Good morning, everyone, and afternoon to those of you joining us
for some of the words of the Welcome
to the Calyxt twenty twenty Investor Day. My name is Tom Dinges. I am the Director of Investor Relations here for Calyxt. I to want thank everybody who's joining us here in person in San Jose as well as those of you that are joining us on the webcast. We really appreciate your interest in Kelly.
We've got a lot of great content for you today. Before we get going, I do have to go through a few housekeeping items with you. In the presentation today, we will be making forward looking statements. In addition, we will also be disclosing non GAAP financial information. I'm not going go through
the full disclaimer for you.
They're available on our website. They are also available in all of our filings with the SEC for all quarterly and annual. And a full reconciliation of all the numbers that we're discussing today is also available on our Investor Relations website.
Before I turn it over to Carl,
one other housekeeping item for all of you, the full slide deck will be available shortly after we finish the formal presentation today. So we've got a lot
of great content for you today.
We are going to take a couple of breaks. We have a lunch break here as well, come up and announce those as they come up.
We are
going finish the day today at two sharp. And for those of you that are here, we'll have a product showcase open out there for you guys to take a look at a lot of the demos and things we've got there for us. So with that, it's my pleasure to now introduce Calyxt's CEO and President, Carl Russo. Carl?
Thanks, Thank you. Morning and good afternoon to those of you who are on the webinar on the East Coast. First of all, let me say thank you to those of you who are here embracing the coronavirus headwinds. I suspect that we will have a full webinar because there are a lot of folks that we're looking to attend. In the last moment that, oh, coronavirus fans, we're dialing in.
So for those of you here, appreciate it. Hopefully, we won't be in that hot spot that shows up on the news. But again, thank you. The goal for today for all of you is there are four key points that I want to make sure you all understand. First is we are positioned in front of not one, but two second of disruptions that are going through the industry.
The second is that we have the right technology to advantage us and our customers. In our case, we call them platforms. And obviously, our belief is that this will enable our customers to succeed in finding these two ways of disruption build different and more valuable business models. Obviously, our belief is that they will share a percentage of that increased value with us in one form or another. The third point I want to make sure that we're making is that we have the right people, the right team in the company to take advantage of this.
Many of you are aware of the diversity that exists in Calix and we've been building over the years. You're going to get a chance to see the key leaders in the company today, and I would encourage you to dig deep because I believe we have the right team to take advantage of us. And the last point I will make is when you take number one, number two and number three and put them together, if we execute against the decision, then it should ultimately roll up into a financial model that continues to build value that all of our stakeholders can benefit from as So those are the four points you're going to continue to hear me come back up and speak to. And I would ask that you mark those down and see if in fact we achieve that mission. So without further ado, disruptions.
They don't come along often, but they do come along. And I thought it would be useful to give you a sense for disruptions in the past in this industry. I suspect few of you are as old as I am. But some of you may recognize the things that are up there. When I grew up, I grew up with this.
Let me just see a show of hands. How many here grew up with that? Michael, you grew up with that because you're in Canada. Paul's was smaller, there it is. That's a TV with antennas.
By the way, what's really cool for me and for those of you are old enough, we have this new thing called the Internet. Have you heard of it? It's free. You get the Internet for free because it's supported by advertising. What business model.
Remember that one? It was free and it was supported by advertising. And now for a word from our sponsors. When I grew up, I had three VHF channels, which were pretty good reception. We had three UHF channels, which weren't so good.
And we would occasionally orient the rabbit ears and go accordingly. And cable came along with a not free model that ended up disrupting a free model. Why? Well, there were two main reasons that cable disrupted the original free TV model. One was better quality.
So they promised to, in fact, get rid of the antennas for a week and deliver a much higher quality signal. And the second was they promised to do better than those six channels. And they would win a municipal franchise. There were families like the Cox family or the Roberts family, these ring a bell and they went off and they built little cable franchises. By the way, they would negotiate with the municipality and the municipality would say, okay, we're going to give you the franchise.
You have to bill to everybody. And you also have to give us a free municipal channel, which if you ever watched the free municipal channel, there was some fun stuff on those channels. But that's what they did. And this disruption started, by the way, in the 60s. And so not one, not two, three decades to traverse through the industry.
Along the way trillion of dollars of capital was dislocated, growth torn apart over the course of this industry. That's a disruption. It was a disruption at the physical layer. It was driven by a different physical layer, cable collects. So that's one example of a disruption.
Here's a second. Yes, I had one of these too. The phone industry has ultimately been disrupted by the cellular phone industry. How many of you had that Motorola phone in your career? Come on, put the hands up.
Okay. What did you hear way back when? The cellular phone industry is always going to be a specialty industry, which by the way most disruptions start with vertical markets. It's got to be a specialty industry. Why?
Because people are not going to accept the crappy voice quality that exists on these cell phones. Plus the fact if you go too far away, you can't get connectivity. It's just not going to happen. That was an early prevailing wisdom of the existing industry. What happened?
Well, in fact, the ability to carry it with you, won out over quality. And then as utility continued to win out and more subscribers came on it, guess what? The service providers figured out how to
do what, raise the quality.
And so today, through if you remember, we used to call it cord cutting. Today cord cutting means something different. But back then, cutting was getting rid of phones. But many of us still have, in fact, a plain old telephone service at our house. This really started in earnest in the late '70s from a cellular standpoint.
And guess what? Not one, not two, three decades and trillions of dollars torn up, built, etcetera. Anybody here remember McCall Cellular? Craig McCaw? Craig's ex wife is my next door neighbor in Santa Barbara.
She did okay in the divorce. This has now led to smartphones, which is an intersection of some of the things we just saw, trillions of dollars. How about this one?
Now we're coming more modern,
IT versus connection oriented protocols. Anybody remember this one? How many of you have a technical background? Michelle remembers it. Michelle is putting his hands up because Michelle, by way, is Michelle Langlois, who prior to being here used to run Juno software at Juniper and prior to being there, we used to run iOS software at Cisco.
So he loves this sort of thing over here. He was one of these packet dip guys. So what was the issue? The issue was this is a nondeterministic protocol. You're telling me that we're going to take our valuable data from like financial firms and just put it out there in a packet and it will find its way over to the other side.
That's for scientists sharing files. That's not for real applications. But we know what happened. Over time, the facility that was born of a level playing field and ultimately immediate independent transport layer because IP doesn't care whether it runs on twisted pair copper, fiber optics, coax, wireless satellite, doesn't matter. That utility allows the performance to continue to come up and every formerly it will never work on IP collapsed into it, like the event horizon on a black hole just slowly but surely disappeared to where this doesn't exist anymore, except in the bowels of some of the service providers that still have sonic rings and ATM, but it has receded to the point where it's irrelevant technically and long since irrelevant from any value standpoint.
And not one, not two, three decades and trillions of dollars torn up and created in that disruption. So these disruptions occur. We have a tendency to not remember them. But if you think back, most of you have gone through these and lived through them and have a sense for the words you hear at the beginning of a disruption. What happens at the end, where venture capitalists invest, where public investors invest, the cycles, etcetera.
So hopefully that gives you some sense for what's happening now. And the first disruption that we're focused on is this. And you say, wait a minute, that's not a disruption. That happened in the 80s. I used to have like a Wang desktop connected to a deck PDP-eleven.
So they were connected over a LAN. Sound familiar? Well, in fact, what's happening today is exactly client server. Every single device that you're carrying around has four things in common. It has an LCD screen.
It has an IP address. It has a wireless Wi and it has a control mechanism. Many of you are typing right now. I'm sure not recording my words, of course, send a note to your friend. You also have phones that have a touchscreen.
You also have Alexa or other things. You have cars. By the way, how many of you have an electric car? I have an electric car. It's more like a device than it is a car.
A little screen. What about an HDTV? How many of you have an HDTV? Why is an HDTV any different than this? Just expanded.
It's the same. Wireless physical interface. Make sense? That's what's going on over here. And by the way, if you assume a LAN connection, a broadband connection, the data that you're displaying on your device isn't really resident in the device.
Where is it? It's over here. In applications of content that exist in the cloud. That is a client server model. It is not a peer to peer model nor is it a standalone compute model.
And guess what, just like client server, there's an infrastructure in between. And this is the second disruption. So why is this first one a disruption? This first one is a disruption because guess what, Remember that video coax? Remember the cellular phone?
Everyone has cellular phone? A new feature would show up. There'd be a new feature. You could do call waiting or hook flashes or whatever. Did you go buy a new cellular phone that had that feature?
No. It was rolled out to you from the service provider. If you got a new channel on coax, was it because you decided I'm going to go to YouTube and look at something different? No. They added a new channel, they added new content, it was rolled out to.
By the way, occasionally with your cable supplier, they got into a contract with some over the top content player, and you wouldn't be able to get that content for a period of time until they resolve the payment terms. Remember these things? What's the point? All of the power was in the provider's hand, not in your hands. Now it's driven by the subscriber, you choose.
So this client server model with an assumed broadband connection has put the power in the subscriber's hands. What's happened on the infrastructure side? Here's the second disruption. The second disruption is not coax, not twisted pair, it's not cellular. It's the combination of two things.
A wireless physical interface out here that's talking to all of these wireless devices that you now have because who wants to have a cable running behind you when you drive down the road? But by the way, who wants to put a new HDTV up and knock a hole in the wall to go string cable to it? So literally, if you think about your home, virtually every one of those devices is connected wirelessly. So there is an antenna over here that's really important, that's providing that connectivity. And the most efficient way to move those bits back to the data center is over a piece of fiber.
So you have a virtually unlimited physical carrying capacity combined with the untethered nature of wireless. This infrastructure is going to eliminate every other infrastructure, copper, coax, I don't care what it is, it's all collapsing into this infrastructure because it is the most efficient physical layer. So there's two disruptions. The client server model driven by the devices that roll carrying around connecting to the cloud, enabling the subscriber. And at the physical layer, you can build an entirely different network.
What's the moral of the story? Here's the moral of the story. By converging this infrastructure, you will see over the course of this morning different examples of this converged infrastructure. How you build this network enables you to build an entirely new network with entirely new attributes, costs, performance. Stated simply, all services are with the lowest cost per bit per mile infrastructure.
And if you can start to think about how do I address these empowered subscribers, I can now start to figure out how to build not a new network, but a new business model. And for most of you, you're aware that service providers don't necessarily approach this from a marketing perspective because for thirty, forty, fifty, sixty years, they've been a legislated five nines company. They roll out services. This is an entirely new opportunity, which you're going to hear more about today as well, for us to build those new business models with our customers and then in fact share in some of that value. So with that, this is the theory.
So you've seen previous examples of disruptions. You can see the two disruptions that are converging in the access infrastructure. And so this is what we are pursuing. So this is the theory of what we're pursuing. Now you're going to see it applied.
And I'm going ask Michael Weinen to kick us off in the application section. So Michael, all yours. Thanks, Carl. Thank you.
So Carl talked about the two disruptions that are happening, that converged infrastructure, everything collapsing into fiber and then the shift in power that's happening on that empowered subscriber. I'm going to pull apart this empowered subscriber a little bit more because that's the life that I lead, which is actually spending a lot of time in the data and out with customers and how they address that subscriber. It starts with what he said was if you think about where we came from, it was a broadcast only world, right? What the subscriber got in the past was you took whatever the service provider provided you. If you grab yourself a new high definition television as I did back in the early 1990s, the only place I could get content for it was from my cable provider and that would drive my behaviors on what I would buy, right.
I bought their broadband, I bought all those things. I really had no choice. I think it's safe to say that as we go into this next stage of the world, choice is something that the subscribers overwhelmed with. There is no shortage of choice. I have all of these different choices that I can make at any point in time and it's a very complex market.
And so as we start to think as the balance of power goes to subscriber, they're really determining who I pick and that will determine who's the winner and the loser in the future. I think the best way to talk about this empowered subscriber is actually also talk about the changes in their behaviors and I'm to talk about my sons. I have two boys who are up in university, they share condominium. And if I think about them from a persona point of view, so if I was actually take the data and look inside that condo at what goes on, there's really two personas. The first one is a gaming persona.
And that gaming persona is all around, I want to have the fastest, lowest latency network possible. It's the reason why every month, despite my constantly arguing about the fact they don't need a gig that they have a one gig network, right? They don't care about IPTV, don't care about all those kinds of things, they always want the lowest latency. It's not about downloading a four gig file or a big file. It's actually about I want to have milliseconds in between and I want one gig or I want two gigs or I want 10 gigs because that's going be the determination between whether or not I
win my
game, right? So that's the first persona. That's driving the behavior of who we select from a network point of view. And believe me when we selected the service provider, it was all about them actually figuring out who had the lowest latency network. That was the decision that they made.
Then the second one is the consumption of content. In the past content went through and drive a lot of our behaviors. Have you actually were a great content player? You could get a lot of subscribers. Those days are gone or if they're not gone, they're well on the way to gone.
I look at my children. So again, we go and buy them a one gig service. What did they throw in for free? IPTV. They have two big screen LCDs in condo.
They've lived there for three years and they've been turned on twice. The only times they've been turned on is when I was there and stayed there for the weekend. That's it. The IPTV boxes are disconnected. And I keep trying to return them, saying, can I get a lower can I get a one gig fee and a lower fee if I return them?
And they keep saying, no, you can't. You have it's a bundle. And if you want to lower cost on your one gig network, you actually have to take IPTV. They'll come to our house and there's a big 80 inches television there and they sit on the couch with their laptop in front of them watching YouTube and Netflix and all that kind of stuff. And I keep saying, you
can watch that on the 80 inches
television that's literally right there. And they say, why would I do that? Because that's the second shift. They want their content where they want it and they don't care about quality. They don't care about that.
Cared about, heck on 80 inches television, I want to see this great They don't care. It's actually about I want to be able to move around the house, want to go back to my bedroom, I want to go sit in the backyard, I want to have an amazing WiFi experience. So that always on experience anywhere that I go is really important. And those behavioral shifts are now bringing the power of the subscriber and completely changing what makes us a successful service provider. So as we've been thinking about how we build our company and the products we've been developing over the last ten years that have consumed hundreds of millions of dollars It's actually changed the way that we're operating as a company.
And we think that in the future, the CSP that's going to be successful, there's going to be two CSPs. And this market is bifurcating, you have to make a decision. 're either going be one or the other, you can't be both. And so the first one is the wireless wholesaler or sorry, the wholesaler. I have to make a decision that if I'm not going to own the antenna in the home, if I actually don't want to be in there and own the subscriber, then what I'm going do is I am a wholesaler.
Now a lot of our CSPs have actually made the determination to be a wholesaler without actually consciously making that decision. They've actually decided I'm not going go indoors, all these kind of things. And Carl's been preaching to them about that for about ten years, right? But that you actually if you want to be a successful wholesaler, you have to make a conscious choice and that means you better build the most operationally efficient fiber network that's possible. That's to run autonomously, all those different component parts.
And we see that market happening a lot in Europe and other places, it's called open access. I become a wireless wholesaler or sorry, a wireless wholesaler, become a wholesaler, I have all these ISPs on top of me, but I am building a wildly efficient network. And to do that, I'm going to gun for lowest cost per bit per mile. That is my goal. And so we think that to win, there's really three elements to it.
First, it better be all we know because that's your value proposition. You have a highly reliable network. Just take down, let's go back to those boys, go take down a gamer and have heavy up and down experience. You're going to lose that customer. So it better be very reliable.
Second thing is simple to operate, hopefully autonomous run by a neural network with no people at all. You have to make it as simple as possible so you can get your OpEx way down. And then third, I have to be able to update it as the market changes and enhance it through at a DevOps pace. So that's the first one. I make a determination to be a wholesale.
Now the second choice is I can be someone who's actually focused on the experience that they're having and I'm going to go compete head to head, whether it's against the over the top players or others, I'm going to compete as a retailer. So first, I'm going to have a great network. I need to do that. It's really important that I still have lowest cost per bps a mile even as a retailer because I want have access to that network, I want to be reliable and I can make some great margin there. But then on top of that, I want to build experiences.
And when we think about experiences, we think success really comes down to three things, real time subscriber insights. It is really important.
We're going
to talk a lot about data. The company with the best data wins. You have to have insights into what's going on at home. Let's go back to those boys. So how successful are you going to be if you build out a parental controls application and you fire it into those my two sons in the condo?
Not very. They're never going to pick that up and you're probably going to annoy them, right? So instead you have to understand that it's a game and you have to build your offerings, you have to track them, offering them IPTV clearly doesn't work either, right? So figure out what does that subscriber need. The second thing is you better have cool technology.
The days of the service provider being eighteen to twenty four months to get technology, that's a failing business proposition and that's the reason why people are going to Best Buy. So you better start getting cool. And then the other one is build out those great experiences so you can attract and keep your competitor to your customer in the long term. And from a product point of view, that's what we've done. So as you look at building out that lowest cost per bit per mile network, that's the intelligent access edge.
And as you look at taking that and then layering on top experience, that's the revenue edge. And for the next couple of hours, that's what we're
going to
talk about.
We're going walk you through our business strategy and where
we're going as a company and
how we meet those realities. And so the first
is the intelligent access edge.
So let's pull apart a little
bit this lowest cost per bit per model, right? If I think about that, what does that really mean? If I'm a lower service provider, what I'm very focused on is all CapEx. When I came I was at Salesforce, was at Microsoft, I was Bell Canada. When I was at Bell Canada, was always about right?
And that's what most service providers are taught CapEx, CapEx. The problem is, is if you actually just focus on CapEx and don't think about the long term, especially in this next generation network, you're missing out total cost of ownership, right? You're missing out how do I actually get the lowest OpEx possible so I can run this as an autonomous network and be wildly competitive in the future regardless of what happens. So for us, as we think about lowest cost per day per mile, how do we create this OpEx model that, yes, you have a CapEx component, but you're really focused on what's the long term value. And building long term value really comes down to those three attributes, always on, super simple to operate and then it can be altered at a really quick pace.
And to talk about what we've built, I'm going invite Michel Languois, who's going walk you through the Intelligent Access platform.
Thank you, Michael. Okay, let's talk about the imperative for the business. So what we're going to try to do is to explain you what we built, why we built it this way and where are we with the result. And we're really excited about this. So three imperatives for the business.
So let's translate that in product. Always on and I remember Shane when we started that, That's probably the attribute which is the hardest to do in the industry. You try to build a network which is has no failure. You try to build service that are always distributed, never interrupt. And you have also to build those service in such a way that if you try to upgrade the system, what we call the maintenance window, there's no more such thing moving forward.
Because the service are going to be always on. There is no more maintenance window that you can turn on services and upgrade the network. So we have to look at this in the context of service provider today. Cycle to operate three dimension, you'll see across the whole presentation, simplify the network, which is an element of reducing complexity in the architecture of the network, simplify the operation, essentially automate, reduce the human factor for the result and simplify the business. Is there better ways to look into delivering those services than established thinking that eight years ago?
Last one is for the service provider to succeed. They have to catch up the pace of innovation. If you really look into a service provider, they define services, they validate that services, they integrate the services and then they roll out the truck and turn on the services. It's a two years and half cycle in average. We have to reduce essentially compress everything, time to test, to integrate, time to deploy and that was a mission we had.
So in order to
do this, we decided to build a new platform. We didn't find it in the industry. We looked everywhere from the past, from the cloud, from compute space and decided that we have to invent there. And that was a journey that started six to seven years ago. Key principle of that platform.
For Cadix to innovate, we wanted to be completely transparent and realistic to the type of silicon or electronic that exists. We don't build these, we don't build those components. So what we wanted to do is as the technology evolve and evolve fast and faster, we wanted to be able to pick up anything from any vendor, from any type of technology, from any type of supplier and reduce the time to build our product. Because we're guilty also, it takes years for us in average in the industry to build anything. So we wanted to compress that.
We build this platform in such a way that we could instantiate capability across any type of system. Will it be centralized, distributed, disaggregated, standalone, you name it. We didn't want to build anything that constrain the capabilities and access because of power supply. That's the key element of the XOS. Third aspect, which is really interesting in the simplification of operation.
The trick there was to say, you have a service layer. What is a service? It comes with a definition, what it's supposed to do. We took an approach versus vendor base on an object model. So we try to standardize everything in a way that you could mix and match vendor if you want.
This is the same ways to define the services. Second thing is you have to take that definition and basically define it as a workflow. How are you going to turn down the services? Every time we have built services, we have looked into instead of 20 step to do something and you simplify, reduce to a really, really few few step to turn on the services because service activation you're trying to do. Third is once you have that definition and it's automate, don't touch it.
If the system evolve, get replaced, you never have to go back there and retrain or relearn a new syntax or a new type of interaction if you want. It's done. Top of it after that is how do we innovate and accelerate the pace of innovation? We have few choice. We could decide to build everything ourselves, which limit us from an investment, our partner, obviously leveraging industry.
And the way we build the software was we have access to all those source. We can drill new capabilities inside the container. The container essentially are well defined. The advantage of container you can virtualize for scale after that. Or you could do it in such a way that inside that container, the key element is to limit the failure.
If there's a fault and there's bots because we're still driving software in reality, it's contained. It doesn't impact the rest of the system, doesn't impact the service. So how do you do this? It's by containment and filler more that contained and what's happening. But the advantage of that model, it's it's the module that evolved that you need to change, you need to replace, you need to substitute.
You can do all those operation, pick out the block and replace without shutting down the services of the system. That became essentially the AXOS software and the foundation as a platform. So let's go to the next step now. We have a platform, we created a foundation. It's called the Intelligent Access Data.
And it has a set of attribute or categories if you want. And it's similar a little bit to what Shane has done also on the revenue edge. You'll see some kind of common thinking and common framework. For us to bring capabilities in the network, it starts with system. I'll talk a little bit about the design shows that we're in the field.
With those system capabilities, what are we trying to do? Reduce the time to test, the time to integrate, the time to turn on the services, the time to diagnose, the time to restore. All of this in tools that we have built for service provider, not only thinking they're engineered, but trying to leave the reality that they are on the ground. So basically build capabilities for them, not just for engineer. On top of it, we look at the network in itself and we say, service provider are kind of interesting for us.
They are the only person, only entity that exists that could see everything about all type of traffic, all type of usage, all type of subscriber, what you do with your session, map it to flows. Essentially, they're essentially the aggregator of all experience because everything transit to this. So for us, we look at visibility and we look at ways into how we can optimize the experience if we leverage all this data which is out there. This is the ultimate data lake collector if you want. That is how do we make them successful and Matt will talk about it in a minute in terms of giving them the tools, the knowledge and the learning and the best practice to basically get the best result with their investment.
Last but not the least is the promises of transforming the network. We look at the network into used to be a D Mark that we call the edge, the access edge. Next to it there was a lot of network element adjacent to it. Network router, by lawful intercept, BNG, you name it. Is there better ways to bring intelligent insight so we can get closer to the unified network?
And what and by doing this, change the economy. So I'll talk a little bit about those capabilities in a few, but I can tell you what's interesting is when you go that path, you can transform the network, you can transform the operation, you can transform the business. It's the next frontier, essentially, build the last network you're gonna need. So that's the framing and that's the foundation. Let's talk about the system.
So we have essentially different type of system. They have different density. They have different capabilities. They have different performance. They have different feature.
They are optimized for the best deployment and the best place in the network. They can reside in the central office or scale. They can reside outside in the outside plant to be closer to the service delivery in the cabinet. They can also live in really hard environment and we call it an northern node where they can be installed in the post or burying the ground. We have people that do that and survive every aspect of physical climate if you want.
What's interesting with those system and this is one of the key to understand how we do product here is we build those system for scaling up and scaling down. They are the same. You're Tier one or Tier two or Tier three or a smaller operator, you have access to all that technology, meaning we didn't build different system for different sides of customer. The thing is these system can be deployed for wireline user, AMSO, mobile, next generation of service provider. We didn't build different system for the class of customer that we have.
By doing this, we have now an operating system and a set of capabilities that can go across everywhere in the network and for different type of scale as well. That's unique in the industry. Also interesting, they're really well optimized for fiber technology, technology of the past, technology of today, technology of the future because we've done this level of abstraction if you want. So that's unique in the industry. Let's talk about those module.
As we're looking again into the lowest cost per price per bit, we look at this into why don't we integrate reducing network complexity and increase essentially the aspect of service delivery. So we have three modules that we build over the past few years. The first one is essentially big capability that use to live into the network router adjacent to access and bring them in. So by doing this, you reduce network the number of network element, but you also open the door to new more advanced services for our customer. You're thinking about Triple Play for example.
You're thinking about IPTV. By doing this, we're opening the door for this and we're pretty proud into what we have achieved over there. If you like connection oriented, something Kyle was mentioning, you will be familiar to something called MPLS or tunneling services. So if you want to connect your access network across other network, these are technology that you bring usually into what we
call the PE router.
So we took a subset of it, only the relevant pieces for access and brought it into the XOS and the intelligent edge. Last, we did the same with subscriber management. And while we did this, I think we can solve the problem more locally, define better policy and force SLA and make sure that if they're outside the range, we can correct the network to offer that level of services. So that's what
we did with our software brought
to you by the XOS. Let's talk about the other aspect of the offering, which is the tools. Remember the problem, can we reduce the time to deploy, the time to test, the time to integrate, and essentially isolate full and restore services faster than ever. We have three full big blocks that we did. The first one is around integration with existing operational system.
So you all know service provider has system to manage equipment and their services and they come in different flavor. If you're from wireline space versus MSO, DOCSIS for example or others, you want to write essentially in the future things like SDN. There's different ways you can provision those system. We support all of that. And we do it in such a way that we're not forcing the service provider to learn a different language.
Sandbox, interesting sandbox. We took a page of the computer industry because it's human virtualization, everybody do sandbox. And we said, don't we use that? And we did that first internally in r and d because we couldn't spend enough money to build every network out there to simulate the customer. It become really costly, those giant lab, etcetera.
So we decided to virtualize our own equipment to the point that we can go to market and test our product at a different level of scale using this environment. Then smart people say, why don't you offer that to our customer to do the same? They don't have to spend the same CapEx in their lab to do it. And by the way, we just realized that the the sandbox can simulate every aspect of workflow that the customer is gonna have to exercise over them. And we'll provide that to them.
And you'll see in the result of this when Matt talks about the way that our customer have used this environment, how this thing changed the industry completely. Squeezing every aspect of trying to integrate and deploy. Our commitment always been the same, provide the best tool for advanced services, diagnostic, etcetera.
We're going
to continue to do it as well. We have the ability now to bring to market these tool as well, which lead into probably the most exciting thing. I talk about visibility in the network. We see all traffic, subscriber session, flows, etcetera. Traditional ways that's being export all this information out there to a network management platform.
That's the traditional ways that you do this and you literally rely on the knowledge of those operator in their head to figure out alarm and what to do etcetera. People on Match side wanted to, there has to be a better way. We need to move to the new age and that's what created this offering that I would like to invite Matt to say, let's talk about you have changed in industry with Ensign.
You're going to hear a lot about persona aligned analytics and intelligence.
Turn your mic.
There we go. Hopefully everyone can hear me. And so I'm going to start by talking a little bit about how we actually built this remote monitoring solution. So it's a SaaS platform. By the way, it can also be delivered as a managed service.
We've worked with thousands of service providers over the last twenty years to help them deploy and optimize their networks. We've developed a lot of insights over that time period around what impact service levels, what's irrelevant, what do they need to focus on to deliver an amazing service. We took those insights and built them into a machine learning algorithm that literally scans all the data that Michelle was talking about, millions of alarms and messages a day, isolates the few 100 that need intervention and then generates reports for the team. In this case, it's the network operations persona that tell them where the problem is, what's causing the problem and what do they need to do to resolve it. As we've rolled this technology out to our customers, they're seeing 90% reductions in the number of interventions that their operations team needs to implement.
And because of the insights that we deliver along with this information, we're actually reducing their network issue resolution time by 50% or more. That is incredible, incredible operating leverage. And that's the kind of promise that these kinds of analytics are bringing to our customers today. Now Michelle talked through a lot of great capabilities, incredible new technology and we recognize that for many CSPs getting from where they are today to where they need to be in the future is a daunting task. And our goal is to help them accelerate that transformation by leveraging our expertise.
The same expertise I talked about that went into the machine learning algorithms and the remote monitoring solution. We deliver those through three primary enablement services. The first one is education services. They're online, on demand or in person instructor led. We educate them about the technology, we certify their teams and we make sure they have the knowledge they need to go implement and operate this new technology.
Professional services, some of our customers, they want us to actually deploy a team on the ground to work with them as they go through the transformation. We can help them plan, we can help them deploy, we can help them operate. We leverage the methodologies, the tools and the expertise to make sure that they're operating in a way that is best practices and really drives simplicity in their operations and generates great returns. And then finally customer success services. This is where we take deep network operations expertise, people on our teams and we literally align them to the customer as a coach, as a guide for the duration of the entire time that they run their network.
They interact on an ongoing basis to share best practices. They look at how they're operating, they're looking at the data from the network and they're constantly advising them on ways that they can optimize their operations. Success services is not a new concept. Salesforce is known for being one of the leaders in deploying this. It's a SaaS oriented, persona oriented services.
We're now applying this into the domains in our industry to help our customers generate incredible returns. So what's the goal of all of this? Simplification. Michelle mentioned it, Carl mentioned it, Michael mentioned it. Karl likes to talk about the two brothers CSP.
One brother, he's been saying this for years, one brother to operate the network, one brother to go out and sell and market the services. Well, this is actually a picture of a network operations center for one of our customers who is deploying an AXOS network and is rolling it out across their entire subscriber base at a scale of 75,000 subscribers. They are going to run this network operation center with one person, one person. Why? Because of all the automation, the intelligence, the analytics, the standard workflows that Michelle talked about, one person.
A 10,000 subscriber service provider typically will have three, four, five, six people running their network operations center at all times. When you simplify the architecture of the network, when you simplify the operations, this is how you can actually run your business. And that's how our customers are starting to run their business today. In fact, customers who are rolling out the Intelligent Access Edge are actually realizing reductions in new service integration and system turn ups of 75% or more. They're seeing their total network operations costs improved by 50% or more.
And as Michael said, whether you're a wholesaler or a retailer, this is the foundation of your business. And so I'm going to share a few examples of our customers who are adopting and deploying Intelligent Access Edge. I'm going start with a wholesaler, Citi Fiber, based in The UK. Two years ago, they announced an initiative to roll out fiber broadband network services powered by AXOS and the Intelligent Access Edge to 8,000,000 subscribers in The UK. What's really fascinating about this is that they've received $4,000,000,000 in investment over the last several years.
It is a true wholesale play. They build the network, they deliver the broadband service, the ISPs run their subscriber service on top of it and they are committed to driving and building and deploying the lowest cost per bit per mile network in The United Kingdom. Plan is to get to 56 cities. They're deploying in 18 today. They're live in 11.
They're serving 1,500 customers. They range in size from very large ISPs like Vodafone down to very small ones that are very targeted like NGC Networks, who serves only very targeted business subscribers. What's really fascinating is that they look at their early deployments and they compare them to running a traditional fiber network and they are seeing 70% operation savings. That's what they're expecting to deliver every time they roll out to a new market. What's really particularly encouraging is the statistic around 96% of customers are either extremely or very satisfied.
Many of you are familiar with our industry, you know what our typical satisfaction rates are for broadband services. They're not 96%. And they're not going to stop here. At our conference, Connections in October, they announced that they're going to be the first CSP in not only The UK, but all of Europe to roll out an NG PON2 powered network. The ability to use all of this great technology, couple it with NG PON2 and to deploy wireless, mobile, enterprise, SMB services all over one physical network.
And in fact, recently they announced that three, a mobile carrier in The UK, is going to use this network to backhaul all of their five gs network traffic. A truly incredible story shows the power of the Intelligent Access Edge. So switch gears, a full service retail provider, Forked Deer, that's right it's pronounced Forked Deer. They're in Tennessee. It's an organization that's been around for eighty years.
They started by bringing electricity to rural parts of Tennessee. That was their mission. Two years ago, they announced they're going to get into the broadband business. They want to help close the digital divide. They announced that two years ago.
Starting from a standstill, not in the business, they had a full network up and running delivering services in eight months. Repeat that, in eight months. Now how did they achieve that? Well, as Michelle discussed, they saw an 80% reduction in integration time. So they had existing billing systems for their customers.
They were able to very quickly integrate those systems to work with AXOS so they could actually go provision, bill, etcetera for the service. They saw a 75% reduction in system turn up time versus what we see traditionally with most service providers. And the service is so high quality, they have a 94% take rate for managed WiFi service.
By the
way, they compete with AT and T, one of the largest national carriers, 94% take rate. By the way, that service is powered by the Calix Cloud and our Giga Center premises systems. 94% take rate in a competitive market. Most CLEC would tell you if they get to 50%, they're thrilled. Now what's really fascinating about this is CityFiber, 8,000,000 subscribers, Forkadeer, 1,000.
It's the same system, same platform, same software, the same tools. That's the power of a platform.
It can
scale up, it can scale down. Michelle made the point, we're not building systems for different segments of the market. We're not also building different systems for different classes of surface providers. That's the power of a software platform and the solution. Final example, another full service retailer, Verizon is, but we tend to think of them as much more.
We think of them as a pathfinder. This chart is actually from their Investor Day presentation from February. And it depicts their strategy for their One Fiber initiative. This is the initiative that's driving their network strategy to build One Fiber network. They've already started to roll it out as you can see lots of progress.
That one fiber network will start by supporting their five gs and four gs rollouts, converge a lot of their old copper infrastructure, deliver enterprise and wholesale services, SMB and eventually residential. Now we're thrilled because they've deployed over 2,500 E9 system shelves to support this rollout and we have 100% share in this initiative. It's the heart of their strategy and we're thrilled to be partnering with them on it. We're also very lucky because they've actually come their VPs of Network Planning and Strategy and keynoted our Connections Conference for the last four years. And every year they've laid out their strategy, they've talked about their progress and they've shared their results.
And this chart talks a lot about what Jill talked about, but this is actually their content from our conference.
So what do you see here on
the left side
of the chart?
You see functions like access, aggregation, lawful intercept, edge router. Traditionally, for Verizon and other providers, these are all discrete systems. So what have we done? We virtualized these functions. We've collapsed them onto an E92.
We eliminate all of these elements as Michelle called them. Clearly there's some CapEx savings is you're now operating one system with virtualized functions instead of all of these systems in your network. And because you're leveraging NG PON2, Verizon is able to deliver a 40 gig symmetrical service that can support residential, small and medium business, enterprise and wireless on one fiber network. So think about that. Instead of operating four physical networks, you're operating one.
While CapEx savings, it's really all about operational savings. Verizon has always been a pathfinder. They announced Fios in 02/2004, started rolling it out in 02/2005. The primary reason for that initiative, the business case justification was not new services, it was operational efficiency. And they built one of the most efficient networks in the world and they operate one of the most efficient networks in the world today.
What is their expectation? 80% reduction in operating expense on top of one of the most efficient networks in the world today. It's not my chart, it's not our chart, this is their chart. This is what they're seeing. It's the power of the Intelligent Access Edge solution.
So with that, I'd like to invite Tom back up to
talk about next steps.
Thanks, Matt. We are going to take
a quick break here for fifteen minutes. We can grab a
cup of coffee that's here and then we're going to assemble back in this room.
11:10, is that what you're coming back at?
We're going come back at
11:10 Pacific Time. Okay? At this point, we're going to give back to the content and presentations for the day. It is my pleasure to reintroduce Michael Weining, who is going
to take you through revenue
bench. Michael?
Great, thanks. So in the first section, we talked about the intelligent access edge and how you build that lowest cost per bit per mile network to be wildly efficient as a wholesaler or if you choose to be a full service provider as a full service provider with a great network. But on top of that, we're now going to move into that subscriber and move into experiences. Because in the end, if you want to differentiate in a very crowded market that's getting more and more crowded with that subscriber having lots of choices, you need to actually differentiate on experiences. And to understand where we're going from a product point of view, I want to take a step back and I want to explain the market from our perspective.
If you think about competition in the CSP market, you would normally start out and say it's MSOs competing with telcos and telcos with MSOs and they're beating each other up trying to win subscribers. We have a very different view of what competition is in this marketplace and we call them the home invaders. We believe that the ultimate competitor in this market is now the Googles and the Amazon. The simple reality is that Google and Amazon look at
the home and they come up
to that doorway and then when they get to that doorway, they actually don't have a lot
of insight into the home.
And so they're looking at it as a awesome opportunity to take the next step using WiFi to get inside that home, own it and put a data probe in the home. They are not doing it because they want to provide WiFi or they want to provide WiFi services or they want to extend a fiber or any of the things that a CSP cares about. They could not care less about those things. They care about one thing, data. How do I get more insights so I can help you buy more amazon.com services or I can advertise to you in a very different way.
It is a data probe. So they're playing this very different game to the
traditional CSP who's looking at
them and still fighting this war of how do I win the connection. And unfortunately, legacy CSPs are focused on connectivity, reliability and you give me a phone call and I'll support you. That's their value proposition. And by the way, they give you really ugly boxes that sit in the basement and there's nothing cool about them whatsoever. And they're getting crushed by these guys.
These guys are completely playing a different game because they don't care about it. So what's valuable on the left hand side is not valuable on the right hand side. And so there's this war going on and that in our view is the real competition. And so as these competitors, Amazon and Google, who have a huge amount of money to come into market, what are they doing? They're taking those R and D dollars and they're investing them in amazing design, fast innovation, constantly innovating.
They're throwing some services on top of it. So Amazon bought Hero and then they have, you know, criminal controls, they have virus protection, things like that. Are they doing it for the reason why CSPV wants to do it? Do they care about that revenue? Absolutely not.
It's actually just another way to attract a subscriber so they can get the data from in the home. It is all about winning the data. So that in our view is how this competition and that's the war that's been win. And over the last three years, we've been talking a lot about that's the competitor, the home invader and that's what they need to pay attention to. And so as we go into this next stage, we have been focused on what is it that a winning CSP needs to do to actually beat the home invaders.
And we believe it's very possible. We believe that where they currently are, they can actually win. And the reason why is, if they actually shift their mindset and approach the market in a very different way and move away from pipes and connections and just a support as a value proposition to being an agile competitor that they can win. And it starts with kind of these things. First, they have to understand that the position that they have in the home is invaluable and must be defended at all costs.
They're at the end of that fiber. They're already in the home. They're not Amazon and Google who's banging on the door trying to get in the home. They're already there. They already have a trusted relationship and all they have to do is understand how valuable that is and focus on it, make it core to their strategy.
And sadly, not all of
them are. So they still have they have to make that shift. That's the first step to actually determine whether or not they're going to
be an innovative successful CSP. The second, you have to
understand the table stakes is cool WiFi. You cannot actually put WiFi that takes eighteen to twenty four months. You can't take eighteen to twenty four months to actually bring technology in because what's going to happen is my sons are not going to wait. What are they going to do? They're going to go to Best Buy and they're going to buy Amazon and Google.
They're going to tire of that ugly black box. They need to actually bring cool technology to market fast and they need to keep up and they need be first. Third, they need to understand data. I come from a data background. My background in Salesforce, I was responsible for over 200,000 customers and everything that we did was data.
Data, the company with the best data and insights wins flat out. And these guys have all that data. That's why Google and Amazon want to be there. The problem is they don't know what to do with it. The world is filled with people who go and buy lots of data scientists at $400,000 a year each and then they go and ask them all these questions and in the end what happens is a report lands up on the CEO's desk and nothing gets done.
When you actually use Google technology, for example, AdWords, you actually don't use AdWords put in an ad. So I'm a marketer. I put in a purchase for an AdWord and then what I do is I wait for it to go off to a BI person who spends two weeks building a report and then sending it back to me three weeks later for me to take an action. That's not how Google works. Everything is real time behavioral analytics on the fly fast, right?
This is not how they think. They're thinking data warehouses, BI guys slow, slow, slow. So they need to completely change their minds to real time behavioral analytics to understand the subscriber. They need to understand my kids in the home and let's go back
to them.
They need to understand gamer want great performance, all these different things and here's the experiences that they want. Don't try to sell them controls, at least I hope on some parental controls.
I don't
know what they're doing,
but so
leverage analytics to understand the subscriber, build great experiences around what it is that they want, sell them what they want, and then at the end of last piece, manage the experience. So worst case, they call you, right? Best case, you have an omnichannel experience and omnichannel experience is on the web. It's on a branded application that you can interact with. So you can actually push notifications to them.
You could talk to them. They could talk to you. All those different component parts, right? And if they have a problem, so for example, if they subscribe to your parental applications issue or application and you don't know what you do as many of us parents don't know how we kind of screw these things up and you're having a problem getting it right and your daughter screaming at you because of the fact that she can't get through YouTube. Well, when you call in, they're going to say no problem, I can fix it for you.
They reach into that application, They fix it remotely and you're off and running. So it's a managed experience. So I've tried through this interaction, but in a worst case scenario, know I always can trust the CSP. This is what builds a winning CSP. This is what's going to change and this is the reason why when you especially when you lay over the data, the real time behavioral analytics, they can beat Google and Amazon,
they won't lose that place.
But they need to be smart enough to actually understand that they have to be proactive and completely change how they go to market. And so that's what we've done. Over the last few years, we've built out the revenue match that's really focused on four things, real time subscriber insights. Again, I come back to you. I'm a Salesforce guy.
I'm all about data. I've built big data warehouses. I understand analytics. We have built one of
the best analytics engines that exist
in this industry flat out absolutely and is incredibly powerful because it's democratization of data. The second thing is cool technology fast,
be first. That's a big shift for this
because they're always last. Third, amazing experiences and fourth, killer brand. You have to have a great brand. You're up against Google and Amazon. You can't actually be that laggard brand.
So how do
you actually build it that way?
So now I'm going to invite Shane up, who's going to walk you through how the revenue edge comes together and how we're making all those things happen. So
we talked
about some key attributes.
We said the first
one is really real time subscriber insights. So when we sat back and looked at the framework that you need, the building blocks,
the first obvious one for
us is edge insights. We want to give the service provider the insights into the subscriber real time what's going on.
The second one we said is
it's about rapid adoption of new technology, the latest technology, cool technology. It really takes two forms. That's both the systems that we create, the hardware, whether that's a WiFi six, but that's also the software. This is about speed. It's about innovation at the speed of software.
So that speaks to what we're doing with EXOS, the services that we're offering. As Michael said, you got to have good enablement. We got to make sure that our customers are successful. They can adopt this. They can deploy it.
They can offer those differentiated experiences. So a key part of this is being able to marry the insights with the systems with
the software with enablement.
That's our foundation. We think everybody customer needs
that. On top of
that, though, we can start to offer differentiated experiences, software for consumption, value add software that increases their revenue opportunity. So that's really the last piece for it. So let me talk a little bit more about how we do each of those.
So the first one is we want to
give we think the service providers are incredibly well positioned, given where they are in the network, to understand their customers. They've got great relationships. They're in a great place. Just don't have the platform they need to get
to insights. So that's what
we built, was how do we build that? How do we collect that? For us, data has to be real time at a subscriber granularity. It has to be about your actual behaviors. What are you actually doing?
And it has to be actionable. Those three things give us something that the service provider can actually work with. So for us, it was about building a web scale cloud platform to collect data. We want to associate this subscriber with these devices, with these applications, what you're actually trying to do. And now what we want to do is then put behavioral analytics, predictive analytics against that and drive workflows.
So on top of that, we built persona based SaaS services. One of the first personas is marketing. I'm a marketing person. I want to do churn prevention. I want to do upsell.
I want to
do acquisition. First of all, I've
got to understand my customers, the segments. Are you a telecommuter? So look at my family. I telecommute a couple of times a week. I'm out of three days a week.
I'm home the on weekends. I stream video in the evening. I stream video in
the weekend. I don't have any children. That's a set of personas and profiles,
the way I behave, the way my wife behaves when we're at home. But it also changes during the day. When I'm at home eight to five, I'm a telecommuter.
I care a lot about Zoom.
In the evenings, I care a lot about YouTube TV. On the weekends, I care a lot about Netflix. Those are different behaviors. If I have children that are gamers or I happen to be a gamer, do I care a lot about home security? Do I care a lot about home automation?
I'm a Weta. I have no home IoT devices in my house. I've got friends who've got 35, 50 IoT devices.
Very different behavior. I want to learn about those.
I want to learn about those devices. I want to learn about those behaviors. I want to
start to create profiles. Then I want to decide,
are you a streamer? Are you a gamer? Are you a telecomputer? And figure out, are you a person that's highly likely to charge? You're having a bad experience?
You're starting to speed test, you're bumping up against your limits, you've got poor WiFi, you're probably pretty unhappy. You start to roll up. If you're a high ARPU customer, I probably care a lot about you and I want to do churn prevention. I'm a horrible person to try and sell parental controls to. I have no children.
I don't care about parental controls. Many of my friends do. I also happen to be a light eye when it comes to IoT. I don't care about home automation. Don't sell me home automation.
Home security, though, interesting to me. I care a lot about my house. I live in San Jose. Home security would be good. How do you get those profiles?
How do I understand those behaviors? How do I understand what you're doing and then drive the workflow that is churn prevention, that is upsellcross sell, that is acquisition. Same thing on support. I'm looking for customers that are having bad experiences. I'm either going to fix it, drive a troubleshooting type of workflow or make it better.
I may want to upsell you.
The answer may be, hey, if you had
a higher bandwidth service, you'd be a lot happier. I want to drive those profiles. I want to drive those workflows, and you want to do that from a cloud based platform.
So that's kind
of the first part
of this. So where does the data come from? Well, I'm in a great location.
I'm in your home. I'm already there as a search bar.
I'm giving you services. I'm putting great, cool technology into your house. I really want to do a couple of different things.
These are
my store fronts. This is how I deal with you other than on the phone, on the app. These are my store fronts, right? So this is how I get to offer you great new services. It's also how I get to understand your behaviors.
This is a great place to understand what devices are connecting to WiFi, what devices are connecting to IoT, what you're doing, what your applications are, what your behavior is.
I start to understand that profile.
But I want to start to have that latest cool technology,
better experience.
So much like Michelle talked about, I want to abstract myself from the underlying hardware. So with EXOS, much like with AXOS, I want to be abstracted. I want to take the latest hardware. I don't care
if it's
Broadcom or Qualcomm or Intel. In this case, WiFi six is a huge disruption. You look at what's going on in every consumer device, the latest iPhone, the latest Galaxy, the latest TV, everybody is moving to WiFi six. Why? It's a great WiFi experience.
There's a lot of underlying capabilities that are fantastic. So that means I want to be able to adopt. One of our key strategies was to make sure we were first to market with incredible 12x11ax capabilities. I want to continue to adopt technology, but also I want to launch software and software innovation. So we built an OS that not only leveraged that same type of abstraction, always on, but also is container based and really designed on how do I quickly launch new services and give the service provider the ability to launch new services and how do I continue to adopt the latest technology and put it into our core platform.
So as I've got these storefronts, I've got the greatest cool technology from a hardware perspective, I want to make sure I'm continuing to give them the right experiences, the right software. The first one is everybody wants incredible data. If I can't give you the best WiFi experience, you're going to think I'm horrible as a service provider. It doesn't matter whether it's my problem, your problem. At the end of the day, it's my problem as a CSP.
You're unhappy. So I want to be able to
see what's going on. I want to understand the WiFi. I want to be able to instrument it. And I want to have the right intelligence and the algorithms and the capabilities to give you that best WiFi experience. If I'm giving you the best WiFi experience, I want you to be able to see it's the best
I want you to be able
to easily test it and go, Hey, this is really cool. I'm getting a gig. I'm really happy about this. I'm getting a gig on WiFi to my iPhone.
That's pretty cool.
Next part of it, though, is
how do I interact with you?
Traditionally, providers, I'm waiting for you to phone me to go, you're unhappy. A big part of this with CC and other things in this whole architecture is to let you be proactive instead of reactive. So I want to give you an app. I want to give you an app to start to work with this and interact with this. So we've developed CommandIQ, Android and Apple, to give our service providers the way to have their subscribers interact with it from a workflow, from an interaction perspective.
It's also a great branding opportunity for them to put their brand on it and extend their brand into the service into the consumer.
I want Alexa voice services. I want
you to be able to talk to me. I want custom skills. I want to be able to be your CSP. I want you to also start thinking of this as cool, innovative technology. You don't think of CSPs having an app, first with WiFi six, Alexa Voice Services.
You've got to change that mentality. We've got to give them those capabilities. The last piece is
if I've got this great app,
I can start to use notification messaging. I can start to change that to a two way interaction with you using that app to start to communicate with you and start what I send you, make things make you aware of what I'm doing, the services I'm offering, tips and tricks, new services and really go to that two way communication. So we think everybody needs the underlying insights, systems and the services, and those really form the foundation. On top of that then, I can start to look at new revenue opportunities, differentiated experiences. Two of the obvious ones for us were security and experience.
Everybody wants to feel secure in what they're doing. It's fundamental in what we're trying to do. It's fundamental to the way we use these So I want to be protected from viruses, from malware, malicious websites, intrusion, all of those capabilities. I want to be able
to offer those building blocks on top
of that foundation as new interesting software. Want to have the insights into that, and I want to be able to easily deliver that new software to you. The second part of it is I want to give you the control to be able to define the experience you want. I want you to be able to decide what content do I want to filter, how do I want to put time time limits limits in place, anything about managing that experience.
These are really our first two examples.
Much like we're going to deliver additional edge systems and WiFi six, and we're going to keep driving that, we're
going to deliver additional software suites on top
of what we're doing. And you're going to see more and more software suites from us throughout the
year, okay?
And with that, I'm going to
turn it over to
Matt Collins again. He's going to talk to you about the incredible enablement that we have around this for our customers.
Thanks very much, Shane.
Hopefully, everyone
can hear me this time. So WiFi six, cutting edge technology, software based services, mobile apps, as most of you probably know, that's a little different than the way most CSPs are running their business today. Similar to the Access Edge, we know this is the transformation. So we've developed a full set of services to help enable our service providers to learn the technology, deploy the technology and of course customer success. With the intelligent access edge, I talked about persona.
In this case, we have experts in marketing who understand how to use data to segment, to target, to create campaigns, to partner with our customers over several years, work with them on a continuous basis to help them use this capability to transform their marketing. Customer support, we have world class experts who understand how to run a world class customer support function. Many of our customers don't know that. So we assign them a coach, a success professional who shares their knowledge, who can actually look into
the cloud,
see what the service provider professional sees, coach them, guide them, help them optimize how they're leveraging the capabilities. But we also recognize that for most of our customers this isn't just launching a new business, what you see here. This is actually a new business. And so we've made the commitment to invest in a market activation program, which is designed to give them everything they need to launch this new business. So what do we mean?
Whether it's digital marketing, direct marketing, whether it's social, whether it's quick turn up guides, even things like subscriber self help videos. We produce all of that and we give it to our customers so they can turn around and in minutes have marketing campaigns up and running that will compete with the biggest players they're fighting. Many of them are very small. They don't have big marketing teams. They don't have big marketing budgets.
Why would we go have 1,000 service providers create a self help video for their subscribers on how to use the CommandIQ app? You shouldn't. So that's what we've done. We go out and we actually create those videos. These are campaign concepts that we've created that talk about these new services.
This is a specific campaign that we built with one of our best customers, basically the providing possible campaign. Every day, every week we're working with those teams. Our success teams take these assets, they go, they meet, they work with the service provider and they help them get in market and differentiate themselves. And we're even doing new and innovative things like this for instance is a packaging sleeve. Some of our service provider customers actually have a retail presence at their headquarter office in whatever town they're in, whatever city.
People come in, this enables them to have the same quality of packaging positioning that they can put their brand on, you'll notice our brand is not on it, that their subscribers would see when they go to Best Buy. This is really about helping them raise their game. That's our objective. The message we put at market is elevate. Well, what do we mean?
The folks you see here on this slide, if you've ever been to our Connections conference or you've watched any of the content, we created a fictional family called the Millers. The goal there was to essentially help use them as a lens on the subscriber's life to help educate our customers, the CSP as to what's happening in the life of subscriber, what do they want and how do they need to rethink the way they operate their business. And what Shane presented is a set of tools and technologies and capabilities that's meant to elevate every aspect of their business. Michael said, look, they're already at sort of center of the home. We want them to become central to their life, elevate their service.
Well, what do we mean? Give you an example. From the not too distant past, let's say news hits, there's a security hole in Roku, right? We all remember that. They go into marketing cloud, look across their entire subscriber base and see who has
a Roku device.
We have a pre built really nice campaign built around Protect IQ. They go, they send an email out, whatever methodology they want to do saying, hey, you might be interested in Protect IQ. That will secure your entire home network. So if there's a risk on one particular device, we've got your back. That's elevating their service.
When I was a consultant at Mackenzie, I used to tell my customers, you want your marketing to be so good it feels like a surface. And that's what that is. They're not marketing. They're reaching out to you and saying we understand what your experience is like. We understand what your risk is.
They're not using the data to go sell it and monetize it. They're using it to drive a better experience and elevate the service they're offering. Elevate their brand. Shane showed you the protect the command IQ app. Everything that we provide to service provider is about them reemphasizing their brand.
That blast system, our brand is not on it, but we let them put their brand on it. The CommandIQ app, we have a service that helps them personalize it, put their brand on it. So the subscriber isn't seeing Zoom. They're not seeing Amazon. They're not seeing Google.
The brand they see on the cutting edge technology is the service provider brand. That's a way for them to completely reposition themselves. They're not the, oh, yes, you guys, you hook up to my house, you deliver the broadband service. No, I'm actually putting WiFi six systems into your home. I'm giving you cutting edge apps and I'm giving you cutting edge services, completely reposition themselves.
Elevate the experience.
As
Shane said, with the Calix Cloud, we put all of the data in the home network at their hands in persona aligned dashboards. What does that mean? If there's a problem with one of these things, they can actually deliver a managed service. Differentiator. I'll give you an example.
I'm running parental controls. My child, I set it up so they can only access Facebook at certain times of the day. Oops, I didn't set it up right. She can't get on Facebook. I don't know what to do.
Well, if you're working through a service provider, they can look and say, hey, here's how you set up your parental controls. Would you like me to help you fix that? Oh, by the way, I have a great video I can send you that walks you through everything. Now you go into a consumer store, a big box store, and you buy a parental control solution, who's gonna help you? You're going to call Circle?
No. So that is the heart of what we're looking to do for the service provider. They are going to be able to deliver a managed service which is their biggest differentiator against any of the big technology providers. And of course, the end game is as they do this, we help them elevate their revenue,
their ARPU.
So I'd like to share a few customer examples. This is a solution set that applies to you whether you're an MSO, you're an electric co op, you're a CLEC, whatever type of service provider. So I'm going to start with Allo. Allo is a CLEC founded in 02/2003, primarily located in Nebraska. They're also going into Colorado and other markets.
So they started by rolling out an incredible fiber network. But they didn't stop there. They're one of the earliest adopters of the revenue edge. They bought the full suite, they're rolling out GigaSpire systems right left and center. So they used the RevenueEdge solution specifically the Edge Insights to really optimize the subscriber experience.
There's actually capability built in called Selfheal. It's machine learning that analyzes the home network and identifies things like, hey, you got a microwave that's on the same channel as this device that you like to use. By the way, we can fix that. It automatically fixes it. They saw a 92 reduction in WiFi issues.
This is not just managing, it's being proactive. They're literally fixing the problem before the subscriber knows that it's a problem. By the way, they're switching the channels at night when they know by the way no one in the home is using any devices. It's incredible intelligence. It's the kind of tools that traditionally only the web scale giants had.
For putting it in their hands. By the way, when they roll out this new service, every market they go into their expectation is at least a 50% market share. Every market they go into they're competing with big national players like Charter, like CenturyLink and they're winning. And their customer satisfaction is one of the highest in the industry. And what's fascinating is they shared with us when they rolled out the Edge Insights and started to use them, within three months their NPS score went up 15 points.
15 points. So if you're familiar with NPS, that's not bad. So Allo, aggressive CLEC. But this isn't just for the aggressor. Another example, Range is an ILEC.
They've been in business for a long time as you can see. They've also fully adopted the revenue edge. Again, starting with the Edge Insights, they deployed support cloud, marketing cloud. They saw a 30% reduction in their operating costs. What does that mean?
Well, when you're dealing with issues more intelligently, you reduce truck rolls. So you have to pay someone to get in truck and drive to someone's home. By the way, your subscribers don't want to be there either waiting for you to show up. Fewer phone calls, shorter call durations, 30% reduction. By the way, when they looked at that investment and they compared it to what they saw in terms of cost reductions, ARPU increases and subscriber acquisition, 173% ROI just
six months.
Now you're all in the investment community, that's pretty good return, 173% ROI. And what's most fascinating is the quality of this service is so high that their monthly churn rate for their subscribers who they're serving through the revenue edge 0.2%. Again, in this industry, if your churn rate is 10 times that, you're generally pretty darn happy. Go look at monthly churn statistics for our industry 0.2. And what I particularly love about Range is they were one of the first ones to go out and say, we're going to brand our mobile app, we're going to put our logo on it, we're going to put our colors on it.
So every time one of our subscribers interacts with the service that's making a really happy 0.2% churn, they're going to see range. They're not going to see Plume, They're not going to see Amazon. They're not going to see Google. They're going to see Range. So third example, both of those organizations that I talked about, their primary mission is delivering a great service and driving profits and revenue.
Triangle, they're a co op. Up in Montana, also a very competitive market. Their primary competitor is Spectrum, 1,700 subscribers. One of the earliest adopters of the revenue edge. Now whether you're trying to make subscribers happy or shareholders happy or both, you want to have an efficient operation and you want to grow your business.
In this case, if you're a member owned organization, you can take those profits and reinvest it in services that you provide. So Triangle, again, of the earliest adopters, one of the things that they did that was very innovative, beta, is they took this solution and this capability and they completely revamped their go to market. They rolled out targeted marketing campaigns focused upsell. They saw a 40% increase in their marketing efficiency and a 28% reduction in the cost to drive upgrades. But what's most amazing is over the course of the time that they have been working with us on the revenue edge, they saw a 60% increase in ARPU They growing double digits every year.
And this solution was so transformational for them that they were able to take their Tier one tech support professionals and turn them into CSRs. There was such a dramatic drop in the number of issues that they had to deal with and the number of tickets that they literally could take relatively well paid tech support personnel and drive them into roles where they could be selling and marketing their service. And that's the power of Revenue Edge. So with that, I'd like to put my call back up here to talk about some of the observations from
Tay. Thanks, Matt. By the way, that 62% increase in ARPU came on, what incremental cost in the network do you think? Network's there. This is frequent flyer mile stuff.
I've already got the airplane. I have an empty seat. It doesn't cost you any more to put a person in it. It's literally incremental revenue with virtually no cost. And if you're also lowering your costs, that incremental revenue is actually coming at greater than 100 points of margin, take that back to your finance class.
So quite interesting stuff. We started off today by talking about not one, but two disruptions. I trust you can all understand the disruptions that we spoke of, but to go back over them, it's the device enabled subscriber connecting to the content and applications in the cloud. By the way, let me say that again, the device enabled subscriber, like Alex over here, connected to content and applications in
the cloud.
Guess what's in between those two things? The service provider. The second disruption, literally an end state network, wireless endpoint sitting on top of an unlimited transport mechanism, fiber. By the way, over a pod. Guess who builds that infrastructure?
The service provider. Those two disruptions are changing the entire industry and will change everything above it as well. So I trust we've done a good job of helping you see those disruptions and the fact that they will continue. The bad news is you're all ten years late to the party. Want the good news?
You got another twenty years to go. So this is really just starting. That's the first piece. The second piece is, hopefully you understood that this requires technology and we believe platforms. So you heard that over and over again, platforms.
Why did you hear platforms? Because in order to address this correctly, in order for it to be deployed, in order for us to frankly close the digital divide, these systems not only have to scale up to large service providers, but scale down to the very smallest of service providers. You heard Matt earlier talk about 8,000,000 to 1,000. There is not a company in this industry that has built anything that's capable of spanning that scale. We do, it's in our nature.
Secondly, does it matter the type of service provider, whether it's a wireless provider, a cable MSO, an iLEC, a greenfield, a brand new service provider, an electric co op that's getting into the business, a wireless Internet service provider, it does not matter. Same technology, same platforms. So we're not building a box for the telcos and a box for the cable MSOs with its own operating system over here and its own embedded operating system over there. It is literally one set of platforms with hardware deployment that's the same hardware deployment scenarios at the CEO data center, out in the outside plant and ultimately in an embedded sealed unit. And those three units are outside.
You'll get a chance to lay hands on them if you really want to get back to your hardware roots. But we have the right technologies and the right platforms. And you're seeing all of these here and the results, the effects that they're having on the service provider. So I trust that's the second thing that we spoke of and that that's compelling. The third piece is huge disruption, great platforms.
They don't sell themselves. They don't build themselves. They don't help our customers transform their very business models. I'm sure it's not lost upon you that this is a very different service provider than the ones that we grew up with. It's a wildly different go to market.
It's a wildly different engagement for their subscribers. And you're seeing results of churn rates in rehearsal, not to be somewhat dark. Matt mentioned a 0.2% churn rate. And I said, yes, that's roughly the mortality rate. That's people die, that's a churn.
What's my point? That churn rate is so low that no one is leaving that service. 0.2 is effectively zero. That does not exist in our industry. So the platforms are there, the disruptions there.
What about the team? Well, let's go back and sort of build it back up. We talked about the Intelligent Access Edge. Well, that's led that group is led by Michel Languo. What's his background?
His background is nearly a Silicon Valley legacy at this point in time. And I say that in the best of terms. Prior to being here for five years, like Junos or thereabouts at Juniper. Prior to that grew up at Cisco and ultimately ended up leading iOS at Cisco. That's a deep networking engineering leadership talent.
Let's look at the revenue edge, a rapidly evolving space that's connected to broadband. Shane leads that. What's Shane's background? Well, in addition to coming from some startups and getting used to the rough and tumble notion of startups, Before joining Calix, led the broadband products group at CommScope. So over here, deep networking experience over their cable experience, broadband facing the subscriber experience.
The next thing you heard over and over again, data. Well, if you can understand this transformation, we could sort of the blind squirrel hunting around trying to find a nut. But not only are we trying to put data in the hands of our customers, we have to use data to understand where to go, who to sell to, how to find these prospects. And so our Chief Marketing Officer, Matt, who was just up previous to me, comes from a deep data background. Now he mentioned he was a consultant at McKinsey, let's not hold that against him.
But in fact, he came out of IBM, Dun and Bradstreet, Merck, doing what? Using data and analytics to achieve focused marketing, helping buyers through their journey. That level of data expertise almost a sine qua non for us to be successful. And then Michael, where does Michael come from? Well, previous to this headed up global customer success at Salesforce.
Prior to that, Microsoft, Dell Mobility, so it's been on both the service provider side as well as the data side. Not a hardware guy. We have fun with them, not a hardware guy. Pure software guy and comes from the service side. What's most important about Michael's role?
This transformation has to happen at our customers. Who's going to help our customers? Well, it's the front end of our business, our sales and service organizations. Without that transformation, and we've been through a big transformation, so are they, that's what Michael has led us through and continues to lead us through. So I submit that we not only have a diverse team, but it's a highly talented team, a deeply experienced team coming together on this mission to help us down this journey and more importantly help our customers down that journey.
Last person that you haven't met and you'll meet him right at after 01:00 when the market closes is our CFO, Corey Sindelar. Corey's background, actually also diverse and necessarily so. If you think about this from an accounting standpoint, let's talk about rev rec. Revenue recognition on hardware, you book it, you ship it, you recognize it. What about professional services?
Well, you have percent complete, you have an entirely different approach. What about licensed OSs? An entirely different approach. What about cloud platforms and software as a service? Another whole approach.
What about getting through this transition with a balance sheet that had about $1.0.9 on it for a while? How does that feel? Let's look at Corey's background. Legato, EMC, Acanos doing silicon, violin memory, tough times, by the way, put to use here. This has been a very interesting transformation for a number of years, but not a lot of net underneath it.
Bring that all together, bring this talent together, bring the opportunity together in front of this disruption. And we'll come back after lunch and talk about how all this resolves itself into the financial model going forward. So two huge disruptions, the right technologies, the right team. Do I have your agreement? If not, Alan Ludden will not be able to say the password, which is Fajitas.
So I will keep you here until I have your agreement. So hopefully you understand what I just said. When we come back, we'll talk about the financial model. Tom, it's all yours. Camille.
We're running
a little bit ahead
of schedule, but we're going get back on schedule. So we're going take a
lunch break now until 1PM Pacific Time. We will start the webcast again at 1PM Pacific Time sharp. For those of you that are in the room, lunch is served right outside the door. We'll be back at one. Afternoon, everyone.
Patrick.
It
is now my pleasure to introduce Chief Financial Officer for Synderlars to take
us through the financial update. With that, Corey?
Thank you, Tom. So
we've been sharing this
information for about six quarters. And what we've been saying is that as our platforms become a greater percentage of our business, you're going to see improved financial performance in
these four metrics.
We're going spend a little time to drill down on each one of those. Delivered revenue growth. We believe that we are goal is to go out and identify and win every prospect and customer that is aligned strategically aligned with our vision. How are we doing? We're doing pretty well.
We've got
three forty customers, new customers in the last three years, bringing our total count up to about 1,600 customers. Those are some really good numbers. They put it in the context that there's only 10,000 service providers globally. It's pretty remarkable. The nature of these new customers are across the board in terms of size and type, but they are traditionally going to be more of our small customers.
We're to follow the mix of our customer base. Matt has talked to you about a
few of those today. We've got
new customers such as Fort Deere, who is an electric co op, who had no broadband subscribers when they first joined us. We ended up with Citi Fiber who comes in and is now being a wholesaler and they're one of our new customers. Our largest of those is Verizon. You've seen this slide before last quarter. Let me just reorient you about the slide.
This is our revenue recast based on customer size. It's determined by the number of subscribers our customers have. Small customers are customers that have broadband subscribers of 250,000
or less,
medium are 250,000 to 2,500,000. And our large customers have 2,500,000 subscribers or more. I bring this slide up and repeat it one more time to bring one point. Over the last three years, you take those three forty new customers plus a large percentage of our existing subscribers and they come to our platforms, you're seeing growth in our small customer base. Over the same duration, you're seeing our dependence on a few large customers diminish.
The combination of these two trends means we have a more predictable revenue stream today than we have in the past. Let's talk about gross margin expansion. All day along, you've talked about you've heard how our platforms are helping our customers. Every one of those products, services have a gross margin that is higher than our traditional business. We're talking about software, cloud, the aligned services that attach those cloud products.
Even the systems that the platform margin than our traditional business. So I'm going to make kind of an easy assertion for me, probably the easiest assertion I'm going make today. Our platforms increase as a percentage of our business, gross margins go up. It's that simple.
Now I'm going quote Carl. That's the good news.
You want the better news? The better news is our platforms are not at scale today. Take our clouds for example. While their cloud margin is better than our corporate gross average, it isn't what a mature cloud company is in the mid in the call it the 80% or so. What does that mean?
Well, that
means as we continue to scale out our platforms, even within those margins, those margins are going to improve over time. We've talked a lot about platforms platform adoption. Well, let's put a little visual to exactly what kind of success we're seeing. I think we've seen pretty good success. Over the last four years, we've seen customer adoption of our platforms at 145%
CAGR.
I'll also point out that these growth curves mirror product life cycles. Take AXOS for instance. First platform into the marketplace, access infrastructure, maybe a little bit harder to decide whether you're going to implement, but it's growing steadily. Our second platform comes into the marketplace cloud, easier to make that decision, easier to deploy, more rapid. In market less time has already exceeded our EXOS count.
And last, our last platform, EXOSRevenueEdge, latest in the marketplace, and it is growing like a weed. There's no counts over here, but you can certainly know there's at least three forty because all of those customers came over because of our platforms. These are hundreds. So it gives you kind of an idea of kind of what our growth rate is. But let's not
get too
exuberant. While these are our customer signings, we are seeds for success. This is a leading indicator. There are a number of reasons why revenue is delayed behind it. So the first one being, when you sign our contract and adopt our platform, you need to deploy it, right?
This is a pay as you succeed model. All of our platforms, all of our platforms monetize on subscriber count. Let's take an example of AXOS. I decide I'm going go deploy AXOS. I don't go out and rip out my entire infrastructure overnight to deploy AXOS.
A year comes up, I'm going go do these new deployments. You know what? This portion of the network is kind of old. I'm going to time it up. I'm going to expand it to that.
The next year comes along, going expand it a little bit more. Time goes along, add a little bit more. Every time they're bringing more subscribers onto the network using AXOS, we get a piece of that. That takes a little bit of time. Second
thing
is by signing up with Calix, we're signing a three year agreement. A three year agreement, there are certain components of that revenue that's recognized over time, specifically the cloud solutions and certain of our services, specifically managed services, maintenance and those lines, preventable over time. So again, they're signing a contract, revenue is
being delayed.
Third point, this is a land and expand strategy. These are the seeds. These are the landing points. It provides us an opportunity to upsell other platforms that they have. So they may start with Calix Cloud, Marketing Cloud, Support Cloud, then go to EXOS.
We have the ability to cross sell. Furthermore, as Shane brings out new service suites, those can be dropped on the platform. That's the beautiful part about a platform, the ability to add additional products on the top on an existing base. So to put this all together, this is our seeds of success. Now it's a matter of time before we can harvest the fruits of our labor.
This is an interesting chart, maybe more interesting to me because I understand kind of all that went in and out of this gross margin line. We have traversed quite a bit in terms of transforming our company over the last three years. First off, we traversed our deployment services mess. The same time, we were eliminating SKUs and we're simplifying our traditional business even disposed of a cabinet business product line. We've moved our supply chain out of China.
We started to use ODM partners to do some of our designs for some of our systems. We invested in customer success earlier last year, first of last year, which is essential to us to continue to grow our platforms. More importantly, we've got about two years now of running our platforms where we have data, right? We have an understanding of the way customers are adopting platforms. How long it takes them to onboard those customers?
Once they're onboarded, how fast are they adopting? We're through one use set a year of renewals. So we're getting it at the rate at which they're deploying and what is the uptake. So we're starting to collect that data. So we didn't have all that data before.
So it really kind of made it hard for us to come and have a data like today to provide you some target margin metrics. But we didn't have run time under the model and there was a lot of stuff going on in under the covers. Covers. So the good news about all of that, all of that noise, all of that transition, all of that stuff that was going on, all those moving parts, we still increased gross margin year over year over last two years. Third point is disciplined OpEx investment.
And on this one, I would have to say that the team has done a fantastic job. I'll start at G and A. G and A has been running about $36,000,000 a year except the last year. Last year, we had a change in accounting pronouncement that had us capitalize certain internal and external costs around our ERP implementation. But if you ex that out, we would have been roughly at the same level.
As we look into 2020, we provided some information that we'll be back around that level, slightly higher as we continue as Oracle gets depreciated and some of those people costs are coming back onto the balance sheet, coming back through the P and L rather. But in short order, we'll get that back down to about a $9,000,000 quarter run rate. Sales and marketing has been pretty constant through these last three years, constant in absolute dollars, but not what's going on within the department. They've been rebalancing the workforce, taking advantage of what we see in terms of the upcoming market opportunity. And we've done all of that in the confines of that investment decisions.
But we're now at a point where sales and marketing needs to grow. So a sense, we're going to let it grow. We're going let it grow at the rate of revenue. And last is R and D. In 2017, we completed the large major development of the platforms.
We decided to reduce our investment in R and D, taking it down by about 40%. And we were talking about how we were going to resize R and D, we set a target. We said, hey, we want to be at $20,000,000 a quarter run rate. After the engineering team actually executed the actions in the early part of 2018, they have done that. So all in all, think the team has done a phenomenal job in terms of being able to maintain discipline over our OpEx investment decisions.
Okay. We're going get to why you're all here, why you want to talk about our financial
model. Before we get into it, I
want to make one caveat. We are not trying to change any of the numbers that The Street has published for 2020. The numbers and the targets that I'm about to share relate to years 2021 to 2023. That's kind of our planning horizon for providing these targets. And it's with all the information that we have today Bonamet will share with our platforms in the business into the marketplace and where we're at.
So are ready?
Here we go. Number one,
revenue. Revenue is going to grow our belief is it will grow between 510% per annum. That's based on our understanding of how we think the traditional business will roll off and the growth that we will see from our platform businesses behind it. Similarly, non GAAP gross margin is expected to grow between one hundred two hundred basis points a year. It also follows the same revenue trends.
So these numbers are based on our beliefs around where revenue are. I would also further go and say I would not create a straight line. Each quarter there may be variability. We have a down quarter. But each year we would expect over a year annual time horizon margins up into the right.
Let's talk about G and A. Once we get to 2021, we believe we can hold G and A at $9,000,000 a quarter until it becomes 7% of revenue. Likewise, for R and D, we're going to hold them at $20,000,000 a quarter. Until such time, their number becomes 32% of product gross profit. So we're basically going to run those organizations flat, let revenue grow underneath of it and let them grow into the model.
Sales and marketing is different. Sales and marketing, know we need to make investments in sales and marketing to capitalize on the opportunities ahead of us. We're going to let it grow between grow with revenue somewhere between 1618%. To the extent we find ways that we can actually accelerate our business model, we'll do so. We might end up being at the higher end of this range.
You combine these three things together, what you end up having is a substantial part of our P and L that is being held flat, a part of it growing with revenue, providing a little bit of leverage into the model. But the most important point, most important point is our platforms are in the market today. Customers are adopting them. We have a huge opportunity in front of us. We need to invest in the front end, front part of the business to go capture that opportunity through right disruption.
One last slide. These are our balance sheet metrics. They're pretty good. I'll put them up against anybody in the industry. We're providing a little bit of insight to our balance sheet.
More so to give you some idea around our capital efficiency. The other point I'll add on this is our platforms allow these kind of results. Our platform business is going to have a more linear model. It's going to be less of a box ship where everything comes at the end of the quarter. It's going to give
you the ability to have
a better
DSL, better forecasting of our supply chain. All of these things improve because of platforms. And more importantly for the folks here is, as we grow, we're not going to need a lot of growth capital. You're not going to have to go raise additional money to fund the growth of the business.
We
think between the cash on hand, cash flow generated from operations and our line of credit, we have what we need to be able to accomplish our objectives.
With that, I'm
going turn
it back over to Carl.
Thanks, Mark. Why don't you stay up here with me? So I just want to emphasize a couple of items. The OpEx efficiency and the commitments that we're driving OpEx to, as we obviously expand revenue and expand gross margin and hold OpEx, OpEx is going to under grow revenue. You all figured that out.
So there's not you can go model to your heart's content, feel free to buttonhole Corey in the hallway and say, did some numbers. But I think you'll start to understand what we believe we can drive from a value standpoint. I want to also emphasize that what you're seeing here is sort of the next three to four years. And so there's an implicit statement in there that we're watching the traditional business roll off, the new business growing. We have enough data on these two to now say this is what we think we can run at.
At some point in time, this traditional business stops shrinking. There is a zero that it eventually gets to. So we're trying to put brackets around this to allow you to start to understand what we think we can deliver in the next three to four years. And so I want to go back to where I started. Not one, but two disruptions.
You've heard this before. The right platforms, the right team, and now you can see how this monetizes in our model. So with that, I'm going to invite the leadership team back up and we'll have a Q and A session. Hopefully everybody's got their microphones turned on.
Thanks, Paul.
And when we're done with the Q and A session, we're going to close down the webinar. Those of you who are here, the BDC showcase will be open and off we go. Fair enough. Good afternoon, gentlemen.
Corey, I'm embarrassed if
you can.
Hang on a second.
You have to be on the microphone.
You. My apologies, but I forget. Have you so the numbers you just shared with us, you said were for 2021 on out. Can you remind me, did you give guidance on gross margin for 2020 previously?
We didn't provide annual guidance. There are models out there.
And I think
we understand what they are.
Okay. So you're okay with the consensus number?
All right.
I hope that's it. Thank you. That's GRA.
So Carl, two years ago, we had the successful news that you began working with Verizon and rolling that out. And then we heard CityFiber two years
since.
All the success that we've heard of is from smaller customers. Now that we've got enough real life data of what you're able to do for everybody, I'm surprised we haven't seen more endorsements, adoptions, customers of a higher larger size, even just as a test rollout or a market by market approach. When we look at this outlook here, is that dependent on that needs to happen or it's going to just continue to be many of these smaller customers continuing to eat away from the bottom up?
So good question. And you're right to answer the question. I'm actually going to frame it back to disruptions, because what it is actually a sign of is the immaturity of the market. So when you see disruptions, you rarely see larger inertial incumbents moving there first. Verizon is actually a highly unusual service provider.
For those of you who've been following in the industry, you have to go back to fiber to the prem. Fiber to the prem, we've been doing fiber to prem since before we were actually founded. Wait a minute, how that work? Well, we were founded, we acquired a company that was founded prior to us, which was OSI. We've been doing literally fiber to the prem since 1996.
Verizon came in, in 2004 and built Fios. By the way, justified as legend would have it based upon simply a lower cost network to deliver voice. Fiber reduced their cost by so much it made sense to do. They sold off the properties they didn't want to build. How well that worked out for the people that bought them, but that's what they did.
Verizon was doing fiber in 02/2004. When the next large service provider you heard doing prior to the prep. So you really have to get a sense for scope and scale without these disruptions and how long they take. So we're still I said earlier, the bad news is you're all ten years late. The good news is you're twenty years early from when it will be done.
You're literally on that scale. Now let's take the numbers. We're literally opening new accounts over 100 a year. It's data driven, we're understanding where to go target them, execute against that accordingly. If you're opening 100 new customers, by definition, the majority of them are going to be smaller because there aren't 100 large customers.
There's this many large customers, a lot more medium customers, there's a ton of small ones. As you heard Corey allude to, we're opening customers in all of those segments, but obviously many, many more of them here. Now directly to your question, I'll approach it almost from sort of a Tier one ish type of question. We're going to continue to call on all those folks that we think are aligned and continue to help them come on to the platforms. There's clearly going to be a predisposition to smaller service providers than larger at the rates that we're trying to add service providers to it.
So long story short, we do not count on any one service provider of any type moving these numbers. And what you're hearing today is we have enough run time now. By the way, we did the 145% slide. Corey did that slide just so we could have an acronym called CAGAR, which as I quit the other day is also I think you might have coronavirus if you say CAGR too many times. That 145% growth rate coming off of here combined with this is allowing us to say, for the next few years we can see what's happening.
It's going to be we believe be driven very predictably. So it's not like we're trying to avoid large service providers. But even inside of large service providers, you have to understand the compression that's going on in our industry. So if you go outside and you look at an E92, if you take an E92 and you build upon, you build split ratios and you do all those things, there's 5,000 subscribers on the end of that one system. You got to get your head wrapped around what these new networks look like.
So the good news there is the opposite of the bad news. We're leaving the environment where any one customer, why put my head on the pillow at night wonder who's blowing up tomorrow. Just I don't even think about it anymore, literally. I sleep very well. So I'm just trying to cover this every way I can.
And by the way, if any of you are looking at us from a trading standpoint to make a trade, I would hope this entire presentation dissuaded you from that. This is about investing over a long period of time and understanding this disruption and deciding whether or not we're well placed. I believe this to be. This is not about what's the latest big deal that's going on. And increasingly in a disruption, big deals get smaller at a rate because you're getting compression.
But the other thing that's happening in those big deals typically is their box deals and the margins rolling down very fast. So if you look at what Corey just put up there from a margin standpoint and what we're doing, I challenge you to go look at other communications box companies in the industry and actually go look at their margins over the last five years. Chart them, tell me what you see. So it's all about a whole model there. So hopefully that answers your question without hammering it too hard.
Can you give us an idea of what percentage of revenues comes from platforms in 2018 and 2019?
From came from platforms in 2018 and 2019?
Yes, percentage of total revenue from platforms in 2018.
Unfortunately, I'm going to be the one that gives this answer because I'm the one that's going to take this arrow and I'm to be snarky. Yes, could and no, I won't. The best that we can do in my view is to do exactly what Corey did on the growth and give you that sense. And unfortunately, because of the nature of the platform business and the reason we did not put dimensions on it is I can't emphasize enough the land and expand nature of this, the tied to our customer success and then the ratable revenue recognition. We are laser focused on that curve.
We are out adding new customers as fast as we can and we're looking at how fast we're expanding inside of it. Knowing that, the rest will take care of itself. So unfortunately, the answer is no. I would not.
Okay. How about this one?
So after you've landed and now you're going to expand, when you expand, can you give us an idea of a typical aggregate revenue opportunity by customer, by broadband subscribers, which is the way you like to talk about it? So let's say we have a platform, access, like Galaxy Cloud, whatever, sub 250,000 subscribers is typical revenue opportunity once you've expanded would be X to Y, etcetera.
I'll come at it two different ways. If you look at traditional access networking environments and you look at the CapEx that goes into it, you can sort of put yourself to sort of $100 ish per subscriber on both ends of the CapEx side. But I think your question is a little more refined and you're also trying to understand the platforms and what they look like since they're ratably recognized. And so I won't answer the question directly, but I'll direct you to what I said at the earlier side. If we can help our customers succeed and you saw some of the success metrics that you saw Matt presenting, for example, with ARPU raising, etcetera.
Obviously, we're not charging more than whatever their ARPU is. So there's something less than that. And we think there's some percentage of that that customers would be willing to share. Narrowing it down beyond that, we do not do. So I appreciate that's two attempts, three and we're right up.
And I apologize, Chris. Is there
any questions that
to answer?
Yes. I'll think of them.
I'm 63
and a devilishly handsome young man.
Okay. Well, we'll give it another try. So if I can summarize your answer to the first question, your 5% to 10% growth range does not contemplate the addition of any major new Tier one customers of the sort of opportunities you have with Verizon and Citi Fiber currently.
Is that correct? It does not it either contemplates them nor eliminates them. It just looks at it statistically and what we've seen. So the important part here is we have enough run time on this model now where we think we understand how this grows. Yes, the current model dependent upon.
Right. Understanding these things could be step functions in both directions, which is why I understand your reticence there. However, let me paint a different scenario, which is, is it possible that now is exactly the time you should be pursuing these major opportunities because you've got your largest competitor in the market in the midst of strategic upheaval and your second largest in the midst of political upheaval. And your third kind of on the mat as well. So there would seem to customers seem to like.
So there would seem to be a lot of opportunity there. And while I understand that part of the problem amongst your historic competitors has been to greater degree of customer concentration, It seems like you should be able to curate a Tier one and add it to the stable every year of the sort that you like. And I wonder why you're not giving us more message along those lines.
You've actually, oddly enough, answered your question in and out the question you asked. Because that which put them in that position is the major reason why we will tread carefully. Because the challenge that you have in a disruption is the first thing that happens is larger inertial customers drive to the lowest common denominator, which is price. And they don't see the technology coming. So I can take you back to every one of those disruptions I showed you.
I can take you back to IP and ATM. What happened in the ATM market when the IP market started driving? ATM started to get overcrowded, commoditized, competition, revenues per blank went down, margins dropped precipitously. And you see this over and over again in a disruption. So actually, the worst thing we could do is to go chase those deals.
It's counterintuitive because there is revenue there, but there's little value there. Now let me give you a corollary that is valuable. We could very well add a large customer, a name that you would all go, wow, look at that, they got so and so. And they would never become a 10% customer. We can have a large customer go and deploy revenue edge.
Remember, all these software platforms we have are extractable. So in our future, we may not necessarily be deploying hardware. And likely if you're looking at customers that are larger, they might be the first ones that we might do a software only model We could do a very large customer software deal that wouldn't come close to being 10%. You'd never see it. It'd be very important, but you'd never see it.
But we have to be very careful about saying no to things that are counter strategic. And when you see that disruption and you actually I think you know this from your history. If you go chase the void of a competitor, you don't be surprised if you don't meet the same face, right? The customer is not changing their behaviors. So let me give you a corollary.
So let's take two of the folks or three of the folks or whatever you were talking about. I don't remember which they were in nearby different vertical, Huawei. Something right. I didn't mention them. So but let's take an example where there's a large service provider that has historically had a two vendor model.
And they might be, let's just say on the continent of Europe. And they've had a Vendor H and a Vendor N.
They're sort of done with copper and they're moving to fiber.
They've had those two vendors, okay? And they decided, maybe we're a little concerned with the political H thing. And so we're going to go do an RFP for another vendor, a third vendor. But because we're concerned with H, they might become a second vendor. So everybody is doing okay with that?
Does that sound like a reasonable statement? Could be a big deal. Well, here's my first question to you. If we deployed H and N, do you think they were deploying H and N based upon value or based upon a price competition? Well, we know the answer.
It's a price competition. So when they go look for vendor number three, what do you think they're likely to be picking this from? Price. Okay. So let's just say for sake of argument, it's a revenue opportunity.
And maybe we look at it and say, let's go get that revenue. Michael bounds in the ever enthusiastic leader of the front end of the business and said, if I got a deal for you, right, which by the way, I will tell you it's not in our culture. Michael has led the team to the point where the team does a very good job of selecting out things that are not aligned. But let's just say he had coffee and Krispy Kreme donuts one morning full of energy, which by the way
he's known to do.
There's a story there.
There is a story there. So and we at that. Well, we've all been in networking before. How long does it take so you're the service provider. You're running the deal.
How long does it take you to issue the RFP, narrow it down and select the first vendor to go in the lab? Year. Let's say nine months, right? Let's say it's Christian because he does stuff faster. So it's nine months.
Now you select us and you say, okay, we're gonna bring you to the lab. Right? In the lab, have somebody like Alex. He was educated technologically. And you hired Alex in the lab to do what?
Break it. Break it. You didn't hire him to approve it. He doesn't get marks for approving it. He gets marks for breaking it.
And if he breaks it in a way that you would never use it in, it doesn't matter. He's gonna break the thing, and he's gonna stand there like mister Clean, which if your hairline recedes fast enough, maybe you'll look right. So mister Clean, they're
in front of
the lab gone, not letting you in sorry, they give it back to you. We have a complex system. We hand it over to Michelle. Michelle, by the way, not that Michelle hasn't been through this several 100 times in his career. He hand back and list you how long does it take you to make the changes, integrate it, test it and hand it back to Mr.
Clean? Two to three months. Two to three months. He was very fast. Let's give him three months, okay?
So this cycle happens a couple of times. So let's just add another six months. So maybe it's fifteen months at this point in time. Meanwhile, you're sitting there, we're negotiating a contract. So at least we're going to do something in parallel.
So now we're negotiating the contract, he's doing this. It's like it's not time wasted because we're making progress. So fifteen months in, we're now at the point of saying, let's go do what? Well, you know the acronym, FOA, first office application. Well, how do do a first office application?
Oh, well, can't do the first office application until it's integrated into the OSS and BSS. How many of you have been around OSS, BSSs inside of telecom service provider? How long does it take you to integrate?
Think I get the point.
Six months? No, no, no, no. You made the point, but I'm not done. I appreciate the fact. No, you're not getting out of this room.
It's six to nine months to get it integrated. So you're twenty four months out. Now here's the now we're the third vendor, maybe the second vendor. Now not that the news moves every day. But can you tell me what the geopolitical environment is gonna look like in twenty four months?
Let's just say it's the same as it is now. Okay. That h company, you didn't rip out all the h stuff. You just said, you know what, folks? In this portion of the network that's h, we're gonna keep buying h cards, but you're not gonna put h anywhere else.
They're stuck here. They're capped, which means the remainder of the network is now available to something. But there's an n, which is gonna sort of squeeze out of there. By the way, n is very clever. And knows that you brought a third guy in.
And it's gonna sit there with you and not move your pricing right up until you just start to deploy them. And then they're gonna come back and say, hey. We have a discount. And all of a sudden, down goes the pricing. Now we're back saying, the RFP had said that, yeah, know, but our existing vendor came in and cut the price.
Does this story sound familiar to you? By the way, he has consumed dozens of Krispy Kreme's across this process. The good news is he's exerted so much energy, he's actually lost 40 pounds. And we've gotten nowhere. So we're exerting all this energy to go chase what appears to be this chimera of revenue.
If you're right in front of a disruption, the worst thing you can do is do anything other than focus on that disruption. We do not have time for long yeses or long noes. You want a short yes or a short no, it's either a reminder it is boom, boom, sign here six copies yours. On experience? A third, in case you don't remember this name of Cerence Deals, where one call closes in the transport and switching space.
We didn't do any trial agreements. You want to do a trial? Buy it. When you're in front of a disruption, you have to be that acute or you're actually squandering your future strategic value because we're chasing revenue over here. And by the way, if we were ever going to do that, we would have done it already when the traditional business did a big step down on revenue.
And to our credit and to the team here, this team has done a phenomenal job of building people at the front end of this business that recognize a misaligned customer and stop there. I can't emphasize how important that is. If what you do is instead have your salespeople out calling on everyone, you're not data driven, you're not sorting the company, you're not doing all these pieces. They will go out and create a selling motion and inertia and action. And then it comes back into somebody like Steve.
And Steve is the captain of the order prevention desk. He's the one that sits there and goes, oh, no, that price is too low, whatever. Yes, except you just exerted how much selling. And eventually, he's like a goalie, somebody's going to get one past him. It's just a bad way of going about it.
So comprehensively, it's really important that you understand the selections that we're trying to make. This is very much about us trying to find people that are aligned and wanting to go the same way and getting them on board. And by the way, all you have to ask yourself is are there enough of them? We've already answered that question for ourselves. That was a question we had five years ago.
It is not a question we have anymore. So sorry for beating that to death. But by the way, just in case you're worried about it being beat to death, Michael is going to beat it to death some more.
Why don't you do little bit different, Tak? Because you've done a great job beating that to death even after he said I submit multiple times. And so the other thing is that we don't push upgrades. So why push an upgrade from old technology to new technology? Actually, no.
We educate. And then we educate the customer, we educate the customer, we educate the customer. And then at some point, whether it's because they see one of their peers or they see a success story or they go to a webinar and they understand what's going on, they're finally it's going to click and they're going to say, ah, my leadership team now really understands why we want to do that or there's business need, whatever it is, we're now ready to be aligned and actually go to the next step, which is why it's so important with the marketing organization and everything we're doing with customer success, everything we're doing with the press releases and the case studies and all those things to educate. We have an event in this disruption, our role is evangelists. We are evangelizing new business models, new approaches to the market and not everybody is going
to get it. So you have
to align to the ones who get it, amplify their success so that the next wave gets it. It's a classic adoption curve, right. Then what generally happens is at some point the laggards over that period of time, the laggards come along, whether drag kicking and screaming or whatever it is or they go out of business.
Well, they survive the service providers out there, let's take another example, that are losing subscribers under ARPU pressure and are fighting churn. We'll eventually realize that these other service providers, they must be doing something different. So let's just focus on helping them win and we'll get on with the rest. So I'm sorry for
the Okay, wait. So I'm going to add one more thing. So let's just talk about what he said with regards to losing subscribers and adding subscribers, right? What's fascinating inside the telecom industry is that everybody focuses on ads, right? Ads, got to add ads.
I hear this nonstop. I'm all about acquisition. And I turn to them and this is the same thing when I was at a large carrier. First thing I did was I took over the organization, went through all the data. I sat down with the President and I say, do you know that I am a sales rep who last year was 200% of plan and he sold 1,000 units and lost 2,000, he was 200% of plan because the compensation is all focused on acquisition.
They're not focused on the right things. Acquisition shouldn't be your first focus. I hear all these companies say, I got to acquire, I got to acquire, look at how many I added. I'll tell you what, when Match showed up 0.2% churn, that's the only churn that should be acceptable. Instead, what does this industry do?
They actually take annual churn and they turn it into monthly churn so they can feel bad about themselves. Let's be really clear. 2% monthly churn is awful, absolutely awful. It's 25%
a year
you're flipping your base.
At what cost,
right? So back to the revenue, I think we talked about how we're going to educate them. Start with churn. Focus on actually keeping your existing customers. Then what do you do next?
Find out all your customers who are on this level of a service when they could actually be on this level of service.
And the difference between the two is profit.
It's all profit just sitting there latent waiting for you to make money. So fix your churn problem, then raise your revenue by actually maximizing your existing investments and then go to acquisition. Instead, they all do it the same way. I start with acquisition because that's the only thing they understand and they're like, you know what, it's a leaky bucket approach. It's wrong.
And so when we were at Bell Canada in the three years I was there, we went from five years of decline to fourteen quarters of double digit growth and a 25% increase in ARPU. How do we do that? Churn, then maximizing revenue and then acquisition. So these types of philosophies are the things that as an evangelist in the business, we've talked a lot about the access side, on the revenue side, that's our mission to help these guys be wildly successful and grow their profitability. And if they're a community based organization, we always say the same thing to them.
I get it. You actually don't care about profits.
But boy, what's the chances of
you being reelected when you actually put a couple of $100 in the genes of every single community member, right, of the core members and you actually increase your investment in fiber and all these different elements, you made your community better, really high.
By the way, we have roughly thirty minutes left. So I think that's time for one more Tim's question.
Just kidding. Super fast.
Follow-up is, can you describe kind of what the circumstances that define the upper and lower end of your growth ranges? Is that macro? Is if we're looking at five percent to 10% growth range, what are the what drives you to the high end versus the
low end?
From my perspective, the larger component of that is roll off of traditional customers. So to the extent that that roll off happens faster, we'll probably be at the lower end. If a roll off happens slower, will be at the higher end. There are some things that we can do from an amplification standpoint that are yet in front of us. So you saw the early suites that were being talked about, those have potentials.
So there's just potentials for other things that we're not talking about today that relate to future products. To be clear about our innovation cycles, now that the platforms are built, we do something that you do not see in this industry. Our innovations are released to the market every ninety one days. There are four cadence releases every year. They are on the second Tuesday of the second week of the second Tuesday of the second month of each quarter.
Those dates are known. And so there's lots of innovations coming, none of which we're talking today about. And so clearly, there's opportunities that are ahead of us that we think will continue to expand that. So to me, the upside is more about how fast new things are taken on in addition to how well we're executing in the plan. The thing that pulls it back down is potentially faster roll up on the drift.
Paul, in your microphone? I had a really simple question. Alex, I'm sorry.
It will take two seconds. Should have asked earlier. Corey, just to I hate to focus on this year, but just as a departure point of the guidance you gave on this '21 plus model, I assume you're comfortable with consensus well, the question, are you comfortable with consensus revenue numbers?
On 2020? 2020.
Just as a departure point relative to the guidance you're giving.
Let me just be semantically correct before he answers. You mean on his thoughts and targets, not guidance? I didn't give you guidance. I
recognize that.
But to the extent you're giving a model for 'twenty one and beyond, right, five to 10% growth as a departure point
sort of 2020, right, which
is what I would use in my models.
What you would use in your models, what consensus has? Correct. All right. So you're comfortable. Okay.
Thank you. I figured I'd give you some relief after the last one.
Well, won't give me any relief to give Jim some relief.
You mentioned that you weren't sure if there were going
be enough customers who wanted to go along for the
ride that you set up
and you convinced yourself that there is, that there are. What can we do to understand how big that market is,
how fast those people are growing
and how healthy they are? I continue to struggle with it because it's so many small people that it's hard
to see how they're getting together
believe that you talk
to one or two, they're doing great, but
then I start to extrapolate that across.
Well, so there's two things I think that we can do. And one that we are doing, which is we're giving you a sense of the number of new customers we're adding. Because here's what you do know. We are not acquiring any new customers today with our legacy products. Every single new customer is being acquired with our go forward platforms.
So that's an indicator. The second thing you could do is stop doing what you're doing and go start a service provider and we'll sell to you. I mean, that would at least add one. But I don't know if there's any other I mean, Matthew, are there some data sources that you would point folks to that might help?
Well, I mean, I think
you can certainly follow all of the reports that are out there around the different government programs, right. So certainly the existing CAF programs, certainly the RDOF process that some of you are aware of is going to be kicking off later this year. There are hundreds of potential bidders who are coming together in consortiums themselves, and we believe a very high percentage of those will be
new service providers
in the market.
And I think that's going to be a really good indicator because as Karl said, our new customers are adopting our new platforms. And the way that the rules are set up for those programs, will be written in such a way or they are written in such a way that folks who are going to be providing gigabit fiber based type services are going to be very highly favored. So I would start to look at those kinds of programs, who's applying, who's winning, they will all give you an indicator about who are the new entrants in the market and they will look a lot like many of
the companies that
we talked about today.
Just use The U. S. As an example, do you know or is there a place where we can see or do you know like how many broadband people there are that aren't part of a legacy?
Certainly. I mean, can certainly talk offline. Mean, there's we look at sources for instance of every electric cooperative in the country as an example. And we know who from the FCC is currently providing broadband service. We know who's applied.
We're not, but we'll
start there. The FCC has a list of broadband service providers. Yes. So if that's what you're looking for, quite literally start there.
So yes, I'm giving you additional insight into how
you can determine also who might be entrants coming into the marketplace.
And get together with your neighbors and start up a co op. We'll be ready to sell to you. Other questions?
I want to try to ask this question third time around based on Christian and Tim's. At what point would you be comfortable giving out more platform information? Is it when it reaches a certain size or I understand why you're not doing it now, but it's kind of useful information obviously for us to have. But at what point would you be comfortable when it's 10% of revenue, when it's 20%, when
just trying to understand that philosophically. Yes. Philosophically, it's been asked. And the challenge is there are things that we think are useful and things that we think are competitively useful. And things that come under the heading of the then said as competitively useful or as Monty Python used to say, right out.
So not now, not soon, potentially not ever. Now there's another answer to that, which is if what we're saying turns it into reality, here's what I think. I think long before we start to do that sort of information sharing, of our investors that are understanding the company will have already figured it out. Does that make sense? You will have already started to flip the model and understand what's going on underneath the covers.
You don't have to be a Wharton econometric grad to do that math. And I think you'll be able to reverse foot it. And if I'm right, it'll almost be like a fait accompli. So it's not going to happen in the near term because we're so utterly focused on this disruption and what we're doing. And we have no interest in giving folks the clear view into the what or the how of this.
We're sharing enough that we think helps you understand the why and what we're doing. So I appreciate mean, I appreciate asking, I understand it. Clearly, look at indicators and look, what you just saw, this was a big debate, but a reasonably big debate to share that CAGR Even without wide access, that sort of starts to understand what's happening and what the leading indicators are. So I apologize for yet again giving you an indirect answer. The improvement I've demonstrated is I've given you an indirect answer in onetenth the amount of time that I gave Tim.
On the customer growth CAGR, can you give us an idea of you talked about at length about customer acquisition time at large customers. Can you give us a timeframe for the new customers that you are aligned with the customer acquisition timeframe, the one call closes as you go?
Customer acquisitions can vary wildly by type statements. So I'll just give you some clues. I'm going turn it over to Matt and Michael and let them address it. So municipalities as an example are our customer segments. They could have a gestation period of years.
But Matt, Michael, do you guys want to speak to that and sort of give some views?
I think the answer is exactly what you said is that there's you can have a ninety day close, you can actually have a four day four year close, right? It really comes down to the where's the customer in their business cycle, right? Are they an existing customer who is under competitive pressure and looking for an alternative and they understand it, right? Is there a change of leadership? Who understands the power of data?
Are they actually a co op who's decided, I'd like to get into broadband, I'm not sure what that is, but can we have a conversation, right? And so the key thing is, if you follow the philosophies of sales is actually have them wide and broad and then have a whole bunch of them closing in each
quarter at very different cycles.
Well, a follow-up to the question that
was already asked earlier. We spoke at length that we didn't want to target big Tier 1s for twenty four month timeframe and now we're going to go get a 2,000 subscriber municipality and take four years of time to do it. By the way,
that wasn't the answer. The answer wasn't actually that we don't want to go after a twenty four month sales cycle to Tier one. The answer was actually going after that Tier one is bad business. And because of fact that you spend twenty four months and then at the end of it you have really crappy margins because you're the third man in and you had no value.
So really I just want to make sure I understand that. So the real point of that conversation was we have no interest being price aggressors with what we believe are leading edge products that nobody else has. But if somebody wants to pay full price, we'll take as long as the process
is Or somebody strategically aligned and actually sees value, in it, right? So they actually have to understand the platform. Here's again, we're evangelizing a different process. So if you just want to buy a dumb box and buy cheap pawn, that's not us, right? So if you want to actually go through and address your operating model and build out a
new business that you can get
to what we talked about, which is lowest cost per bit per mile, highly operationally efficient with a lot of flexibility business model in the future, then that's the conversations that we're going to have. As with regards to Tier 1s, I would just say that what's going to happen is that as you see that some of the successes continue to be expanded out and the TCOs prove out, so that people are going to start looking and saying, wow, look what price is doing, okay, now I finally get it, right? So there's also the settlement is that those who aren't strategically aligned at a future date, they're going to start realizing there is a potential.
But Michael, I would just say, on average for a small service provider, the time from decision to go do something, close a deal, to deploy is typically much smaller than what Carl described.
Of course.
They don't have the teams like the ones that he talked about, procurement, technical evaluation. I gave you an example of Fortinet. We provided it as an example because we thought it was indicative, right? So two years ago, they announced
there's a period
of time through which
they did the evaluation decision. They kicked off, they deployed in eight months, they're up and running. So all of that happened within a shorter timeframe than what Karl described in that large service Let
me add one other piece that might help frame a little bit of what we're dealing with. You heard that chart, the units were 100s in the 145% CAGR. And by the way, we've made announcements in the past about roughly where we were with different deployments and then we've stopped. You have a sense for what those look like. But there's another piece in here that is a set.
In addition to adding new customers, we're also approaching some close to 2,000 customers now. I for one believe the vast majority of those customers will come along with us on this journey. Some may come today, some may as you heard Matt and Michael talk about, three years ago, oh, I
couldn't add
a V eight, let's start. I don't know where in that process they'll do it. And the other piece you heard Michael say is, they'll do it this way. They'll insert it in a prime wedge, a new build. We don't need to go unplug things that are doing they may have E Series that are running DXA, all the green lights are flashing.
It's doing a great job. Don't take it out, go take those dollars and put it into the revenue edge. Put it into places where you're going to materially affect the business. When I was listening to what you were asking me, a thought occurred to me. Another way of thinking about the answer to the question is what are the odds that what we're talking about is going to shift their business model?
And the ones you were talking about, Tim? Mr. Blutarski's grade point average,
zero point zero. No, that's not true. It's right.
No, no, no. No, no. And the ones you were talking about, right? All they're going do is look for the same thing they were looking for. They're not going to shift their business model.
Verizon is shifting their business model. That's also what drives us because remember, we're focused on bringing platforms to the service providers that are in front of this disruption and helping them build up entirely different business models. That is part of the selection criteria. Part of the solution is going add to
the CAGR slide that's partially you got to look at what products we're talking about. The adoption decision to
say I'm going to change
my access network is X. The adoption cycle of the adopted cloud is significantly short. We're talking months. The adoption cycle to take a new piece of CPE and start deploying your first unit, much shorter. The adoption cycle of new services, revenue led modules that are software, you can decide in weeks you want to do that.
So you've got to look at what is the product that you're talking about, what is the platform that you're talking about. Intelligent access, the cloud component, once you're integrated and you've integrated turning on new capabilities, your second cloud, well, I've got marketing cloud and I want support cloud. That's instantaneous. Same thing. I want to decide.
Want to start. I love the gigaspot. I'm ready to go. Let's go. Again, very short decision cycle.
Software, new software suites, instantaneous.
Okay. So we're about to run out of time. We can take one more question. Tim Tom, I'll let you pick it. And then by the way, we're going to adjourn.
And look, we're going to the showcase will be open and we can continue from there.
I'm going try
to squeeze in two if I can. Just when we look at the company right now and three years out, we're going to expect it to be 20%, 30% plus larger. And you talked about the customer counts that you're growing. To get from here to there, is it that the customer counts, so you should be adding 20%, 30% more customers or that those customers that are already in will be growing on top of the same kind of annual 100, 120 new customers?
Yes. Yes, I mean, it's just both because it's the like look, the difference between what we were and what we are today, you have to think about this in much more terms the way a software company runs. It's a land and expand model. That's the best answer I can give you. So we are going to be very focused on adding new customers, but also very focused on our customer success inside of our existing customers and expanding entitlement.
But the point is, so from what we see, which is the ability to disclose customer count increase is that there doesn't need to be an increase. So it's not a, oh my god, they only added 100. By the way,
oh my god, anyone adding 100 new service providers a year, good luck finding anything like that in our industry. That's an unbelievable rate.
But I think it's also the expand point that Corey was making is as our solutions are deployed more broadly across our subscriber base and they go from being an intelligent access edge customer to being a revenue edge customer to buying the actual suites on top of that. A lot of the growth will come from that expansion within existing customers.
We added zero customers. Right, which we will
have zero visibility. That's my point. Just trying to make sure that we establish the right criteria.
If we added zero customers in any given quarter, we'd still grow. Obviously, that's not our goal. Okay. Tom? Karl, can I
just I apologize for the interjection, but I think it's important relative to this new customer number? If I recall once upon a time, I recognize the numbers changed over the years, but there's something on the order of 1,500 IOCs, locally speaking, in The United States. The CLEX community was a fraction of that number. And there's not last time I checked, there's not much of what we used to consider CLEX left. So when you talk about adding new customers, there's new customers as in the existing customers who've been around for decades that you never sold to.
And then there's new customers that weren't in the business of comm services, whether it be Allos or other electric cooperatives, etcetera. They're always new. So I mean, frankly, 100 new customers a year in context of where the industry is at strikes me as an awful lot, and it would strike me as it will be increasingly hard as we move forward. But the question would be, what is your penetration rate today of the existing universe of customers before all of these relatively new folks entered into the arena?
So I'm going to give you an answer to your question, then we're going to call the hall to the proceedings before Tom comes over and gives me a hook. So you heard a comment earlier that look, there's on the order of 8,000 to 10,000 service providers worldwide of different types and ones that might be coming in. So there's your universe. You'll see additional service providers coming in that are greenfields today that don't exist. So it's going to continue to grow.
But no matter how you measure this, it's a high growth rate for new customer acquisition, but we're going to stay very much focused upon it because it's more and central to a land and expand strategy, along with bringing our set of customers that we already have today along with us. So I'm sorry for being profitable. You can ask question afterwards. I want to thank everybody on
the webinar for
attending. Especially want to thank the folks that are here physically in attendance and braving these pieces. And for look, your patience being investors and understanding where we're going. We're very happy to be in a position now where we have enough run time to say, look, here's what we think we see in these next few years and we want to
share it with you.
But we also wanted to make sure you understood the opportunity that we're pursuing, the size of it, the technology advantage we believe we have. But for me most personally and what is flattering, most of all, is the team of people I get to work with every day. It's an extraordinary team of experienced diverse professionals leading by the way an extraordinary team of diverse professionals in the organization in these various organizations structurally underneath them. Please get outside and get a chance to engage with them. So thank you all for attending.
Thank you very