays as well about that sort of $1 to $10 per subscriber rate you 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 PI-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 Cory for you is you talked yesterday as well about bed being an [indiscernible] on the model.

So when we think about the growth target that you're outlining today, which is 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? Just wanted to understand because you did refer to it as [indiscernible] yesterday.

So on the first part of your question, which was around is there an opportunity to accelerate the business. John talked about [indiscernible] ore currently doing one of the issues that we always had was capacity of the customer. right? Because you heard from literally sitting in the seat, when Scott was talking about the fact that he only had this many employees. I 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 John showed an attach rate of only like 40%, there's a huge opportunity for us first of all actually put the capabilities in place using Agentic 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 2.5 years is in the past, we would have to control the customer to please launch that product.

Please listen to us, please change your website into an experienced-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 new markets, we showed some of the TAMs. These are very logical expansions of our existing platform. We have incredible partners. Again, you heard about from Gavin on what the opportunity is in the MDU market, which is embedded legacy companies aren't investing to actually innovate. And so we come in with a very different mindset.

They basically brought their technology interlace down, and we all know that things don't scale well down. We brought our technology 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 there and 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, and you're just kind of 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 [indiscernible] MDU market alone is bigger than the global Tier 1 market for us, which would only software. And as frankly as big as our incumbent market today. And what we're really good at it is going into markets that are highly decentralized.

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. 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 regional sets 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 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, Cory.

So I'll just add a little bit on it. On the monetization of $1 to $10. All our offerings have been on a price volume curve. And as we go into large customer segment, obviously, there'll be a lot volume, I would expect them to be on the lower side of that scale of 1 to 10.

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 is 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, what's so different about it is that that's 100% are pretty close to.

Yes. And on the bad 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 beat 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.

Next question. Mike?

Mike Genovese from Rosenblatt. A couple of questions. 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, does your competitive -- how is your competitive advantage in that area? And then I'll follow up with one for Cory.

Yes. 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 system today using industry standards like TR 69 and those things. So while 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 actually our operating systems can run on other systems. So we put our operating system on, let's say, you're a big customer, you say, I would like my volume SKU to be I'm going to go direct to a manufacturer right? So I go do that.

But then I still put the Calix 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 the standard. We will be purple certified. And so they pop that on. They then have containers where they can add to services. But when that OS is there, it is also collecting the data, right? It can link into our cloud. because what people don't really understand is that they're thinking about the OS and how to grab data [indiscernible] and I have talked about this a lot, you still have to have that cloud system that sits on top of private Google instance, and it provides access to what are the operations, services, marketing, all those capabilities.

And then in that customer has identified in the workflow, you're just going to consume it in a different way. For example, I am running ServiceNow, our sales force in my call center service environment at a view is Calix a genetic agent is going to be a component of that. It's going to feed data into the Salesforce or ServiceNow technology. And then what's going to happen is if I'm a call center agent and she calls in I actually am going to click through and I frame 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 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.

Yes. But if I could just follow up, first, Michael. 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 Persuto,right, and cappuccinos. We were in Mobile Congress talking to big customers. This is the start. We had to get past the -- like 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 worldwide. And so we kicked that off at Mobile Congress than now were there. That's why I was on -- 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 as many facets and highly dysfunctional, right? Having been in the big companies, I know how this works.

It's silos, right? What do 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 as -- if you look at my career history, I've been in leading sales transformations and transformation of companies for 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 -- that one opportunity that you had is closed, that leads to a lot of disappointment. And in the end, a small pipeline against the 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 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 off because once you integrate into the back office, everything works. So for example, if I go into a large enterprise customer, a Tier 1 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 2-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.

Okay. And then finally, Cory, I just want to get your confidence on the idea that the second quarter could be the bottom for gross margins and that will grow sequentially from here. And given the uncertainty about what's going to happen in the spot pricing for memory, how do you factor that into what you're thinking there?

Yes. So Mike, I don't know it is the bottom because the gross profit is going to be the same or better, but the margin might be down. Because if you think about what we're talking about, and I said, 200 basis point headwind, it's not even. We're just getting started with the memory surcharges in 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 [indiscernible] but I can tell you the GP will improve right, does that make sense? Yes, 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. 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're going to have that as a tailwind as we move forward.

I'm actually going to make one other point on that topic, too. So when I was up here -- I'm sorry, I just got [indiscernible] 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 handled on deck for John's team to support customers through that transition. It also took a lot of our selling capacity in Q1 and off the bench from actually selling because they -- for example, all our sales engineers, we're 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, as we go through Q2, Q3, we're back to regular cadence as an example being what Shane talked about with MDU, the big last release that really makes this platform grade is in May. We're 2 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 wanted 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.

I always have multipart. But just real quick, Cory. In terms of the outlook for '27 and '28, I'm wondering what you could tell us about your assumption memory pricing, kind of what the baseline is that's going into that forecast? And then Mike, going back to the private cloud. Huge opportunity there. 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 becoming onboard. Is that '27, is that '28? How are you thinking about that? .

Yes, Scott, the underlying assumption is that memory will find a new equilibrium sometime in early '27. I don't think it goes back to where the pricing was, right? It will be at some new higher level. But I think you'll start seeing -- and you're seeing the memory guys are already putting more fab capacity to it 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.

We also even saw what Google just did where they saw a 10x reduction in memory. So you're going to 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 see a new baseline.

And so with regards to -- I'll close off with this, with regards to driving market, one of the great things is that competition is increasing for our customers. It's not great for them. But the great thing is that we're partnering with them, we understand their challenges, and 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 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 that customers see a need and you heard that from the 4 people who are up there, they're all like, I want -- 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 talked about -- you talked about what Scott said with regards to everything that we're doing for the customer. In the past, John and his team went have spent a lot of time to try and convince customers to do these things, but with the threats and the pressure there, that 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 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. And with that -- yes, we'll wrap gentlemen, off you go. Thank you very much. Thanks to the leadership team.

So now got to 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 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 Calix. We really appreciate your time, and we hope you have a great day. Thank you.

Greetings, everyone, and welcome to the Calix First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nancy Fazioli, Vice President of Investor Relations. Nancy, please go ahead.

Thank you, Alicia, and good afternoon, everyone. Thank you for joining our first quarter 2026 earnings call. Today on the call, we have President and CEO, Michael Weening and Chief Financial Officer, Cory Sindelar. As a reminder, today after the market closed, Calix issued news releases, which were furnished on a Form 8-K along with our stockholder letter and were also posted on the Investor Relations section of the Calix website. Today's conference call will be available for webcast replay in the Investor Relations section of our website.

Before I turn the call over to Michael for his opening remarks, I want to remind everyone that on this call, we will refer to forward-looking statements including all statements the company will make about its future financial and operating performance, growth strategy and market outlook, and that actual results may differ materially from those contemplated by these forward-looking statements. .

Factors that could cause actual results and trends to differ materially are set forth in the first quarter 2026 letter to stockholders and in the annual quarterly reports filed with the SEC. Calix assumes no obligation to update any forward-looking statements which speak only as of their respective dates. Also on this conference call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in the first quarter 2026 letter to stockholders. Unless otherwise stated, all financial information referenced to this call will be non-GAAP.

With that, Michael, please go ahead.

Thank you, Nancy. It was another incredible execution quarter for the Calix team. Record revenue with strong demand continuing into 2026 with customers. At the end of March, we completed the migration of all existing customers to the third generation of the Calix platform. Launching on Google Cloud, thereby enabling the expansion of our capabilities and the markets that we target. As important, those customers who expand their partnerships with Calix on Calix One begin to see the benefits rapidly as agent workforce and our AI native platform comes to life.

The impact of AI will now start contributing to our customers' success by helping them transform their operations, allowing their teams to add capacity and capability with AI and accelerate experiences that they need to differentiate in the markets they serve, thereby enabling their teams to compete and win. Today's call is focused on the quarter and our 2026 outlook. Tomorrow at Investor Day, we'll go deeper on how Calix One expands the opportunity of our model with proof directly from customers who will attend the event and are ready to share.

With that, I'll turn it over to Cory to walk through the results and guidance, and then we'll take your questions. Cory, over to you.

Thank you, Michael. In the first quarter of 2026, Calix delivered yet another quarter of record revenue of $280 million, marking a sequential increase of 3%, driven by continued strong demand for our platform. This quarter, we welcomed 14 new customers, reinforcing our ongoing efforts to grow our customer base while supporting their expansion within the local communities they serve.

Remaining performance obligations were $376 million, down 2% sequentially and up 11% year-over-year. The sequential decline related to a robust fourth quarter comparison and our focus on completing the migration of customers to the new third-generation platform. Current RPOs in the first quarter were a record $157 million, representing a 3% sequential increase and a 22% rise from the same period last year. We anticipate that RPOs will reaccelerate in the second half of 2026 as we gain momentum with Calix One, underscoring the strength of our business model as customers focused on delivering exceptional experiences, adopt our platform, add incremental offerings and win new subscribers.

Non-GAAP gross margin was 57.2%, down 80 basis points sequentially due to investment in our dual cloud environments as we migrated customers to our third-generation platform. Compared to last year, non-GAAP gross margin increased 100 basis points. Our balance sheet remains strong. DSO at the end of the first quarter was 36 days. Inventory turns remain steady at 3, reflecting continued inventory investments to address robust demand and building supply continuity, and we generated free cash flow in the quarter of $7 million.

We also invested $171 million to buy back 3.3 million shares of our common stock at an average price of $51.34. Furthermore, the Board today authorized another $100 million to be added to this program. This investment speaks to our belief in the tremendous opportunity ahead and our commitment to creating lasting value for our stockholders. We finished the quarter with a strong cash and investment balance of $243 million.

Turning to guidance. Our revenue guidance for the second quarter of 2026 is between $287 and $293 million, representing a 4% increase at the midpoint over the prior quarter. This reflects continued robust demand trends and a modest benefit from recapturing a portion of the higher memory costs via a memory surcharge. For the year, we expect revenue to grow between 15% and 20%. With demand supply disconnect, so large related to memory components. There will inevitably be some companies that will come up short.

Our first priority is to ensure that we have adequate supply such that our customers can continue to add subscribers and take market share. Our advanced purchasing had allowed us to avoid higher memory component costs during the first quarter. However, that advanced supply has run its course, and we now face market prices. We are partnering with our customers to share in the higher memory costs, by initiating a surcharge, albeit it is a partial cost recovery and without adding gross profit is one way we can help our customers in this unfortunate memory supply environment.

Our gross margin guidance for the second quarter of 2026 is between 24 -- sorry, 54.25% and 57.25%. Reflecting the effects of higher memory component costs, the impact from surcharges and the customer and product mix. The decline in appliance gross margin is expected to be offset by improvement in software and service gross margin as the dual clog costs abate, and we optimize the current cloud environment. For the year, -- we expect our non-GAAP gross margin to decline between 50 and 150 basis points.

For non-GAAP operating expenses, we forecast $128 million at the midpoint in the second quarter of 2026, which is a sequential increase of $1 million. This increase is mainly driven by our efforts to expedite AI functionality and enhancements to the Calix One platform. Importantly, we continue to expect to return to our target financial model for operating expenses by the end of 2026. And improving our operating leverage and profitability. Tomorrow morning, we are excited to host our first Investor Day in 4 years at the New York Stock Exchange.

The event will look -- will provide a look into our strategy, innovation road map and the long-term prospects that drive our confidence for the future. In addition, we will outline our key targets for growth, profitability and cash flow, giving investors benchmarks to track our progress and understand how we are positioning Calix for sustained success in the coming years. Nancy, let's open the call for questions.

Operator, ready for questions. .

[Operator Instructions] Our first question comes from the line of Samik Chatterjee with JPMorgan.

I have a couple. Maybe if I can just start with you, Cory, on the gross margin guide here, just to fully understand the drivers. Once you put the surcharges through -- are you expecting a recovery recovery in the back half of the year in relation to gross margins on the appliances as some of these surcharges flow through on your revenue line. And then as if memory does continue to sort of go higher memory costs continue to go higher, what's the plan here because you're not passing through the margin on the cost increase. So what prevents more downside on the margin percentage as you go through the year or if memory costs continue to increase? And I have a follow-up.

Yes. Thank you for the question. So our plan is to recover the costs. And so if there are further cost increases, we would adjust the surcharges accordingly, the effect of the surcharges by themselves, put a headwind to the gross margin. I estimate that in 2026, the effect of the surcharges for here to the end of the year, represent a 200 basis point headwind because you're adding a large amount of revenue at 0 points of margin through.

Okay. Got it. And then maybe just on the demand side, you did mention sort of stronger demand from your customers. And I'm sort of trying to parse out, obviously, haven't been able to do the math yet in terms of you're raising the revenue guide from earlier talking about 10% to 15% growth on the top line to now 15% to 20% and you also are outlining stronger sequential growth for 2Q than you have in the last couple of quarters. How much of that is stronger customer demand that you're seeing in terms of orders versus the benefit from the price increase, which you're referring to as a sort of decently large price increase that's going to go through the revenue line as well. So just maybe help us break that down? And what are you seeing in terms of customer orders that's maybe giving you a bit more confidence as well.

Yes. Great question. The majority of the quarter-over-quarter increase is due to customer demand and a lesser portion is the surcharges. We are rolling out those surcharges now they'll take effect in May. So we're not getting a full quarter of recovery this current quarter. But -- so consequently, the majority of that increase in revenue is coming from increased sand and to a lesser extent, memory and price increases.

Our next question comes from the line of Scott Searle with ROTH Capital Partners.

Just wanted to dive in on the gross margins related to the dual cloud cost. It looks like it was in the $3 million to $4 million range. Just want to clarify, does that go away completely by the second half? How should we think about modeling that? And then I had a follow-up.

Yes. Great question, Scott. That's the good news story is that -- we've got all the customers migrated onto the new cloud. And so yes, the dual cloud environment is done. So it's done. As we sit here today, it's done. So -- so the penalty that we incurred happened in the first quarter. I think you got it sized about right. And so what you would expect to see on that line is for it to return back to levels that were previously at I would expect for the next quarter or 2, we'll be back at record levels and continuing the progress that we've been making on that line.

So in terms of my follow-up, I've got a lot as it relates to the 1 platform, but I'd rather than preempt tomorrow, I'll save it for then. So maybe if I just could fiber availability in general, how is that impacting demand? And it's been interesting to see some of the StarLink numbers that have filtered to the marketplace where they've gotten some traction in places that I really didn't expect that they would in terms of more dense suburban environments than you would ordinarily think that they participate.

I'm wondering what you're seeing in terms of your customer response on that front in terms of their demand, their rollout plans? Is this pushing them to accelerate? How is that kind of factoring into the calculus in terms of the overall market demand of your core customers?

I spent a lot of time with customers. It's Michael. And while the startling thing is there, you generally see it in real areas where there's -- when you have a 6-mile run to actually join a farm, obviously, Starlink is a good example there. I don't hear anyone saying I need to accelerate my rollout of fiber to compete. But for us, frankly, another competitive pressure is a good thing for Calix because if you think about which we'll talk about tomorrow, we try to think about the experience-based nature of what we're doing and how we help our customers differentiate and transform their business to win subscribers and grow revenue by delivering an amazing experience, whether it's a consumer small business or multi-dwelling units, frankly, that's good for our our business is because that gets them listening if in the past, they didn't feel that competitive threat. So it's all good.

Mike, and just fiber availability, what our customers saying? And maybe if I could sneak 1 other. I think you talked about guidance for 15% to 20% this year. 15% is really just kind of bumping along at the level you're at today. So what kind of visibility do you have in terms of deployments into the second half? Are you starting to feel pretty good about the lower end of that range?

I haven't heard anything with fiber availability have you.

There's been some talk, a little bit of like sub...

Yes. BEAD but we expected that as all that be money starts flowing, that there's going to be -- there's going to be some supply right? So Cory, any comments on that?

Yes, Scott, I'm either more bullish or more negative on BEAD at the moment. I would say my temperature is about the same. It's progressing as we would expect. We've got tens of millions of dollars forecast in the second half of '26 related to BEAD. We're starting to see states actually start receiving their money. So things are kind of working its way out. We are not hearing that fiber shortage is causing a significant impact to BEAD demand as we're hearing it.

Our last question comes from the line of Christian Schwab with Craig Cowen Capital Group.

Congrats on the good quarter. Just for foot clarity, our previous guidance was 10% to 15% top line and near the high end. And now we've taken it to 15% to 20%, should we just assume that that's the surcharges that is going on there's incrementally better visibility and continued strong demand, but demand has been accelerating beyond what you thought 90 days ago is it? Or is it?

It's yes and yes to that, Christian. So clearly, the effect of surcharges is going to move us up into that higher part of the range. But we're also seeing some of the best demand that we've seen.

Yes. And that's we'll talk about tomorrow on Investor Day, right? So for us, as everybody knows, when you're rolling out the next stage in the platform going through that evolution, there can be unexpected challenges. We had gotten pretty hard for being done in Q1, and I'm really proud to say that the team got through it. So having gone through that and not facing any incremental delays that allows Cory and I had to sit on this call and be very bullish about the future for 2026 because this is what our team has worked towards for -- since November of 2023, we've been pounding away at this for over 2.5 years.

And now our AI native platform is got 12 -- more than 1,200 customers loaded. And tomorrow, we're going to talk about how fast we're going to go and how we're going to go skiing out into that. And I think blue ocean of incremental TAM and compete aggressively to grow the company. So yes, you're hearing me be very bullish as you'll hear tomorrow during Investor Day.

Great. And then my just quick follow-up question is, as it relates to BEAD, congrats on rightly getting some of that dollars generated for the company. I think you said tens of millions in the second half of calendar '26. What is the internal plan for what year you think will be the peak of that program? And what type of annual revenue number should we be thinking about?

So Christian, we've talked about that in the past. We've done some high-level math. I think that you'll start to see this thing ramp more significantly in 2027, probably peaks in '28. And I don't think that I would want to kind of put a number on it, but it's it's potentially high tens of millions. As we said about BEAd, we see that as an accelerated on top of the core growth model, right?

Our next question comes from the line of George Notter with Wolfe Research.

This is Karen on for George. Just a quick question. Any update on traction with Tier 1 customers on the cloud side?

None that we're willing to share. .

Okay. Got it. And then -- any comments on the quarter-on-quarter uptick in appliances. I assume -- I think you guys have mentioned in the past that DVS takeouts are mostly done, if not all out. But what drove that is the quarter-on-quarter?

Customer demand for our products because of the fact that we're better than our competitors. Yes. And it was within our guidance that we provided -- so there were no surprises in the quarter. We added customers, and we'll talk about that tomorrow on Investor Day when we walk through the core drivers of growth.

Our next question comes from the line of Tim Savageaux with Northland Capital Markets.

Good afternoon. maybe a couple of questions. First, I don't know if you mentioned it upfront, but if you can go through the BEAD commentary again. Was it any more granular than tens of millions in the second half and maybe on a somewhat related note, there's been some news out of the FCC recently about foreign-made routers in the U.S. and some exemptions there. I wonder if any of that has any implications for Calix.

Yes, Tim, on the BEAD piece all we said is that we would we start to see revenue that I'm either more bullish or less bullish I'm even keeled through last quarter to this quarter. Things are progressing along as you would expect it to. We think that then translates into tens of millions of dollars in the back half of this year. And obviously, the ramp will start next year. In terms of FCC regulation it appears to be that the timing is fairly quick, kind of measured in weeks, not months. So we would expect to be receiving our conditional approval here soon.

Calix has sought received various government approvals over Calix's 26-year history, expect no difference here. But I would also point out that FCC approval alone doesn't really differentiate your product at all, where Calix wins is after you deploy with automation and intelligence and subscriber experience that lowers OpEx and drive business outcomes.

Which we'll talk a lot about at tomorrow at Investor Day is that, as Cory said, in the last 26 years, we've done this frequently through a myriad of government programs and as a proud American company. And we're actually going to show you tomorrow what the power of it and agentic and AI native, agentic ready platform, how that's going to help us transform our customers' business, and that's going to drive outcomes. So press release on FCC is kind of irrelevant. We do it.

Okay. But maybe just a quick follow-up there. I mean, is the timing of the conditional approval, having any impact on the business at all or others have...

Absolutely not. They're actually the -- the FCC is actually moving really quickly. So we anticipate no issues whatsoever. It's a nonevent. We will do this quickly because we're already well down the cycle. And so we won't press release it. We'll just -- well all of our customers we made aware quickly as that resolves itself.

So Tim to be a little bit more clear on it, any existing product that's shipping is not at risk. So there's not having any impact on current shipments. It is the next release in terms of new products coming into the marketplace. And so we have a number in the pipeline, and those are what we've applied for conditional approval. So expect to get those approvals. And it appears that the SEC is moving pretty fast, which is great, which we were surprised at how well how fast is the process is going. It's great. So we don't anticipate there being any problems as a result of that -- of those new rules.

Apologies. We have reached the end of our question-and-answer session. I would now like to turn the call back over to Nancy Fazioli, for closing remarks. .

Thank you. Calix will participate in several investor events during the second quarter, most importantly hosting our Investor Day at the New York Stock Exchange tomorrow as referenced. Information about these events, including dates and times and publicly available webcast will be posted on the Events page of the Investor Relations section of calix.com. Once again, thank you to everyone on this call and webcast for your interest in Calix, and for joining us. This concludes our conference call. Have a good day.

Greetings, everyone, and welcome to the Calix Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nancy Fazioli, Vice President of Investor Relations. Nancy, please go ahead.

Thank you, Daryl, and good morning, everyone. Thank you for joining our fourth quarter 2025 earnings call. Today on the call, we have President and CEO, and Michael Weening and Chief Financial Officer, Cory Sindelar. As a reminder, yesterday, after the market closed, Calix issued a news release, which was furnished on a Form 8-K, along with our stockholder letter, and was also posted in the Investor Relations section of the Calix website.

Today's conference call will be available for webcast replay in the Investor Relations section of our website. Before I turn the call over to Michael for his opening remarks, I want to remind everyone that on this call, we will refer to forward-looking statements, including all statements the company will make about its future financial and operating performance, growth strategy and market outlook, and that actual results may differ materially from those contemplated by these forward-looking statements.

Factors that could cause actual results and trends to differ materially are set forth in the fourth quarter 2025 letter to stockholders and in the annual and quarterly reports filed with the SEC.

Calix assumes no obligation to update any forward-looking statements, which speak only as of their respective dates. Also in this conference call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in the fourth quarter 2025 letter to stockholders.

Unless otherwise stated, all financial information referenced in this call will be non-GAAP. With that, Michael, please go ahead.

Thank you, Nancy, and good morning. We closed 2025 with the best performance in the company's history, expanding our strong foundation that we have invested 15 years building with team members, customers and partners.

Record revenue, our sixth quarter of consecutive revenue growth while guiding higher in first quarter. Record gross margin, our eighth quarter of consecutive margin improvement expanding RPOs driven by excitement around our third-generation platform and continued operational discipline yielding our 11th consecutive quarter of 8-figure free cash flow and ending the year with record cash.

These results underscore the strength of our platform model as we contribute to the success of our broadband experience provider customers. We also launched the third generation of our Calix platform in December with more than 300 customers already migrated as of today, and we are working to complete all customer migrations by the end of first quarter.

This marks a significant milestone for Calix and our customers as Calix's agent workforce integrates into everything that we do, while our partnership with Google Cloud allows our platform to be deployed to any customer in the world whether Calix hosted or as a private instance for a large customer. Last, we continued to improve the culture that supports the success of our customers every single day. As evidenced by our 44 culture and 20 innovation awards, adding 16 awards in fourth quarter alone.

Our team is particularly proud of these awards as success starts with people. The Q4 results, our strong culture and the successful launch of the third generation of our platform that adds capacity and capability for existing customers through agent workforce cloud. The opportunity in the MG market with Smart Life and the ability to address new global markets and large customers with private clouds as our team entering 2026 very confident in our ability to continue our track record of enabling customers to simplify operations and go to market, innovate across residential, business, MDU and municipal segments, which enables them to grow.

For their members, investors and the communities they serve at a faster and faster pace. As we exit 2025, it also marks the end of the early adopter phase of the market disruption and with demand visibility at an all-time high, our entrance into a sustained growth phase for 2026 and beyond. Cory, over you to walk through the specifics of our Q4 performance.

Thank you, Michael. In the fourth quarter of 2025, Calix delivered record revenue of $272 million, marking a sequential increase of 3% and a robust 32% year-over-year growth. This capped off a milestone year, which we are adding $1 billion in annual revenue, reflecting 20% growth over 2024.

Our results were driven by continued strong demand for our platform among broadband experience provider customers, who are leveraging our appliance-based platform, cloud and managed services to attract new subscribers, minimize churn, raise NPS scores and ARPU and expand their footprints. The addition of 25 new customers this quarter further demonstrates the broad-based adoption of our solutions.

Remaining performance obligation reached a record $385 million, up 9% sequentially and 18% year-over-year. Current RPOs were also a record at $152 million, representing an 8% sequential increase and a 26% rise from the same period last year. These robust metrics underscore the visibility we have into the ongoing strength of our business model as we see more BXP customers adopt our platform, cloud and managed services, add incremental offerings and win new subscribers.

The accelerating interest in Agent Workforce Cloud is another clear indicator that the BXP led disruption is past the elbow and we have left the early adopter phase and are now in a sustained growth phase. To that end, we have aligned our publicly disclosed financial metrics to reflect the growth and value of our model.

We have split out our clients' revenue and gross margin from our recurring software and services revenue and gross margin. Simultaneously, we have ceased providing metrics such as platform adoption and customer size that were proxies for our progress during the early adopter phase.

The combination of our customers' ongoing subscriber growth with our platform and the strength of appliances deployment resulted in another record non-GAAP gross margin of 58%, representing our eighth consecutive quarter of margin improvement.

The continued expansion is primarily due to the adoption of our platform by new broadband service providers and the success of our VSP customers. While gross margin may fluctuate quarter-to-quarter depending on customer and product mix as well as memory costs, we remain confident in our ability to drive further gross margin growth as our platform, cloud and managed services scale.

Regarding memory costs, we will remain proactive and as we did during COVID, we will partner closely with our customers to ensure continuity of supply and address any cost increases resulting from higher memory pricing.

Our balance sheet remains strong. DSO at the end of the fourth quarter was an industry-leading 35 days. Inventory turns were 3, reflecting investments to address robust demand. We generated record free cash flow for the quarter of $40 million.

We have now produced positive quarterly free cash flow for over 5 years including 11 consecutive quarters with 8-figure amounts. We ended the year with record cash and investments of $388 million, an increase of $48 million sequentially and $91 million year-over-year. This strong cash position reflects our ongoing profitability and disciplined operational execution.

Also during the fourth quarter, we deployed $17 million to purchase 300,000 shares of our common stock. As we have discussed, we have a disciplined capital allocation process and we remain a disciplined buyer of our own SOC. That said, as visibility increases, our internal valuation models have moved up. and this is illustrated by our fourfold increase in share buybacks from the third quarter to the fourth quarter.

Furthermore, our Board of Directors has authorized an increase of $125 million in our stock repurchase plan. Given the robust demand environment and the strong pace at which our customers are adopting our model, we expect to continue delivering sequential revenue growth, including in the first quarter, which has traditionally experienced slower growth due to seasonal trends.

Our revenue guidance for the first quarter of 2026 is between $275 million and $281 million representing a 2% increase at the midpoint over the prior quarter. This outlook reflects our confidence in the multiyear growth opportunity ahead.

As more service providers recognize the value of transforming into a broadband experienced provider. Regarding progress on BEAT, we now have a clearer view of the size and timing of the program. The available size of the opportunity for Calix is between $1 billion and $1.5 billion.

While we have already seen orders from BEAT recipients, we expect deliveries of appliances later this year and meaningfully ramping into next year and beyond, providing a tailwind to our growth.

Strategically, the BEAT awards also give insight to the practical differences between fiber-to-the-premise technology and low earth orbiting satellites. The vast majority of funds, some 85% went to fiber-based deployments but only 5% of funds went to low earth forming satellites. This speaks to pure physics. This speaks to physics pure and simple.

Fiber has the highest bit rate pairing capacity a multi-decade life cycle and the lowest cost operating costs. In short, it is financially practical to get fiber to the premises you will. For those sites that are too far away, alternate technologies such as fixed wireless or lower orbiting satellites are a good solution.

As such, one should quickly realize to the extent that competition exists, it exists between fixed wireless and satellite, not between fiber and anything else. For the first quarter of 2026, we expect non-GAAP gross margin to remain strong with some near-term impact due to customer mix and from overlapping cloud costs as we transition to our third-generation platform.

I would also note that while we are making this investment in running dual cloud, the transition to the third-generation platform is on track and progressing well. Regarding non-GAAP operating expenses, we expect a sequential increase in the first quarter of 2026, and primarily related to accelerating the development of AI functionality and capabilities across our platform, cloud managed services.

Importantly, we expect to return to our target financial model for operating expenses by the end of 2026, positioning us for sustained long-term profitability and growth. We are entering 2026 with strong visibility and confident in our growth trajectory.

We are excited to host our Investor Day at the New York Stock Exchange on February 24, where we will share more about our strategy and long-term growth opportunities. We look forward to seeing you there. Michael, thank you.

Thanks, Cory. At a time when the pace of change is accelerating at a rate that has never been seen before, we entered 2026 ready to make that pace of change our advantage and, in turn, an advantage for our customers.

We have successfully launched agent workforce and demand visibility is at an all-time high. We have executed with operational rigor to ensure that we have the financial strength to continue to invest and grow by winning new customers and helping our existing customers differentiate and dominate in the markets they serve.

Last, our team culture is ready for the opportunity that we have invested and worked so hard towards our better, better, never best cultural mantra will ensure that our internal teams make the most of AI to improve how we operate while our platform delivers incredible results for our customers. The next step in Calix' journey is here. I'm excited to lead the team as we speed our ability to transform the broadband industry and enable the success of our customers and partners. I would like to close by thanking our team, customers, partners and shareholders whose passion, grit and trust have brought us to this exciting next stage in the Calix journey. Nancy, let's open the call for questions.

Darryl?

[Operator Instructions] Our first questions come from the line of Samik Chatterjee with JPMorgan.

This is Joe Cardoso on for Samik Chatterjee. Maybe for the first one, I think last quarter, you talked about a revenue growth outlook for '26, tracking to the low end of the 10% to 15% range ex bed. One, curious if that range is still fair to think about for modeling assumptions here?

And then second, just in regards to the better visibility now that you have around the bead program, any update on how you're thinking about the contribution for 2026. And how we should think about that layering into the financials here as we progress through 2016 and into '27 and then I have a follow-up.

Yes. I think with our high visibility and understanding where feed is coming in, I think we'll be somewhere in that range of 10% to 15%. I don't think we'll be at the low end.

And we're confident demand visibility is high. And the other part is for an update. That's one of the things we intend on walking through, right, Cory, at the Investor Day at length because a lot of our investors are asking questions with regards to how we achieve those growth rates. So we're very confident.

Got it. I appreciate the color there. And then maybe just a follow-up in a similar vein, I think you've been referencing new market expansion, including the international opportunities. Any updated thoughts there? Like as we think about the new markets and Calix going out there and trying to cultivate these opportunities, like how should we think about that as part of the 2026 growth story?

And I think last quarter, too, you referenced that, that's not necessarily in the numbers, but how tangible is that in terms of contribution for 2026?

Or should we think about this being longer in the tooth as you try to like kind of do the block and tackling in terms of opening up these opportunities for Calix. Just curious big picture there, like how we should think about that coming into the Calix story.

It's a great question. So the first part of it, as we -- when we had this call last quarter, we were also coming up to the launch of our platform, and therefore, we wanted to ensure that it was out. So from a confidence point of view, for us to actually understand how we'd potentially open up new markets, we had to get over the hump of actually getting the platform out because that's the grand enabler, and that means we have to move our customers over.

So the great thing is that in December, we started those transitions. And as I said on the call, we have over 300 customers already over. I believe we're going to load another 100 over the next week. And by the end of the quarter is our goal to actually have all of our existing customer base onto the new platform.

So that, in essence, is kind of the first gate and we're through that and very confident with regards to the trajectory on that transition. So that's the first part, which is great, which is why as we look out to we can feel confident with regards to the expansion in international markets and the ability to go after large customers with dedicated private clouds.

What is the revenue in 2026? We actually haven't hasn't really built that. We have not added that into the numbers. primarily because, as you know, as you go after large customers or open new markets, you have a lot of investment work to do and that you have to build it out.

That being said, if you look at my LinkedIn, you'll notice that yesterday, I announced that I will be keynoting at Mobile World Congress in Barcelona in March. This is the first time we've really showed up at that event, which is the largest communications events in the world, I think it's like 140,000 people attended. They take over Barcelona and I've personally been there 10 times when I was at Microsoft and Bell. But for us to be keynoting should be a very good indicator that everybody goes and talks to them about what is your story and when they heard what we're doing with regards to artificial intelligence and how far ahead we are, which is enabled by our platform, they were quite surprised and gave us an opportunity.

Again, I would encourage you to look at who's speaking. We're in the architects of AI section, which is [indiscernible] go look at the speakers in there and you'll see that the CEO of Qualcomm amongst others, that these are the leaders in AI. And so -- and we're right in the middle of that. And as we go and accelerate through '26, while we haven't layered that into the revenue numbers, we will be getting a lot of attention because what we've done is groundbreaking and we're way ahead of the competition.

So there is no one doing what we're doing in the segment. The last part I'll say on that is the value of artificial intelligence is yet to be seen. So when I go back to 5 years ago, I was in a course at Wharton, and I was talking to their AI and data scientist leader, and he said, as I look at artificial intelligence over the long term, the real value in that is how we drive business outcomes, not necessarily the AI engines.

And so as we're working through our platform, the value is how we actually work with agent workforce and provide value to our customers. And that is the ultimate value of what we're doing with the platform as it unlocks at the end of the quarter for all of our customers and future prospects.

Our next questions come from the line of Ryan Koontz with the Needham & Company.

Mike, if you could expand a little bit on -- you just spoke to your traction upmarket with Tier 1s. Can you maybe unpack where your entry points there are upmarket where you see the most exciting opportunities with the new platform?

Well, so what I stated was that we're starting that pursuit. And so the entry points into Tier 1, there's really 4 vectors to it. So the value of our platform is that we can -- when we talk to a large customer, we can code broadly with our sales organization around what are the problems that you currently have.

And so the vectors are you have to find your beachhead into an account. So the first vector is you talk to their enterprise organization around what they're doing in business, so small business and that represents a significant opportunity.

MDU as an example, is a significant issue inside every single large customer and small customer frankly, which is why we built that ground baking product to help them succeed. And that opens up a significant market opportunity, both in our existing base and in Tier 1s. So that represents a beachhead. The second beachhead is what we're doing around networking. That's much more traditional based upon what we built with AXOS and how we won Verizon 7 years ago, and that really comes down to the insights that we provide from an automated platform.

And obviously, when you put artificial intelligence on it and because we understand end-to-end from a networking point of view, what our customers do, not only from an access but also from a subscriber management, all the other component parts we can automate that at a level that no one else can, which drives significant value. And as evidenced by the reason why we got sole-sourced at Verizon all those years ago is because we represented an 80% reduction in operating costs.

And the way they really acquired that operating cost benefit as they had to build a lot of their own clouds. We now have that inside our cloud with our AI engines through Operations Cloud and those capabilities. So that's the second way in. The third and most important one is actually demonstrating a model for how you provide subscriber experience.

So how do you win that consumer and residential market. and the value we offer there is evidenced by all of our existing customers who can achieve NPS is as high as 94, they can offer incremental services. But more importantly, they can move at a really fast pace with new product launches as evidenced by Bright speed, who is able to get to market in 2 days, where I was talking to a Tier 1 the other day, they launched a small business product.

It took them 2 years and $20 million. we could have launched that small business product with our platform for $50,000 or less, no integration costs, no IT work and they could have been in market in 30 days. And so that represents a significant opportunity.

And if you look at the challenge inside large customers, the challenge that they have is how everyone's talking about network automation and cost cutting, Well, the real growth path to growth is how do I add subscribers, how do I grow revenue per subscriber? And how do I reduce churn?

And that's something we do all day long. And when you layer in agent workforce, as we build out our Agentic Army, we're going to automate those capabilities to help them drive it a significant fast rate. And then the last one is an opportunity for us to speak to them around Agentic at a higher level. If you look at the platform that we've built, and we all go in-depth in this in at the Investor Day, so I'd encourage everybody to come Investor Day, and we walk you through our broad architecture with regards to AI.

Our architecture is not constrained to our cloud and what we do. We can actually take our knowledge and orchestration layer and apply it to the entire business and use Agentic framework that could provide knowledge across the company and help them drive efficiencies way beyond our existing business. And so those are the 4 beachheads that we have with the customer. Those are the conversations that I am personally having, yes, with the sales teams and the product team as we talk to our customers.

And that's why we will be at Mobile World Congress for the first time. I haven't been there for 5 years. We will be there speaking to the large Tier 1s because frankly, what we've done is unmatched. No 1 is doing what we're doing. And so that's the opportunity ahead. But as I said, coming to the Investor Day, and we will go through that in depth.

That's great. We'll be there and hope to see you over in Spain, too. And Cory, just in terms of gross margins and memory costs, you've kind of mentioned partnering with customers and passing through some of these transitionary costs. Can you maybe unpack that a little bit for us about your thoughts.

So Ryan in the first quarter, we're really not having any of those costs. Remember, the advantage of our supply chain team is we got ahead of this. And so we're doing really well in that regard. So no immediate near-term impact. And it's one of those things that as we progress through the year, we'll partner with our customers to deal with what we see coming down the pipe.

Our next questions come from the line of Michael Genovese with Rosenblatt Securities.

So I wanted to talk about some of the new disclosure numbers that we have in the shareholder letter, systems and software versus appliance. I guess, to begin with, I mean, it seems like as a percentage of revenue, Software and Systems has gone down over the past year. which is somewhat surprising since we're not in a bad like build more footprint type of environment. So can you just help clarify the reason for that?

Sure. As we have said all along, our software is tied to subscriber growth, and that happens in a consistent and upward trajectory all of the time where you're going to get volatility is going to be on the appliance line, where it can grow and shrink it in a given period. And so what you saw this year is obviously reacceleration of the appliances from 2024 while throughout that entire period of time, the software and services number continues up into the right and grows every day.

It's the reason why we say our margins are going to continue to expand over time. because that's unrelenting in terms of its growth, and that's what you're seeing. Specifically, if you look at the tables or the charts related to software and service and you'll see that there was a bit of a downtick from Q2 to Q3, the 1 anomaly inside of the software line that can create quarter-to-quarter fluctuations, the amount of AXOS licenses. As you know, those are recognized immediately upon signing and they are not ratable.

And in Q2, we had a little bit more AXOS licenses than any other period. in the first quarter or third quarter. Consequently, you see that bump up.

Great. And then related type of question, I guess the other thing that surprised me about those charts is how high your appliance gross margins are and how the software and services gross margins are only a few points higher than the appliances. So the questions that follow from that are how are the appliance margin so high.

But secondly, as you sort of as the clouds mature and you move to one cloud versus hosting on 2 clouds, where -- could you just give us a sense of where those software margin should be headed over time?

Sure. Sure. If I take a look at the software margins, we're going through the transition currently. And so they are temporarily depressed due to the dual cloud cost but once we lift that yoke off, those margins will continue. Ultimately, they probably go past 70% and beyond.

We ultimately don't know what the upper limit is to the software and services margin because it depends on success at Tier 1, where the amount of that will likely be just software-only revenue with no hardware or appliances attached good to it. And so the more of that you mix in, it's hard to say where that ultimately adds and tots too, but they should clearly move beyond 70%.

Great. But appliance -- on the high appliance margins, just how you accomplish that?

But we accomplished it because of the fact that if you look at the $2 billion that we've invested in our platform, A big part of that is that we built 2 operating systems, which are fully abstracted from the silicon and give us significant flexibility with regards to components.

The reason why a customer can turn up a system like Wrightspeed, who has older back-office systems that are very complex from they brought those over from Lumin initially. The reason why they can actually do what no one else in the industry can do is because of our platform. You -- because everything is abstracted, the complexity sits inside the software, not at a hardware layer, which allows us to actually transition at a very fast pace.

It also allows us to simplify our SKU count. If you go back to where Calix was when I first started 10 years ago, we had almost 4,000 SKUs, and that means that you have all of this component complexity if you can actually build out an abstracted operating system from the systems and the appliances, what you gain is massive scale with regards to buying single components and putting them across all of your systems, which means that you get higher margins.

And so that is ultimately our silver bullet is that we have built truly abstracted in the network. We're the only ones who have done it. And on the other side with regards to our premises, it's the same thing. And that's why we have a low SKU count maximize inventory and simplify significantly.

And I'll add a couple of things to that. I mean clearly, the appliances show the differentiated value in our model. And there's a couple of other added. We've got a very tight fit to the market requirements. That allows us to obviously reduce SKU count but also allow us to reduce the power consumption that's an add on the access side.

And on the premises side, we've got some clever design that allow us to cover a number of use cases, further shrinking SKU count. When you shrink that SKU count, not only does that create benefits for Calix in terms of the amount of SKUs that we have to manufacture right? It reduces the risk to E&O, excess and obsolete inventory produces the overhead.

So our cost could be lower. But that lower SKU count also translates to a benefit to the service provider in terms of them managing inventory, the number of SKUs that are on the trucks, the amount of their components in terms of the spares depot.

So all of that simplification that we're driving through our platform translates to a differentiated value on behalf of the service provider as well. So I would add those points to what Michael said.

Our next questions come from the line of George Notter with Wolfe Research.

For the disclosures on the software side of the business, I think it's terrific. I'm just wondering, when I look at software and services together Wondering how much of that is the services piece. If I go back to like 2022, you guys used to break out services. You think back then about $10 million or $11 million per quarter was in the services line. was a services-only line.

I assume it's still at that run rate or maybe a bit bigger given the growth in the business. I'm just curious on what how much is software and how much is services. I've got another question as well.

Yes, George, we're not going to go into further breaking that down. But you can use that as a proxy and...

Service is a small component of our business. We're a software company and a cloud company and we're not a services company.

Okay. And then also on the software piece, I guess I'm wondering how much of that software is recurring versus perpetual. Any sense for what that might look like?

It will fluctuate from quarter-to-quarter, George, like I said, with AS. But the majority -- large, large majority of it is recurring.

Okay. Great. And then I also was just curious on kind of where you are with the agent workforce Cloud. Obviously, you're rolling it out, you're putting the platform out there, which is terrific. I guess I'm just curious on what that looks like in terms of the timing of the revenue ramp, how you guys are monetizing it -- anything you can say there would be great.

Yes, we're -- that's something we'll cover at the Analyst Day. And in dwell actually have demos and those elements, we'll be able to show those things. .

Again, the most important part of it was we had to actually get the platform out, which enables it to happen. That's in progress right now. And therefore, what you're going to see is a rapid. What happens is that once the platform is out Think of it as like building a house, right?

The plumbing is done, the walls are in, and now we can actually do what agents are, which is the cool stuff. Put in the windows payment paint the house all those different elements, which is add a ton of agents. And so you're going to see a very active ramp of our capabilities. And that means that the customer value will start to roll in as we go through Q2 onwards. And so let me give you a simple example. I was speaking to a customer who actually signed an AI contract with us just after Christmas. They went all in.

And one of the things -- the reason why he said that was he is a very good customer who believes that we will deliver quickly, and he actually, we showed him when he's going to be transitioning over and how that rolls out for him. And he said the greatest problem that he has is that he had never bought Engagement Cloud, which is our Marketing Cloud because of the fact that we did not have the capacity and capability to do it.

His team members were not sophisticated enough to do some of the micro segmentation that it provides. And he said, now I'm super confident because agents and as I shared at Connections, where I walked through, and so I'd encourage anyone on the call who hasn't actually watched my connections keynote, you can go look at the marketing element and walk through what is our view of how an Agentic workflow works segmenting down to the individual of on parsing out what is their social media preferences so where do you place the ad allowing for very low-cost ads but more importantly, understanding all the white space through agents and what the upsell cross-sell opportunity is.

By having that in an agenetic framework in agent workflow, he can now take somebody who's not sophisticated have to actually do that on their own because they're not the data scientists, et cetera. And in his market, he can now aggressively go after those customers in a very different way.

And so he's all in. And so I think from the end of the quarter, as we roll off, you're going to see our resources also roll out of the plumbing element of our project and those resources free up to go hard at building agents and expanding it quickly.

And the agent part, frankly, when you talk to our product team, building an agent is easy. It's a bunch of Python code. The magic is in understanding the workflow and if you look at our 3 clouds, Operations Cloud, Engagement Cloud, which is marketing and service cloud, all those are is hard-coded workflows and so we actually know exactly what agents to build and how to assemble them in an orchestration layer to deliver the value.

And you're going to see that in spades at a pace that no 1 can match starting the end of the quarter as we finish up the migration. Again, come to Investor Day, we'll cover that in depth.

You're going to see it first in the RPO number.

Our next question has come from the line of Tim Savageaux with Northland Capital Markets.

I wanted to come back to the discussion and appreciate the quantification of the opportunity here which I assume, I don't know, stretching over, what, 3 to 5 years, and they can be pretty significant on an annual basis, and you mentioned a bigger ramp into '27.

And I guess my question is, as you look at that opportunity, I guess is it apparent to this point -- would that be fully incremental to your current run rate business? Would it add to it -- how should we think about layering in what could be, I don't know, a couple of hundred million dollars a year relative to your current run rate business and would you expect another step function into a higher growth rate in '27 something maybe in the 20s relative to your 10% to 15% target.

Thanks, Tim, for the question. I would say if you want to start talking about 2027, please come to the Analyst Day. That's where we might provide some color on that. As it relates to additive revenue, you got to remember that there's a limited number of resources that the industry has to go do this work. .

Crews are not just sitting around waiting for bead. They're going to go to do projects. So some portion of that would come at the cost of other work being done because these free were locations that they would be otherwise built, and now they'll go do some.

And so there's some of that. So ultimately, for this to be additive, you're going to have to increase your capacity and rates at which you're going to go deploy. But the important part is this opens up more of the premises revenue right? As they go out and build these networks, you're going to then start hanging new subscribers off of them.

And so that's the aspect that kind of adds to the acceleration of revenue, which we're more excited about. In addition to the bed revenue alone.

Our next question has come from the line of Scott Searle with Roth Capital Partners.

Nice to see the RPOs continue to hit record highs and continue to post good year-over-year growth numbers. Maybe to follow up on George's question, and I suspect you might be referring me to the Analyst Day, but as we start to get full commercialization across the installed base of the third gen platform and Agentic workforce and Smart Life, I'm wondering if you could talk a little bit to the time to monetization of when you're expecting to see that start to ramp? .

It would appear kind of given the features and functionality of the platform that we might start to see some of that contribution starting to accelerate in the second half of 26. And I wondered if you could also kind of put that in the context of historically, we've talked about going from $1 to subscriber to $10 per subscriber. Kind of how you're thinking about that?

And do we start to see software and services in late '26 and '27, starting to inflect above RPO growth, particularly as RPOs, I believe, are just reflecting minimum contract revenue levels and not as we start to see incremental monthly subscriber revenues on top of that.

So a bunch of things rolled into there? Basically, when do you think we start to see the monetization of the third gen platform and kind of the inflection point of when that sort of hit more critical mass?

Scott, I think you're right. I think second half, you start to see that, and it will be reflected in RPOs. I also think that as we stated, we're entering a sustained growth period because we have this significant monetizable base that's already in place.

And one of the things that has been constraining later adopters is the fact that they don't have the capacity and capability to actually deploy the technology and win in their markets.

And so if I go back to the example that I just provided in the previous one, when I talked about it was a customer who did not have the capacity in the form of -- I don't have a data scientist, I don't know if that's some of those capabilities or the capability in the form of -- if I think about marketing, you can do broad -- most service providers regardless of size, small ones, 2 large ones to very, what I would call, unsophisticated marketing.

It is brand-based or it is price and speed. And I don't really customize my offerings to the needs of the individual. What we're introducing with Agent Workforce is the ability to go through and do significant micro segmentation of a customer base and get down to a segmentation of one.

So looking at a household and understanding all the behaviors and the needs of that household and then at a very low cost hitting a button and providing a custom campaign into the social media that is relevant for them. So as opposed to spending $10 and blasting it out on to everyone, I can spend $0.05 and buy an ad on Instagram from 8:09 p.m. which is a social media channel of preference with an ad that actually hits the sweet spot of their white space.

So these are -- represent significant opportunities in the past for barriers because you needed to be a large company with a data scientist team and all the other things.

And frankly, even if you were a large company, the truth in this industry is that all of these companies have tons of data scientists, and they generally serve the C-suite, they do not have the capability to do that either because you can't actually do mass segmentation down to a small level to serve the sales and marketing team, we're trying to close deals with customers when new subscribers and drive upsell and cross-sell.

Best example I can give is that when I was an executive running a $900 million business at a large Tier 1 telco, we had '27 data warehouses, and I had to go like somebody 1,000 scientists and inside of my $200 million P&L, I had to go build out a $10 million data warehouse for my team because I couldn't get the data that I wanted. And so this -- our ability to unlock the data in their business and automate it so that they can do the most important thing in their business, which is not cost.

It is when new subscribers and grow revenue per sub while reducing churn is our magic. And so this is a huge enabler for us as we go, just like you said, in the latter part of '16 and through '27, more importantly or as importantly, at the same time, opening up new markets. And so when I'm at Mobile Congress and other and in these events, those are the conversations we're going to have because everybody is talking about how to cut costs, the magic is how to make money.

And this is what we're really good at. We're going to help them make lots of money. And in the past, we had to convince them to do the actions based upon best practices. Now we can say, here's what the data says across 1,100 customers, 1,200 customers Here's what the here's the train agents to make it happen, plus the bucket, cracks the bucket and it works.

And so this is a seismic shift in what's possible in our industry, and we are at the forefront of it, which is why we've been quiet about it since November of '23 as we've been building it all out. and now where guns to go.

That's very helpful. And if I could just from a follow-up. Given the third-generation platform and now that you could start to address larger customers with private clouds.

You also have an evolutionary path with the hybrid architecture, no stranded assets for those customers. I'm wondering 2 things. How is that conversation and dialogue going now with the Tier 2s and the Tier 1s in terms of what you're able to offer now with the new platform?

And what's the timing of when we should expect to see some incremental customer contribution and/or monetization of those Tier 1s, Tier 2s and potentially international customers?

With the Tier 2 customers, that's been happening because the Tier 2 for the most part, is a super regional. Like if you think about Tier 2 is that they're generally across 5 to 20 states, they're not global in nature and really a lot of their needs.

They still have -- they also have some of the constraints that you see in the smaller customers in that their ability to invest do I invest my dollars and building more fiber? Or am I going to be building out all these data science teams and all the other things.

So I think those conversations are happening very actively -- for larger customers, as we said, we talked about the Tier 1s that we've already actively engaged with, and that's going to take a step up as we basically unveil what we're doing at Mobile Congress to the world and to the Tier 1s in partnership with Google.

So the other part of this is that we've transitioned ourselves away from AWS and everything that we're doing is on Google Cloud. And Google is an incredible partner. Not only are they interested in our go-to-market strategy because of the fact that we offer workloads on their Google Cloud that they can talk to their customers about our insights and capabilities, specifically our business insight on how to run a business represents a market shift and an ability for them to differentiate against their competition when it comes to cloud.

And so we will be at Mobile Congress in the Google booth, downing and partnering with them, talking to large customers. That's a the revenue stream on -- sorry, time line is that large enterprise accounts have been doing this all my life, and those are 18 to 24 month sales cycles.

So you're talking we're going to be going into a lot of pause through '26. We're going to be demonstrating it and educating them because that's the other part. The large customer mindset is I'll build it myself and generally very siloed. So they'll take an individual use case in the build a silo and then another area of the business, we'll take a use case of the problem that they haven't built their own silo, whereas we represent a significant shift in mindset and that we step into a large Tier 1, which here is our genetic library that's fully trained, pointed out your data and it goes, oh, by the way, here's our agent tool tin on how you build out your own agents and build those into the orchestration layer.

So it's going to require a lot of education. So it's a latter part of 2016 and definitely growth trajectories for 2027 on top of the earlier questions with regards to the tailwinds on BEAD.

Our next questions come from the line of Christian Schwab with Craig Hallum.

Most of my questions have been answered. But just a quick follow-up on the feed. Given your historical strength in the smaller of the regional telco companies. Would you assume that you would get 50% market share over a time frame? In the TAM that you guys outlined for bed is 50% a good starting point or now that you've probably gotten more color exactly who has money that it could potentially be bigger than that?

Christian, thank you for the question. As you know, we do very well in that segment, and I suspect we'll continue to do very well as it relates to the...

By the way, let me expand out on the leading, right? So BEAD is the infrastructure that goes into pass a home pass is not a home one. So we have incredible technology to drive the lowest operating expense to run a network and to automate it.

And the third generation of our platform takes what we can do for network automation to the next level. Everybody else is -- no 1 has an abstracted operating system, no 1 has built subscriber management into the platform, all the different capabilities that are critical to run a headless network.

And we can run a headless lights out network top to bottom and significantly eliminate power issues because you're taking 3 or 4 boxes collapsing them down to 1 box. And at the same time, give the highest level of reliability because the data path is inside the operating system, not service chain across multiple boxes.

All those things come together to run great networks is what Calix does. But then the other part, and this is the most important part is that as be rolls out, they still have to go and win the subscriber. That just puts in place that I can get the network in place, but I have to go win the subscriber.

And so regardless of whether -- what our market share is for bead, whether or not we win the network or not, what our value proposition, which is going to get significantly stronger, especially in these early stages for our regional customers, is the capability to win new subscribers.

And with this capability of allowing our customer success organization to transition from same to core ashes a service per Cory, here are the things that you need to do to win more subscribers, grow revenue per subscriber and reduce churn and then beg quarry to listen because we're not the ones who actually come up with this advice.

It's best practices based upon looking at 1,200 customers. And then with that the advice we give Cory based upon seeing everybody successes and failures. And then begging Cory to do something and Cory's saying, I'm stubborn, and I don't want to do it, we can now transition to our success organization saying to Cory, here is the best practices.

Here are the yields it can provide -- by the way, press the bucking, this is what the agent workflow will actually do for you, so you don't have to do the work for yourself. And so this mark this, in the end, is the promise of agents -- this is the promise of what you can do with deep insight with regards to how to run a business and then apply a genetic on top of it.

No one cares about the LLM, the LLM is commodity. And we can use all the LLM we can pick whoever is best for whatever the use case is, but the value here is the business insight and then saying to Cory push the button. And this is the marked transition.

I talked about crossing the chasm forever. We have crossed the chasm.

We're on the other side because we now have the capability to, in essence, help them automate their business and take the capacity and capability constraints off the table which is a market opportunity for us to accelerate growth because in the end, if you want to talk about software and cloud, our goal is to help our customers win subscribers and grow revenue.

And when they do that, we get a portion of it. And so unlike everybody else, that's what our goal is, help them win by driving money.

Thank you. We have reached the end of our question-and-answer session. And with that, I'd like to turn the call back over to Nancy Fazioli, for closing remarks.

Thank you, Darryl. Calix will participate in several investor events during the first quarter, most importantly, hosting our Investor Day at the New York Stock Exchange on February 24, as Cory and Michael referenced. Please register to join us.

Information about these events, including dates in times and publicly available webcast will be posted on the calendar page of the Investor Relations section of calix.com. Once again, thank you to everyone on this call and webcast for your interest in Calix, for joining us.

This concludes our conference call. Have a good day.

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" JPMorgan

" Roth Capital Partners

" Wolfe Research

" Craig Hallum

" Northland Capital Markets

" Needham & Company

Greetings, everyone, and welcome to the Calix Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Nancy Fazioli, Vice President of Investor Relations. Thank you, Nancy. Please go ahead.

Thank you, Latanya, and good morning, everyone. Thank you for joining our third quarter 2025 earnings call. Today on the call, we have President and CEO, Michael Weening; and Chief Financial Officer, Cory Sindelar.

As a reminder, yesterday after the market closed, Calix issued a news release, which was furnished on a Form 8-K, along with our stockholder letter and was also posted in the Investor Relations section of the Calix website. Today's conference call will be available for webcast replay in the Investor Relations section of our website.

Before I turn the call over to Michael for his opening remarks, I want to remind everyone that on this call, we will refer to forward-looking statements, including all statements the company will make about its future financial and operating performance, growth strategy and market outlook, and that actual results may differ materially from those contemplated by these forward-looking statements.

Factors that could cause our actual results and trends to differ materially are set forth in the third quarter 2025 letter to stockholders and in the annual and quarterly reports filed with the SEC. Calix assumes no obligation to update any forward-looking statements, which speak only as of their respective dates. Also on this conference call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in the third quarter 2025 letter to stockholders. Unless otherwise stated, all financial information referenced in this call will be non-GAAP. With that, Michael, please go ahead.

Thank you, Nancy, and good morning. I just returned from the incredible experience of Calix Connections, where we celebrated customer-driven innovation on our unique platform and the success that the platform drives for our customers by enabling their teams to win new subscribers, grow revenue per subscriber and reduce churn.

To stand in front of that crowd and celebrate NPS scores as high as 94 is a testament to the partnership and trust we have built with our customers and they with their subscribers and the communities they serve. At Connections, we officially launched the Calix Agent Workforce, our end-to-end integration of Agentic AI into everything that we do via our third-generation platform that will launch in partnership with Google this quarter. This marks the next stage in our company's ongoing evolution to help our customers simplify operations and go to market and innovate with our platform, enabling them to grow for their members, investors and the communities they serve. The ability of our customers to dominate their markets when armed with our unique and highly differentiating platform and managed services model was on full display in our results.

In the third quarter, the Calix team achieved record revenue in our fifth quarter of sequential growth while guiding higher in fourth quarter. We set another gross margin record, our seventh consecutive quarter of margin improvement. We also had 20 new customers choose the Calix platform to dominate the markets they serve and RPOs grew sequentially.

At the same time, the team maintained a rigorous focus on operational performance and the balance sheet with OpEx investments returning to the target financial model while yielding our 10th consecutive quarter of 8-figure free cash flow, ending the quarter with record cash.

It was another great quarter of performance by our customers and our teams who support them as we launched the culmination of our vision where those with the Calix platform, managed services and access to data are best placed to succeed through the power of Agentic AI. Corey, over to you to walk through the specifics of Q3.

Thank you, Michael. During the third quarter of 2025, we delivered record revenue of $265 million, reflecting sequential quarterly growth of 10%. Our overperformance relative to our guidance reflected continued robust broad-based deployments from our BXP customers as they added new subscribers and footprint expansion as they continue to choose Calix for network upgrades, new builds and competitive displacements.

RPOs grew 2% sequentially to a record $355 million and increased 20% year-over-year. Our current RPOs were $141 million, up 5% sequentially and up 28% year-over-year. This metric is a strong indicator of the strength we are seeing from our platform cloud and managed services model. The combination of our BXP customers winning new subscribers and strength of Access Edge deployments led to another record of non-GAAP gross margin of 57.7%, representing a 90 basis point sequential quarterly increase.

Our balance sheet metrics were strong. DSO was 30, inventory turns were 3.8 and free cash flow was $27 million. We have produced quarterly free cash flow for over 5 years, including 10 straight quarters with amounts in the 8 digits. We ended the third quarter with record cash and investments of $340 million, an increase of $41 million sequentially.

Moving to guidance. Given the broad-based demand picture and the rates at which our customers are deploying products, we believe we can continue to grow revenue sequentially even with the significant overperformance achieved in the third quarter of 2025.

Our revenue outlook for the fourth quarter is between $267 million and $273 million, which at the midpoint would represent a 2% sequential increase in revenue and reflect revenue growth of 20% for the fiscal year as compared to 2024.

Our non-GAAP gross margin guidance for the fourth quarter at the midpoint would represent a slight increase from the third quarter and reflects our expectations regarding customer and product mix. This guidance for the fourth quarter means our gross margin improvement for fiscal '25 will exceed the higher end of our target financial model of 100 basis points to 200 basis points. And regarding non-GAAP operating expenses, we expect OpEx will increase sequentially primarily related to investments in Connections and to accelerate the development of AI agents and functionality to our platform into the first half of 2026.

That said, we expect to be back within our target financial model by the end of 2026. Michael, back to you.

Thanks, Corey. This is an exciting time for Calix and our customers. The pace of change that AI is injecting into the market is like nothing we have ever seen in human history. As I shared at Connections on stage and with the 350 general managers and CEOs who attended our leadership track where Netflix took 10 years to get to 100 million subscribers, OpenAI took 2 months. The pace of change is mind-boggling and for many, it's overwhelming. For Calix, that pace of change is our advantage and an advantage for the customers who leverage our platform and managed services.

We've invested 15 years and $2 billion to put in place the foundational building blocks in the form of Access Edge, Experience Edge and Calix Cloud to make the most of the Agentic AI opportunity that is ahead. Our migration to our third-generation platform in partnership with Google allows us to support the success of our existing customers while expanding internationally into new geographies with local sovereign data centers and support large Tier 1 customers with a dedicated instance of our entire platform. We are already well into the fourth quarter. And while Connections is complete, thousands of attendees will be educated on the AI-enabled opportunity ahead as Connections on Demand, our virtual program launched yesterday. This is in addition to the on-demand replays on calix.com.

At the same time, our customer success team is revamping how they support customers with the Calix agent workforce to speed transformation and expand our impact on our customers' ability to add new subscribers, grow revenue and reduce churn.

In addition, our internal enterprise teams are focused on improving how Calix operates and improves with artificial intelligence. With the insights that our product teams have gained through 2 years of learning as they build AI capabilities into Calix Cloud, our enterprise teams are uniquely advantaged to aggressively embrace AI in everything that we do internally to improve our operational performance and help us scale at the fastest pace possible.

As I shared in the Fast Company article, the 4 AI questions that every CEO needs to ask to succeed. Over the last 6 months, we have seen employees create 725 exploratory agents with 40 of those agents being selected by our AI steering committee to be scaled across our internal enterprise to drive operational gains across Calix.

The next step in Calix's journey is here, and I'm excited to lead the team as we speed our ability to transform the broadband industry and enable the success of our customers and partners. I'd like to close by thanking our team, customers, partners and shareholders whose passion, grit, trust and partnership have brought us to this exciting next stage in the Calix journey.

Nancy, let's open the call for questions.

Thank you, operator. We're ready to take questions.

[Operator Instructions] Our first question comes from Samik Chatterjee with JPMorgan.

This is Joe Cardoso on for Samik. Maybe perhaps for my first one, very strong revenue performance this quarter. I believe this marks 3 in a row now with results tracking $10 million to $20 million ahead of the high end of your range. Just wondering if you can help contextualize what has been driving this outperformance relative to your expectations at the start of the quarter. And as we look ahead to next quarter, how are you thinking about the sustainability of those drivers and potentially implications to your outlook? And then I have a follow-up.

Thanks, Joe. Appreciate it. The overperformance is driven by a couple of things. One is just the broad-based demand that we're seeing across our customer base. But it's also a function of some of the competitive expansion of our footprint. We're seeing some of these customers, I guess, surprisingly, not only do cap and grow, but some rip and replace as well. And so when you combine that with the broad base from our existing customer base, that's driven the overperformance.

Yes. Let me contextualize a bit of that. So having just come off with connections, what's happening is that our customers are winning more. That's what's happening. And so when our customers win and they add subscribers, then we win because of the fact is that, for example, if they build out a network and then they win a subscriber, that's incremental revenue for us and opportunity to continue to expand.

So because of the fact that we're uniquely positioned in the fact that we have almost 1,200 customers on our platform, and there's not one single driver, all of them are doing better. That means that our revenue goes up, which is also why we guided higher in fourth quarter because we feel very comfortable with the robust demand that we're seeing as Cory identified in the -- or as we identified in the letter.

Got it. I appreciate the color there. And then maybe for my next one, we obviously saw the announcement coming out of Connections last week, lots of innovations being unlocked there, particularly in the backdrop of AI. However, if we kind of take a step back here, just curious how you're thinking about the implications of this innovation cycle for Calix and maybe more specifically on the investment side of things, particularly, it just sounds anecdotally like there's greater appetite to scale more aggressively. I mean, even if I think about you guys mentioning like international regions, like it sounds a lot more aggressive than what you guys have talked about historically. So just curious how you're thinking about the implications to the business model as it relates to more on the investment side, just given kind of this innovation cycle where we're still in the very early innings of. Appreciate the question.

Yes. So from an investment point of view is that we have a target financial model. We continue to make the investments. But the broader one is that we've been investing for 15 years. So we're $2 billion into this platform. And if I think about those investments, as we articulated in the letter, those create the foundations upon which we can grow. So there are -- first of all, in the existing markets, there's significant growth opportunity ahead because of the fact that we're uniquely positioned.

If you think about one of our existing customers, and I talked about this on stage, an existing customer who has the Access Edge in place, which is a consolidated network, which has incredible intelligence in it. Then you have everything that we do on Experience Edge, which includes 2 components: intelligence at the edge in every single WiFi system that exists on a customer premise, but then all of the solutions that sit on top of it, MDU, Smart Town, smart business for small businesses and smart home, all of those come together into the cloud, and we've now invested and put the AI layer on top of it, which means that those customers who have those 3 component foundational elements are best positioned to, first of all, take advantage of AI because it farms all the data, puts it into an AI engine and automates significant components of their business and allows them to scale at a significantly more rapid rate than in the past. And the best example that I can give of that is that in the past, our customer success teams would talk to a customer who has those things in place, make suggestions. But then in the end, it was the decision for the customer as to whether or not they had the capacity and capability to take that advice and turn it into action to grow their business.

Now our customer success organization is going to sit down with the customer and say, we've looked across all your business. We have all the data. We know what the insights are. We know how well you can perform. By the way, here are the AI workflows that -- go press the button and it will do it. You don't have to add capacity. You don't have to hire a bunch of new people. This is going to augment your existing capabilities and provide you a massive jump in capacity. And so when I think about the growth opportunity in our existing markets, it is significant because of that capability to transition from advice giver and optionality to press the button and we'll do it for you. That's the first step.

On the expansions into international and where we go into large customers, this has always been planned. It's been a timing opportunity, and those represent significant growth opportunities in revenue and margin. The reason why we're talking about those now is because of the fact that we've been very quiet on it because we have always been a very conservative leadership team who actually talks about what we can see very carefully. and what we see right there. And with the third generation of the platform turning on this quarter in a few weeks, we now actually see where that expansion goes. And if you took the time to watch the Connections event over Monday and Tuesday.

On Tuesday, we had the Head of Google Telecom up on stage with me talking about how this partnership could flourish. And so it represents a significant opportunity because our platform would sit on top of a Google Cloud regardless of geography and regardless of size of customer, which provides us a significant scale opportunity, frankly, without having to make significant investment other than sales and marketing because it's a cloud. And if you have nothing running on the cloud, you don't pay for anything. So as it scales, we have a great opportunity not only for revenue but also margin.

And Joe, I'll add on to the model question to that when you look at the AI investments that we're doing from an OpEx perspective, in the quarter, you saw us hit record revenue and at that time, get ourselves back into the model. But we also see an opportunity here to accelerate some of the development work that we wanted to do from the latter part of '26 into the first half. So you saw in the OpEx guidance that we took up the level of OpEx. It's for those investments in R&D related to AI functionality, but we will be back in model by the time we exit 2026.

Yes. And to give you practically what Corey was talking about is that if you look at our cloud, again, I talked about this on stage, Calix Cloud, which is Operations Cloud, Service Cloud and Marketing -- or Engagement Cloud, which is the marketing capabilities and engaging with customers, all that Calix Cloud is, is a mapping of workflows on how to run a broadband business.

This is why when it comes to artificial intelligence, we're so uniquely positioned because we are going to -- now that we have the infrastructure in place upon which to build AI, which is the data layer, the knowledge layer, trust and orchestration, which then leads to trusted action. We built all that out. That was a $100 million investment since November of 2023.

Now that, that's in place, the easy part and the candy, the ROI is right there. So we're going to accelerate building out those agents. And if you talk to our CPO, he basically states, building an agent is easy. All the hard work was all the other work that we did. So we did all the hard work. Now we're going to do the easy work, and we're going to monetize this like crazy because of the fact that we can take a workflow in Operations Cloud, again, that I showed, I laid these out at Connections.

We can take an operational workflow inside Operations Cloud and every single step is essentially an agentic agent because it's a task-based entity. We can build all those agents and pop them out and then say to our customers, here's your workflow for anomaly management. Here's your workflow. And while all the other industry people are going to be building out these complex custom workflows, we're actually going to take all the insights that we've built over the last 6 years in Calix Cloud and plow through all these Agentic workflows, which means that by -- as we come out to the latter half of 2026, the AI army that we're going to have turned up inside our platform is going to be unmatched because we know how to run broadband companies. We have all the workflows. We have all the data, we have all the insights, and we have the trust of our customers to partner on building all that out.

So to not speed through this at an incredible pace, would be foolhardy. And in closing, I'll say the last part of it is everybody is talking about AI and around where to invest. One of the interesting things I've been hearing a lot about lately on investment platforms and other areas is all the tangentials affiliated with it. So you have the big guys who are building out their LLMs, which are, in essence, commodities.

The ones who are actually going to provide the greatest value are the ones who understand the business. Well, that's what Calix Cloud is, a complete map of how to run a broadband company, and we are going to AI the whole thing top to bottom over the coming months.

The next question comes from Scott Searle with Roth Capital Partners.

Great job on the quarter and outlook. Mike, maybe just to dive in on the small customer front, it was broad-based. It was strong. I'm wondering if you could provide some other commentary in terms of if there were any pull-ins, the sustainability of that going into 2026 and kind of how you're thinking about that visibility building at this point into 2026 and the sustainability of double-digit growth.

Thank you, Scott. That's a great question. And I want to actually kill this right from the get-go for everybody who has said that we are -- we have a broad-based demand. There is not a single customer that had significantly more influence on anything that we generated in this quarter or in next quarter. It is broad-based demand.

The strength of our business model is that while things can go up by segment and down by segment, it is actually up to 1,200 customers that allow us to actually drive demand. So with regards to visibility, and I'll turn it over to Cory to go through some specifics. But because we're so closely partnered with our customers, we see -- and the reason why we guided higher into Q4 and see the strength in the business is because of the fact that our customers are winning.

It can't be affiliated with, and if anyone writes that, I'm going to be going to kind of go mental on it, is it cannot be written around a single customer because it's around our customers winning more. And as they win more, we win more and our investors win more. It's that simple broad demand across the base.

Yes, Scott. So I think the visibility we have into the demand profile, as Michael outlined, gives us that confidence that the sequential growth is durable. Now we had a large step up here in the third quarter. So I think the sequential increases will may be more muted as we move into 2026. So in terms of our target financial model of 10% to 15%, I think we'll be at the lower end of that range ex BEAD, right? And I'm sure I'll get a BEAD question. So I'll Preempt that. I'll let that question be erased.

Okay. I'll pass on the BEAD question, Cory. But just to clarify, the sequential growth, so we'll see sequential growth from the fourth quarter into the March quarter. And then as my follow-up, Gen 3, right, we talked a lot about AI and Agentic opportunities there. If we look at the current quarter, international was down due to one customer, I think, in the European theater. But the Gen 3 platform is supposed to deliver private cloud capabilities, sovereign data center capabilities. When do we start to see that accelerate?

And Mike, to follow up on your commentary on Agentic AI in general, as you start to think about that driving the flywheel within your customer base, does this poise you guys for actual acceleration of RPO growth as we get into late 2026 and the ability to really drive that recurring revenue?

Yes, Scott, great question. The way we think about the monetization of the AI agent is not so much a separate charge for it, but an acceleration of our business model, right? So our customers will acquire subs faster. They'll roll out more services more quickly. So that's how we'll monetize it.

So yes, it will increase RPOs because as they go faster and adopt more of the platforms and the solutions, that will ultimately translate into a contract value that will get reflected into RPO. So ultimately, yes, that's how that will happen.

So -- and the key word that you used was actually flywheel. In fact, we talked about that from a good to great point of view on a regular basis is that you have this -- that is exactly what Calix is. When I go back to what I -- answering the previous question, the flywheel that we have is that is 15 years of investment that's been getting -- that has been going into our platform, allowing us to actually become stronger and better and stronger and better because we enable our customers to be stronger and better and stronger and better, which is why I go back to the -- is it broad-based demand? Absolutely because we are the enabler for our customers to actually go at a faster and faster pace to do the 3 things that drive growth, which is, one, how do you actually add subscribers; two, how do you increase revenue per subscriber; and three, how do you eliminate churn? And if you eliminate churn, then obviously, your gross adds go up faster. And so that is the power that we see in our platform. And those core components, access Edge. And so if you've actually done the work, and I said this on stage, where if you consolidated your network with everything that we've done, which is collapsing the B&G access aggregation onto a single system, you have the most powerful network that exists with all the data and the insights to run it autonomously.

Same with on the Experience Edge and then you bring it all into the cloud, throw an AI engine on it, and we can help our customers optimize their business. And as they optimize their businesses, they add those subscribers and become more profitable, we become more profitable.

With regards to international, to your question on the one, again, we keep getting these questions every single quarter. It's just lumpy up and down, right? It's lumpy up and down, but we have broad-based demand across all those customers. In no way, shape or form does it signify the strength or weakness of that customer. It's just -- it's a timing thing. And so we go through this every single quarter is that is there any change? There is not. We have strong demand across small, medium and large customers. And then with the international markets, that's really a later 2026 is where we see that we start to expand into the right markets.

But we're going to get our existing base over because, frankly, our existing base is all primed because they have those foundations in place and a huge opportunity for us to make them wildly successful at a very fast pace. So your statement of flywheel is 100% accurate.

The next question comes from George Notter with Wolfe Research.

Can you guys hear me? I was curious about your monetization strategy on the Agentic AI workforce. And is there -- did you guys consider like charging customers a la carte for this capability and maybe being a bit more aggressive on monetizing rather than just sort of giving it away, I guess, and kind of working towards hoping these guys are going to generate more success in the marketplace. I guess I'm just curious why you guys didn't take a more direct approach on monetizing it.

We are taking a direct approach on monetizing it. It's actually a matter of perspective. So there will be some elements that we charge for and then there's others that we will monetize through the -- by helping them drive gross adds -- so we have a very clear monetization strategy, and we're very comfortable as a leadership team that it's going to yield significant revenue and upside, massive amount of upside in revenue.

Got it. So if I look forward and just think about the growth in the company, I think you guys -- Cory, I think you said 10% to 15% or maybe at the lower end of that range. But [indiscernible] sorry.

Without BEAD.

Right. Okay. And then -- so of that growth, like is most of that coming from same-store sales in a sense, like existing customers growing faster or growing more with you? Or is it new customer wins that drive a big percentage of that 10% to 15%? How do you kind of parse out where the growth comes from?

Was, again, broad-based demand across all the different segments. So if you -- first of all, is that existing customers have a bunch of unmonetized footprint. So for example, if I only have -- we have some customers who are at the right market share levels, who are at 65%, 70% market share. That's kind of your, I would say, almost a theoretical maximum when you're in a competitive market. But we have some customers who have only 20% market share. So that represents a significant uplift in those scenarios. At the same time, we've launched our MDU products. So those customers all have an MDU problem. that's -- and they've driven it pretty aggressively on stage. We actually had an MDU company who has something like 900 apartment buildings under management, and they did their first 2, and we're ecstatic about transitioning to Calix for those scenarios.

So that's a -- there's a great example of a significant unmonetized footprint, both in our existing base because all of our customers, about 1/3 of all tenants in the United States are in MDUs. So there's a massive untapped market that we haven't even started selling into that allows our sales teams to expand significantly. We're very bullish on where MDU goes.

As you noted in the quarter, George, we added 20 new customers. So those are essentially starting customers. I don't know where we are year-to-date, but it's got to be around probably 60-ish, I guess, I don't remember. So we have -- we're winning new customers and expanding there. So those growth numbers file into, and that's what we're specifically looking at with regards to where Cory is talking about. And then we have new market expansion, which we haven't -- we have not incorporated into the 10% to 15% because it's too early.

But we have all the international markets and everything we're going to do there, and we have the Tier 1s through dedicated platform implementations, which are not in those numbers. And then the last part is we don't have the BEAD things, but we got our first BEAD orders this quarter, and that's not in the number either.

Got it. Okay. And then just on BEAD, since you guys brought it up, I mean, how much -- I guess, how incremental could that be in 2026 and 2027? I mean, do you have any sense for magnitude or opportunity or timing there? That would be great.

Yes. So Yes, I'll just give you my thoughts on the BEAD. We are more constructive on BEAD than we were 91 days ago. The turnaround from the states on their preliminary awards was faster than we had expected. As such, a certain percentage of those customers have the ability to plan for a certain amount of the jobs next year. And so while we did receive our first order during the quarter, it's still too early to determine the demand dynamics for next year other than there will be some amount versus last quarter, I thought there would be like none. But to provide a little bit more color, here's what we know. Of the 49 of the 50 states reporting, California still hasn't submitted their awards yet.

The total amount of dollars have shrunk by about 50%, right? So the original program being $42 billion, it's now going to be something like $20 billion. And when you include the matching funds, now we're talking about a $30 billion program. Fiber is still the dominant technology at 65% of locations and 85% of the dollars. Fixed wireless was 12% of locations and 8% of the dollars. Meanwhile, LEO was 21% of locations and 5% of the dollars.

So as we have said, historically, we've done really well with government programs and that we expect to do the same with BEAD.

The next question comes from Christian Schwab with Craig Hallum.

It was kind of crystal clear, the sustainability of double-digit growth that you're seeing. But as we look into next year, should we assume we -- given the outperformance this year, Cory, that we should be at the low end of gross margin expansion year-over-year of 100% to 200% or is that not correct?

You've got that right. Thank you. We haven't talked about that yet. But yes, given the overperformance on gross margin this year, I think the increase next year will be more muted. It will be at the lower end of that 100 basis points to 200 basis points.

So we'll continue to expand it? Yes, our software content grows every single day.

We're going to continue to guide the 100 basis point to 200 basis point, and we're going to grind at it, right?

That's right. But it will likely be at the lower end of that 100 basis point to 200 basis points next year.

Great. And then now that we found this new found enthusiasm for BEAD, if you think about aggregate dollars that could come to you over a multiyear time frame, when do you think that peak spending would be?

Well, we still think it will likely be more of a lens shape deployment curve. And so it will start ramp up to some level in '26, then probably level off for a few years before it tails off. Like we said with all these government programs, they take a lot longer to get started than anybody thinks. The dollars that they pull through tend to be much larger than the program and that these programs then go on for a longer period of time.

So we do think it's still a lens shape. It's still too early on the awards to understand the buying dynamics of how much they buy, how much they buy ahead, what mix of products that they're buying and how much they're actually going to actually start building next year because, again, it's very late in the cycle. But -- so that's all we can say at this point is that there will be some BEAD revenue next year. just don't have a good sizing of what that might be. [indiscernible]

Yes, we'll give you another 90 days.

Well, the other part, I will say -- so again, I had a lot of these conversations with that connections. To Corey's point around this is going to be significantly larger than anticipated, which we have the exact same narrative that we've had where other people 3 years ago were saying BEAD money is around the corner. We have been very clear. So one of the things you should take away from it is the fact that we're actually proactively talking about it now means that the money is about to flow, right? So in 2026, the money will flow. But the bigger part of that, that everyone needs -- and you kind of touched on it, right, is that the BEAD money -- so for example, when they go and they build out a BEAD network and they drive it to what was funded, while they're doing that, and in fact, we had this very specific conversation with a customer, where while they're actually building to the ones that they got funded for, they're actually, in essence, passing a whole bunch of other ones that didn't get funded, and they're going to go drop those customers in. And so all of the TAM affiliated with those is pretty significant. So for example, if they got funded to do 10,000, in many cases, there could be another 5,000 to 15,000 that they pass that they're going to build as they go. And so that's not really built into the BEAD TAM. That's the first thing.

The second thing is that once they get the networks in, that's really just to go and build the connection to the subscriber. And going back to George's questions with regards to how do we actually monetize and where are we going? The most important thing for us is to add subscribers because if we were just back to old Calix where we were just a network company, then we wouldn't be so fixated on how do you win the subscriber. But as we talk about in our model, the monetization of $1 to $10 a month in software margins, which are massive, is where we're focused because that's the long-term growth and what actually allows us to continue significant margin expansion. And so as we -- they go and they build that network, BEAD gets them there. And then we go help them actually how do I convert and get to 65% or 70% market share on the BEAD money that I put into it to actually build the network while at the same time, expanding with the customers who are not funded on BEAD, but I'm passing them anyways, I'm going to drop a fiber in.

So in those scenarios, we're talking about it now because in 2026, it's finally there. We don't talk about things -- it goes back to the other question is why it's bullish on AI now because it's right there, and we don't talk about things that we can't actually touch and see. So that's why we're talking about BEAD now, we can touch and see it.

The next question comes from Tim Savageaux with Northland Capital Markets.

Congrats on the results. Just a couple of quick ones here. On the BEAD front, I think historically, we used to use maybe 10% of the award value or network cost to kind of get a sense of what the access infrastructure opportunity might be. I wonder if that's still a good number or given your [indiscernible]

We're using more we're using more 5% to 10% depending on the -- it's more 5% to 10% is where the number is. But then what you have to also do is extrapolate the incremental opportunity when you win subscribers, which is not part of that, to your point on it being the access network.

You got to think that these locations are harder to get to. There will be put more money into. [indiscernible] More construction dollars, Tim. So 10 is too high. You're going to have to go less than that.

Yes.

Fair enough. Speaking of the $1 to $10 per month, any update on the timing for a more detailed breakout of the appliance business versus the software and platform business? I know you were end of next year was what you were discussing.

Yes. I mean that's still the stated goal by the end of '26.

Got it. So no change there. And if we look at the guidance for Q4 for sequential growth, the various quarters this year, you've had maybe small customers driving things in Q2, large and medium. Anything to call out in terms of customer segment movement into Q4 in terms of driving that sequential growth?

Yes. Broad-based demand across all segments.

Yes, nothing to call out, Tim.

Yes. But no -- well, no, I'm going to call that out. That is something to call out, right? Broad-based demand across all segments. the value in our business model and the fact that we have almost 1,200 customers is the fact that we -- and we don't have a 10% customer, correct? Right? And we have no 10% customers, which means that from an investment point of view, because of the fact that you see the segments going up and down, that's the value of our business because we have a diversified revenue stream. And so one might be up one quarter and down the next and up the next quarter, it's actually allowing us to even out the whole thing broadly. And when you have broad-based demand, which we do, that allows us also to plan the business very well.

We will take our last question from Ryan Koontz with Needham & Company.

Maybe a couple of topics, if I could. Maybe philosophically, relative to your 10% to 15% growth model and thinking about your SAM and your current customer relationships and how do you think about growth limiters in the industry that can allow you to outperform that, whether it's relative to the BEAD process, supply of fiber, supply of labor, supply of components, which doesn't seem to be that big a deal anymore. Like how do you philosophically think about risks and upside relative to things that are out of your control?

So from a risk point of view, at this point in time, we've actually been talking a lot about that as to where do we see the risks. we really don't see them with regards to limiters. So there's BEAD, the BEAD stuff, the reason why we're actually saying, hey, now we see it coming out is because of the fact that, obviously, because it's a governmental process, and as we said right from the get-go is that these things are a bit complex and takes longer to get here. But when it does get here, it starts flowing and it flows for longer.

So there's some timing components affiliated with that, right? So that's the first one. And then from a systems and components point of view, we don't see any issues other than there's some memory prices going up, but we balance that out with some other areas, right? So but these things all balance out because of the fact that we have a broad-based business. There's nothing specifically from a leadership point of view that we're looking at as a risk. I will talk to upside, but are there any other risks that you see, Cory?

No, I think as it relates to the practical limiters on the business as you go and build new networks, it's permitting and labor. So that puts a natural governor on just how fast they can go.

Well, but by the way, in Washington, that's probably one of the biggest topics that everybody is talking about, which is how do you actually speed permitting and access and those different components. So there's so much focus on driving that, right? I would also think that the midterm is coming up next November that people want to get things done as they go into an election cycle.

So that's definitely -- I would say that's going to speed the process to some extent. And so I would say that there's nothing out of the ordinary that Cory and I are talking about and the leadership team is talking about that is a significant risk. In fact, the exact opposite, we feel very confident with regards to the broad-based demand, the running of the business, the talent that we have inside the company and our relationship with customers. So we see that as everything is green.

Now with regards to upside, I'll go back to what I said around artificial intelligence. So this is where we're uniquely positioned because of the fact that we have deep insights on how to run a broadband company. We've mapped it all into our cloud. We have intelligence at the -- in the network, and we have significant intelligence on the prem. And we bring all that together in the brain, which is the cloud, which is now AI capable, and we're uniquely positioned to help our customers do more. So -- and I go back to the question I got asked about the monetization of AI, we are absolutely going to monetize AI in a significant way by helping our customers monetize their business at a significantly faster pace. And you have to understand how sales cycles work, which is my background, spent 30 years running enterprise sales organizations. And so would you rather go and pursue a customer and get, I don't know, 5% or 10% price uplift on a single cloud? Or would you actually help that customer add 25% more subscribers, which is -- takes your revenue per subscriber from 0 to significantly higher in the $1 to $10 range per month.

My view is I want the $1 to $10 as high as I can as fast as I can instead of grabbing a 5% or 10% kicker. -- makes no sense. And so -- and plus, this will also help us drive -- if you look at our clouds, we have roughly 1,000 people on our clouds or customers on the clouds. And then it drops off. We have 3 clouds, it drops off. And therefore, how do we get all of our customers to every single customer having 3 clouds. That's what AI can help us drive to, and that increases monetization.

And so much rather have 1,000 customers on 3 clouds than a large – a 1,000 of them at x clouds in that way. So we think there's huge opportunity. And frankly, I've been here 9.5 years. This is what we work towards. We tested neural networks for the first time back in 2017. We saw the opportunity, but we couldn't actually meet the privacy and security requirements that our customers needed to use artificial intelligence in a trusted way.

In the last 2 years building all of that. And now we're literally going to have our success teams go into a customer and say, "Hey, Cory, remember how I was telling you that you really should do this and you said, I don't have the team members or the capacity to do it because I'm busy doing other things”. Now with AI, we're going they say, "Hey, Cory, here's what you should do, press the button and the AI engine will do it”. And that -- when we talk about crossing the chasm, that is going to allow us to cross the chasm at a rapidly faster rate, which is why we are so bullish on AI.

That's great stuff. One more quick follow-up, if I could. Nice to see the rebound in the small customer cohort best in like 10 quarters. But you're looking upmarket, the medium and large cohorts have grown over 50% year-to-date, clearly, a great indicator there. How much of that gain upmarket is competitive displacement versus your customers investing more and being more successful with your help?

Do you mean in small or in large?

Medium and large, medium and large.

And those are competitive displacements. large percentage of that is us actually becoming the go-to-market engine for these customers, right? So where they were with someone else and that's who they were using just for what I would call dumb WiFi, and now they're looking at what we do across our clouds and everything we're doing on the Experience Edge and saying, I want to radically improve my go-to-market strategy, and Calix is the best one to do that.

So absolutely, we're displacing in the Fed because they had a previous partner, and we're now helping them drive their business. And one could argue that from a competitive displacement point of view, if we're with a service provider and they're competing with someone else who's not using our product and they crush them as they do, that's us actually displacing a competitor in a different way with helping our customers win and crush their competition who's not using us, is actually us helping us -- that competitive displacement in a different way. And that's absolutely 100% how I think about it every single day.

We have reached the end of the question-and-answer session. And now I'd like to turn the call over to Nancy Fazioli for closing remarks.

Thank you, Latanya. Calix will participate in several investor events during the fourth quarter. Information about these events, including dates and times and publicly available webcast will be posted on the Events and Presentations page of the Investor Relations section of calix.com.

Once again, thank you to everyone on this call and webcast for your interest in Calix and for joining us. This concludes our conference call. Have a good day.

Thank you. You may disconnect your lines at this time, and have a great day.