CALX - NYSE

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 MDU market with SmartLife and the ability to address new global markets and large customers with private clouds as our team entering 2026 very confident and our ability to continue our track record of enabling customers to simplify operations in 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 surpassed $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 BXP 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 stock. 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 BEAD, 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 BEAD 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 BEAD 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 orbiting 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 low earth 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, 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.

Daryl?

[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-BEAD. 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 BEAD 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 were -- 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 2026, 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 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 Keynote 6. 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 in MDU 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 breaking 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 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 at 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 on 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 one is doing what we're doing. And so that's the opportunity ahead. But as I said, come 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 BEAD 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. Meanwhile 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 services, you'll see that there was a bit of a downtick from Q2 to Q3. The one 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 a 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 margins so high? But secondly, as you sort of -- as the clouds mature and you move to cloud versus hosting on 2 clouds, where -- could you just give us a sense of where those software margins 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 1s, 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 touches to, 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 Lumen 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 too 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 reduces the overhead. So our OCOGS 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. So 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 AXOS. 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. And 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 depth, we'll 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, 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 he did not have the capacity and capability to do it. His team members were not sophisticated enough to do some of the microsegmentation 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 would 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 one, 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 Agentic framework and an agent workflow, he can now take somebody who's not sophisticated enough to actually do that on their own because they're not a data scientist, et cetera. And in his real 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 one can match starting at 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 at 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 do projects. So some portion of that would come at the cost of other work being done because these crews would do locations that they would be otherwise built, and now they'll go do some BEAD. 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 alone. 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 BEAD 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 SmartLife, 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 to 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 till 9 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 a mass segmentation down to a small level to serve the sales and marketing team we're trying to close deals with customers, win 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 something like 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 cut costs. It is win 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 '26 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 -- in these events, those are the conversations we're going to have because everyone 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 agent -- here's the trained agents to make it happen, press the button, press the button 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 we're 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, demoing and partnering with them, talking to large customers. The revenue stream on that is, sorry -- time line is that large enterprise accounts, I've 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 [indiscernible] 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 and they'll build a silo and then another area of the business will take a use case of the problem that they have and build their own silo, whereas we represent a significant shift in mindset and that we step into a large Tier 1 with here is our Agentic library that's fully trained, pointed out your data and it goes. Oh, by the way, here's our agent toolkit 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 latter part of '26 and definitely growth trajectories for 2027 on top of the earlier questions with regards to the tailwinds on BEAD. I mean at the Analyst Day.

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 BEAD. 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 BEAD 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 BEAD.

By the way, let me expand on the BEAD thing, right? So BEAD is the infrastructure that goes in to pass a home. A home pass is not a home run. So we have incredible technology to provide 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 one has an abstracted operating system. No one 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, classing 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. 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 BEAD 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 saying to Cory, if he's a service provider, Cory, here are the things that you need to do to win more subscribers, grow revenue per subscriber and reduce churn and then beg Cory 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 that's the advice we give Cory based upon seeing everybody's successes and failures and then begging Cory to do something and Cory 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 button. This is what the Agentic workflow will actually do for you, so that you don't have to do the work for yourself. And so this marks -- 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 Agentic on top of it. No one cares about the LLM. The LLM is a commodity. And we can use all the LLMs. 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.