Morning. Thanks everyone for coming. We really appreciate you joining us here on Investor Day 2026 at this incredible time in our company and also in the industry. That was the video that we showed at ConneXions back in October when we were actually on this path to where do we go from a company and how do we actually transform our customers' business. That's what we're going to talk about today, because now it's real and it was accomplished in the end of March. For today, what we're going to walk through is a number of things. First, we're going to walk through our mission in the future. Where is Calix going to go and what's the opportunity ahead?
We're going to go through that opportunity and identify what do we see as the advantage for our company, what's the platform innovation that we can deliver to the industry, and then John is going to come up and he's going to talk about how do we accelerate customer success. Because as we've said to our investors day in, day out, our success is predicated on the success of our customers. When they add a subscriber, we win. When they reduce churn, we win. And it's all about how do we invest to help them do that at a faster pace. We're going to go to a customer panel. We're very fortunate to have four incredible customers who partner with us on how we innovate and how we change markets.
They're going to be sitting up here and we're going to walk through the different elements of how they run their businesses and how we're partnering to drive their success. We'll then have Cory come up and do the financial model, and we'll close with a leadership Q&A where you'll have the opportunity to ask us questions. That's the agenda for today. Let's start. The mission and our future. On March 26th, something big happened with our company. It's something we've been working towards for 2.5 years, which is the launch of Calix 3.0, which is our next platform. I, two weeks from now, will actually finish my 10th year at Calix. We've been on this journey, and nothing worthwhile is easy. The journey started back prior to 2017.
I joined in 2016, and we started out with a recognition that the company that we were is not the company we needed to be. This was founded with our chairman, and he talked about this, how do we transition ourselves from a hardware-only company. If you go back to where we started, it was a networking company that had a single Wi-Fi product. We had kind of a cloud, but not really, but that was Calix 1.0. We envisioned a very different view where we could actually transition ourselves into a platform company. In 2019, we made that switch. It was hard for us. It was a huge transition in people. In fact, we always talked about this, is that we always thought that the transition from a people point of view inside Calix would be relatively small. Maybe 20% of the people would make it.
It actually was the exact opposite. We found that over that period, as we transitioned not only from a product point of view, from a culture point of view, we actually changed out 80% of our people. That launched in 2019. That was the start of a very different company. You can see it in our financial performance. You see it from a revenue point of view, where from 2019 to 2025, the year that we just ended, we went from $400 million up to $1 billion. You also see it in the margin profile. The 34 points when in 2017, I actually go back to 2016, 2015, it was even lower. That margin profile has gone up significantly, and that's the power of the platform. How do we drive at scale a highly profitable business that customers love partnering with to drive great outcomes?
Those great outcomes were evidenced by the end of the 2025 year. $1 billion in revenue, great margin profile, incredible cash, but also significant innovation. Today, we're going to talk about how do we innovate with our customers to help them be more successful over time. That innovation cycle, the chart up there, we're going to go through that in depth. In March 26th, we were talking about this at the end of last year, we talked about it at ConneXions with the 3,000 attendees who were there, is when 2.5 years of work came to culmination and our last customers left Calix 2.0 and were added to the platform.
I'm proud to say, we put this in the investor letter, we talked about this very briefly last night, is that all of our customers are now on our AI- native Calix 3.0 platform. This represents a massive opportunity for us. Obviously, when you talk to Cory, he's going to say the most important thing to him is we're not running two clouds, we're not taking the costs affiliated with those. Thank goodness we can close down the other one. For our customers, this represents an opportunity where artificial intelligence really comes to the fore, and they're going to be able to join the benefits of that capability at a faster and faster pace, which we'll walk through today. Look, this represents the next start, the next period for Calix. We enter this period from a position of strength on many levels.
First and foremost, innovation velocity. We are an innovator in our industry, an industry that is plagued with lack of speed and lack of innovation. We're the ones who are coming into it and disrupting how we do business. You can see this in the way that we've been recognized. Over the last 12 months, we've achieved 72 different awards with regards to how our culture, how our team members, how our products are changing the way we do business. We'll show you some of those examples. We've invested $2 billion up until this point to get to it. This is not something where you grab a piece of technology, you hope it works. This is actually a long journey that we've been on for over 15 years. Like I said, $2 billion invested to get to this point. Go slow to go fast.
If you look at the launch of Calix 3.0, our agentic platform, it was 2.5 years of hard work. I will tell you throughout that process, and we're going to talk about innovation velocity, our customers are saying, "What's the payoff? Why are you moving me over? How's it going to impact my business?" We knew, and you cannot walk away from the fact, that artificial intelligence is going to change everything in every industry. We saw that back in November 2023, and we started that investment. At this point in time, we can stand up here on stage with you and say, we have an AI- native platform.
We can walk you through all the steps from what that means, and we're ready to go and take advantage of it. The last part is we kicked off a strategic relationship with Google. I have stated this openly, and I will say this multiple times, and I'll actually talk about it on one of these slides. The greatest threat to our service provider customer is Amazon. We were on Amazon Cloud, and we made the decision to actually move off because frankly, they're the enemy. They're the enemy of our customer. We moved over to Google, who's an incredible partner. They have a great footprint around the world, and they enable us to completely change our business model. One where we're no longer a North American company, but one where we can go into any market in the world.
Also we can actually do private instances that allow our customers, if they're a large customer, to host everything internally. We'll talk about that expansion. The second component from an advantage point of view is everything that we're doing with customers. You're going to hear that when they come up on stage. One of the things we're most proud of is the fact that our customers have a deep trust of us. We actually have a 94% renewal rate. We have over 1,200 customers on this next generation platform. More importantly, if you've been reading about artificial intelligence, what is the most important part of AI? It's not an agent. It's actually the insights that you get from a workflow. If you don't understand how a business works, you can't effectively apply AI to that business to transform it and drive great outcomes.
Last year we did over 500 million workflows. We run the customer's business every single day. We understand how they run their field service, how they run their marketing, how they run their call centers. We take those insights, and we are uniquely positioned with this new platform to help our customers understand where will artificial intelligence have a really profound impact on their business going forward. That 500 million workflows are critical to allowing us to go fast in this next stage. Third, talent. We're very proud of our team, and I firmly believe myself that as we go into this agentic era, we need to stop with the value of AI is only how many people I can cut and say, "How do I empower my team members and really focus on human-centric AI?
How do we empower the team members to do significantly more with less?" I'm going to show you some examples of that today. How do I actually get that talent to think about how do we use AI? We can go off and be dispassionate about the business and say, "I'm going to cut this many heads." Or what I can do is say, "Help me understand what you do every single day. Help me understand those workflows and how do we reimagine work and go to a different level? How can one person do the job of 10 and expand the business and grow revenue?" For us, 98% of our employees are adopting AI in one shape or form. In fact, I wrote an article with Fast Company which I actually talked about.
We ran over 700 POCs through the year with our team members to actually explain and explore how we use AI. John will be coming up, our COO, and he'll walk you through how our IT organization is working and partnering with our employees to identify how do we reimagine work. On top of that, over the last couple of weeks, we got announced with Fortune that we're a Top 100 company to work. We really do believe in this next stage, we want to continue to attract great talent. As we optimize our business, which we'll continue to do, we want to be the company where people want to work, and this award, amongst the other 48 cultural awards we won last year, are important to us and help us build a great team to do great things.
Last, and Cory's going to talk about this at the very end, our financial performance. Through what I would call very tumultuous times over the last five years, a global pandemic and all the other things that are going on, we continued to execute through it. The margin expansion, the free cash flow, and the way that we return value to investors in the form of share buybacks is something that we do methodically and execute every single day, and Cory will talk about that at length. We enter this next stage of our company in a position where we can invest, we have a great team, and we have great partnerships with customers to do wonderful things. I cannot talk enough about how important it is, the relationship we have with customers.
We enter this period with a deep, trusting relationship with customers around how they view success. What are the things that they need us to do to change industries, change the way they go to market, and help them build their business? In fact, we believe in this so passionately, and we see the opportunity to move faster, that we changed our mission statement. We evolved our mission statement, and the mission statement is now this: Enable customers to transform operations. We moved it from simplify. Why? Because simplify doesn't capture what's going to happen in AI. The future of AI is not I take an existing workflow and I just pop in a couple agents and I simplify things. That's not the future. The future of artificial intelligence is, here's the outcome, and to achieve an outcome, I have two choices.
I can do what I said, I can simplify it and drop some agents in and eliminate some headcount and make it simpler. Which allow you to understand just how transformative this is from a scale point of view. We're not, in this next stage, going to be simplifying. We're going to help them transform how they operate. Sales, marketing, call center, all those different component parts through the power of AI. The second part is accelerate experiences. We've been delivering experiences since we launched the second generation platform back in 2019. Now the big impact is how do we accelerate that at a rapid pace, not only from an innovation point of view, which Shane Eleniak, our Chief Product Officer, is going to talk about, but also how do we accelerate the adoption of those experiences, which John's going to talk about?
Because at this point in time, we only have an attach rate of about 45%. How do we get that to 100%? Scott, from Tombigbee, is going to be up here, one of our customers, and he's going to explain why hasn't he done our marketing product. Well, he didn't have the capacity and capability in his market to hire someone to do that. With artificial intelligence, we now have the capability to take a junior person and turn them into an expert marketer and transform and accelerate their delivery experiences to differentiate in their market. You can see the outcomes. We put these up at ConneXions every single year. We have an incredible list of what our platform does versus competition to enable the success with customers. You see 90% market share for Berlin, 73% ARPU growth, 60% reduction of OpEx. This is what we do.
This next stage is going to be a completely different scale with regards to what we can deliver for our customers. I'm really proud to say that these four customers will be up on stage to actually give us an insight into how they see the next generation of where we're going. An example would be ALLO, who deployed 23,000. Now 23,000 students in Lincoln, Nebraska, have SmartTown, have the ability to get free Wi-Fi as they roam around town every single day, regardless of their economic scenario. That's one example. The other part is, at the same time, with Brad and his team, we did 14 proof of concepts around artificial intelligence in partnership with them in the last four months. How do we really accelerate their outcomes?
We'll have Lumos up here, Tombigbee, and Blue Stream Fiber, who's a leader in Smart MDU, who has been with us over the last year building that product out and telling us, "Here's the legacy vendors and what they provide in an MDU scenario. Here's my business differentiation and how I need you to change my business model and drive great outcomes." They'll be up on stage with me. Look, this comes at a critical time for customers. Competition is ramping up. It's getting faster and faster. We know what's happening with regards to satellites. Starlink's launching. They're adding more capacity. They're throwing capacity everywhere. Amazon just bought Globalstar, $11 billion investment, because they were falling behind, and so they know they want to get satellite capacity. Who here is a happy Amazon customer? I am.
If you don't have your hand up, you're just lying. I'm a happy Amazon customer. Every day, every couple of days, there's Amazon boxes at my house. They have a great NPS. They're convenient, easy to use, and they have a direct-to-consumer relationship. Amazon eero is a relationship with the customer, and all that's going to happen is that for everyone who resold eero in the past is a quick switch of the WAN in the back when Amazon comes and says, "Here's Prime broadband." How do you stop that? We see that as a huge opportunity with us, with our customers, as that competitive pressure ramps up for them to get it, that if they don't have the best experiences in their market, they're at risk because they can just be swapped.
This experience opportunity is one that we've been pontificating about for five, six, seven years, maybe a decade. Now is the opportunity because the competition continues to ramp up. That we believe that for Calix, as we're the leaders in this market with regards to experience, for those who haven't gone on the bandwagon, they better get going faster. That's going to be John's mission to make sure that happens. The second part of that is commoditization continues to be rampant. Everyone uses this fancy word called convergence. Let's be really, really clear. You know what convergence is? Convergence is a bundle. I was at Bell Mobility. I understand what a bundle is. It's nothing fancy. It's just broadband with mobile at a cheaper price. That's commoditization. They don't want to use commoditization, but that's what it is.
Again, if you're not differentiating in your market with regards to experience, the customer has a real struggle. This is what we do really great. We'll talk about how we expand that out in a moment. Then last, look, artificial intelligence. Anyone who doesn't believe this is going to change humankind is missing out. It's going to change every facet of life. It's going to change manufacturing, it's going to change every industry, and it's absolutely 100% going to change our industry. I gave the example of Tombigbee Fiber. Scott told me, I talked to him just before Christmas, and he said, "The biggest reason why I haven't used Engagement Cloud to deal with my customers is because of the fact that I don't have the capacity and capability, the people in my market who can do that.
I can't hire that person because they're going to be in a big city, and how do I bring them, and can I afford them? That's why I haven't gone forward. Transformation of marketing is a great example where everything is going to change and customers need to be thinking about not only, I'm not going to be running campaigns in a linear approach anymore. I actually have to think about, how do I 10x, 30x, 100x? How do I run 1,000 campaigns with one person a week? Everything is going to change, and artificial intelligence is going to make that scale. I have a simple example to share with you. If you've been following our company, you know the Gerry Dee videos that we do.
We've been doing these Gerry Dee videos for five years, and the concept was we would do the video content with our Decision Counsel partners and Gerry Dee. We put the content out, and then what we give it is we provide that to them, and then they can put their brand on it, and they can use that as a marketing campaign against our products. To build a Gerry Dee campaign was generally a two or three-day shoot. I remember the very first time I went to it. It was tractor trailers. It was people building out. There was 50 people there, and our cost over three days was $1 million. $1 million to do three videos. A huge cost. That's excluding, there's all the pre-production time. You got all the union workers, all those kind of things. A huge impact.
What I'm going to show you is artificial intelligence that was done for ALLO in a couple of days for $20,000. Shoot the video.
[Presentation]
That was done with $20,000 using artificial intelligence and went in days. This is a simple example of how profound of a shift we face. Every job is going to change. As I said, we can think about simplification, how do I optimize a workflow? I can think of, here's the outcome, how do I completely change it? In that scenario, we're also looking at technologies where an individual can run 4,000 banner ads direct out of a single person, where they used to actually only be able to do a small fraction of that on a monthly basis. They can do that in a day. There is a profound shift coming in all industries, and we're going to be at the forefront of it. As I think of this and go into 2026, there's really three discussion points.
The first is: What's the Calix advantage? Where do we sit currently, and how are we going to make the most of this opportunity for you as investors and for our customers? The second is our platform innovation. How do we actually speed up the innovation? That has a lot to do with the new platform that we put out. Third, core to our business is how do we make customers succeed? If they do not succeed, we do not get paid. It's that simple. If they lose a subscriber, we lose revenue. If they win a subscriber, we make money. It is customer-based success, which is our revenue model. How do we accelerate that at a rapid pace? That was what John's going to come up and how he transforms his business, both as a customer success organization.
Also how do we, Calix, transform ourselves internally in everything that we do? let's start out with the Calix advantage. First, I firmly believe that success starts with people. I believe in human-centric AI, which is how do we empower really great leaders to understand what the business opportunity to leverage these capabilities so we can change our business and grow at a rapid rate at a lower cost. I'm proud to say we have an incredible team in place, and that team leads an organization who, as I mentioned before, has transformed themselves into an award-winning culture. if you go back to 2019, our Glassdoor was three out of five. We were not attracting talent. We weren't getting the best and the brightest. We weren't having people from big companies like Meta and places like that coming to Calix.
Now they are. The reason why is because we really embrace empowering incredible people to identify what to do with these technologies and how to take our business to the next level. We've kicked off with a strong year. We've already won nine awards. We're really proud of the fact that Fortune recognized us, little Calix, as one of the top 100 places to work, up against some of the biggest companies in the world. We believe that that ongoing investment of culture is going to be critical to us, because not only are we going to help our customers transform their business, which there'll be a lot of resistance to change, but inside our company, we will change as a company significantly. John's going to talk about that. The second advantage that we have is how we innovate. All of our innovation is done with customers.
We work really closely with them. We have understanding into how they run their business, and we've been doing this for 15+ years. We've invested over $2 billion in the platform, and we have those 500 million workflows where we can actually parse out everything that they do. In this next phase, what's going to be critical is that we make the right investments in the right places to drive the biggest outcomes. We process, at this point, over a petabyte of data every single day, and that comes from our customers trusting that we will help them understand that data so they can run a better business. That massive investment from an R&D point of view has gotten us to this point. The other part is that that R&D investment is going to pivot significantly.
If you look at our innovation cycle over the last few years, these are the number of features that we released every single year since 2017. Prior to being a proper platform company, 77 features, 181 features, we were a hardware-integrated company that didn't have a platform. We released 2.0, and what'd you see? A massive acceleration of the rate of innovation up until a peak in 2024, where we doubled from 406 almost to 1,000 features coming out. What happened in 2024? Well, in November of 2023 is when we decided as a company that Shane came to me, and then he and I went to the board, and we sat down, and we said, "Artificial intelligence is real.
It's finally at a place from a security and privacy point of view where we can leverage it safely with our customers, and this is going to completely change every industry, and we need to start investing aggressively now, because if we don't, we'll be behind." In November 2023, we kicked off a massive project to actually start building out the third generation of our platform. Shane will walk you through the levels of the platform. That kicked off our embedding AI into everything that we do, becoming an AI-native platform. What happened? Well, as we progressed through 2024, we got those projects out from a features point of view. In 2025, we slowly pivoted our entire organization into one thing: Get that platform out.
About 80% of our resources through 2025 went towards getting the next generation of the platform out, which meant that you saw feature velocity drop pretty significantly. What's really great, it's out. It was hard. Nothing worthwhile is easy. It was really, really hard. If you want to invest for the long term and change the way your business runs for customers, you have to think about this way before. Those companies who haven't done this, they're already way behind, and if you haven't been watching the pace and the acceleration and the speed of change that AI is embedding into every industry, if you haven't made those investments, you're going to fall behind incredibly fast. We are very fortunate that the product team identified this opportunity back in November, and the threat, and we went hard, and now we're out. We can use any LLM. We have knowledge.
We have all these capabilities ready to go. It was our last customer, which was ported on March 26th. For us with that AI-native platform, we are now going to see a return to massive acceleration of our broader business. In the past, we've led the market. We've led the market as we opened up new capabilities. We've led the market from awards point of view. If you go back to when we were a pre-platform company, again, two awards an entire year. It's pretty sad. I know we were really happy when we won two awards, but it's not a lot of awards, right? This year- to- date, we're already five. We won 18 awards last year. People in the industry are recognizing us for the innovator that we are. This is nothing.
What we're going to do in this next phase with AI is going to transform how we innovate. We have the trust with customers, but the pace of innovation is going to be mind-boggling, and we see that from all the news that comes out every single day, and we're going to be at the forefront, able to take advantage of it. What is that platform? I'm not going to dig into that. Shane's going to come up, and he's going to walk you through what the Calix 3.0 platform is. At its core is a platform that takes customers and their teams, so everything to do in sales, marketing, network operations, field service, call center, and it aligns them to the markets that they serve on a single platform.
It allows them to serve consumer, small business, MDU, and as I'll show you in the TAM expansion, new markets, including hospitality and other areas, with no incremental complexity. It just works. That's how we bring it all together to help our customers do four things, grow revenue, add subscribers, reduce churn, and in the end, deliver the best NPS. That's one of the things that we're constantly proud of. People are shocked when we hear from customers who are going to sit up there. Tombigbee is going to sit up here, and they can say, "I have an NPS of 92 for the last four years." Apple's of 58. Brad Moline and ALLO can talk about the fact that their NPS in the mid-70s, and they've had that for years.
That's why they have 65% market share in a lot of the markets that they serve. NPS drives revenue. For us, the platform has allowed us to expand revenue. Had we just stayed in North American regionals, we wouldn't be at the revenue level that we're at. More importantly, we wouldn't have the opportunity that we have in the future. If you look at the revenue growth, it correlates to us releasing new products. We launched SmartHome. We won Verizon, which was the launch of our next generation platform with regards to networks back in 2019. You see revenue accelerating with the expansion of SmartTown, which is our roaming and the small business.
As we start on Calix 3.0, you're going to see a massive expansion of the potential TAM for our company and where we invest to allow us to go after new markets. First of all, it starts out with agent workforce, everything we're doing with AI. There's a massive expansion opportunity in MDU, hospitality, events, and all these other markets. For us, they're adjacent markets. They require an expansion of a product, not a complete rewrite of our products using the existing resources that our customers have. On top of that, we have the ability to go after global service providers using Google Cloud as a partner. As we think about the expansion of TAM, it's a huge opportunity ahead for us.
If you look back to where we started out, it's kind of like $10-ish billion was the TAM in North America, right? As we take this next step, global tier ones, it's a software-only play. That's the TAM approaching $10 billion. Then just in North America, the multi-dwelling unit apartment buildings, just that market alone is a $10 billion TAM, just in North America. That excludes hospitality, that excludes events, that excludes all the other areas. That represents a significant opportunity for us to disrupt these markets and grow at a rapid pace. With that, I would like to then pivot over to Shane, who's sitting at the back and needs to be walking up here faster. Shane, our Chief Product Officer, Shane Eleniak, is going to walk through our platform innovation and how we make that real for customers.
If you think about what we built from a platform perspective, it's a vertical platform. It starts with appliances and operating systems, the data path, delivering the actual services that subscribers consume. It's also the source, though, if you think about the network edge and you think about the subscriber edge, it's telemetry, it's instrumentation, it's understanding quality of experience, it's understanding unmet needs, behavioral analytics. It takes the form of a petabyte of data every day for us that we then want to look at and pull out insights. Traditionally, with our second-generation platform, it would have been insights that we'd be talking about. We have context. We understand the workflows. We understand the actions that need to take place at the service provider from a marketing perspective, from an operations perspective, from a customer support perspective.
We've evolved from thinking about insights to thinking about knowledge, thinking about machine learning and embeddings, LLMs. It's context. What's the action that needs to happen? What's the material event? What's the unmet need? The expansion from data to knowledge to say, "I not only know what's important, what's urgent, what needs to happen, I understand the workflow." Traditionally, we would have built static workflows with dynamic data. Now we're able to go to agentic workflows. Those are outcome-oriented dynamic workflows. If you think about the stack, it's the sources of the data, the data itself, the knowledge, it's these agentic workflows. Ultimately what we're trying to deliver is experiences to the consumer, to the small business, in the MDU, Wi-Fi roaming, venues, events, hospitality.
Those are the types of experiences that people want every day that differentiate, but ultimately meet the things that you and I want to do every day as a consumer. Everything that the small business owner wants to do. That's the vertical tech stack, and that's really the big change. If you think about platforms in an agentic world, they're vertical. Traditionally, what we lived through with clouds and SaaS was very much horizontal. I'm going to focus in on a horizontal and do one workflow really well. Now it's about understanding the outcomes, understanding the dynamic workflows, actually having that contextual knowledge to understand what needs to happen and in what order and what sequence. That's ultimately the platform and the hard work that we've undertaken in the last two years to evolve from a second-generation cloud to an agentic-oriented cloud.
There's a how aspect to products, and there's a what and a when and a why aspect to products. This slide really speaks to the how. How you do things matters. The shift from systems and OSes to a platform and a platform effect that you're building on top. It also speaks to us becoming a cadenced company and doing time boxed agile and looking at a shift left in how we did testing and automation and simulation to drive velocity of features. That's really the key goal here was to get a platform in place with Calix 2.0, put the right how processes in place to be able to drive innovation, to be able to go faster. Really what we're seeing now is a shift back to being able to focus on features after having built our third-generation cloud.
Really that previous slide was a large shift away from a traditional SaaS-based cloud to an agentic-oriented, contextual knowledge, dynamic workflow-oriented AI platform. That's the work that we've done. That says now we're able to focus products back on doing features and use cases and getting back to that velocity. There's also an element to this, though, and we'll talk about it on the next slide, about how you build products. The product development life cycle and how AI changes that is also an aspect of this. We feel very comfortable that we have the right how processes in place that we built with Calix 2.0 to be able to innovate and go at scale. We think there's a rich opportunity to go even faster with Calix 3.0. The second part of this is working with customers.
However, going fast doesn't help if you're building the wrong things. A big element of this that starts way at the left in time is getting the use cases right, understanding the first use case, and that tends to be our focus. We'll pick a subset of customers with a use case that we understand really well. We'll work with them as our anchors, and we'll get that one right. You go through a phase, though, where you're not only hardening that use case, you're expanding it, because now all of a sudden you've got a market. You're going away from a small group of customers to a broad market and all of our customers. You're doing use case expansion, you're hardening. There's an ecosystem around us. In this case, this is SmartMDU. You start to talk about billing gateways and different commercial models.
I don't want to do a bulk. I want to do paywalls. You start talking about tenant management systems and all the hooks and handles that start to fit into a complete solution and ultimately a platform-grade solution. We do this with everything we do. We work with our customers. We work really closely with them, not only to understand the change in the marketing workflow or the operations workflow or the support workflow, the subscriber need, how does that experience need to change, but what are their broader ecosystem we need to work with? Where are the hooks and handles? What else do we need to work with? What are those business systems? How do those change? What are new business systems as we get into new markets that we need to work closely with?
Ultimately, because they're delivering a set of experiences to the property management company and ultimately the tenant, right? The other thing that's changed, though, is everybody's now talking about vibe coding and code generation. We have a huge opportunity, and we're leveraging it today. We're now able to do rapid prototyping. Before what we would have done was Figma wireframes and sat there with slides and sat there and said, "Hey, what do you think about these wireframes? And do you have any input?" Now you can actually code a prototype. It's grounded in your code base. It's grounded in your data model. It's actually accurate. And I don't know about you, but I work a lot better with a straw man.
When I can see it and I can see what's going on, it's really easy to give feedback going, "That's good, but this would be better" or "You missed this," or "Yeah, but have you thought about that?" Now all of a sudden, you're shifting that prototype to the left. You're getting those first, second, third, and fourth use cases solidified very quickly. You lose the lost in translation between product management talking to architects and designers who are going, "But I read your epic, but is that what you meant?" Now all of a sudden, we've got visual. We've got rapid prototyping, talking to code generation tools that are generating the tool. This is a CI/CD pipeline. I need tested code.
How you do simulation, how you do testing, how you actually get to code that's deployable, that's stable, that's of high quality is really where we're focused. We're able right now to leverage these tools in our product development life cycle. We feel very comfortable when we say we built an engine on how to the how aspects in Calix 2.0 to today, but the tools that we have today are significantly better than the tools that we had in 2024. We feel really good as we shift now into the platform, that we have the platform in place to do this. We've got the processes in place to do all this, but we also have better systems and tools than we did two years ago.
Whether you look at what's possible in the video world, what's possible in the tested code generation, rapid prototype world's pretty cool and where we've evolved in the last two years. Okay. If you talk about, okay, you've got a great platform. You've got a great set of processes on how you do it. You work closely with your customers on what and why and when in getting sequencing and priority right. Tell me more about how you got here with this agent workforce. Effectively, we started as we would with everything, simple use cases, POCs, close customer relationships, and we started POCing. Hey, we've got ideas. We understand workflows. We do 500 million workflows a year. We've had five, six, seven years of runtime on platform with Calix 2.0, understanding how people use these workflows.
When you shift to agentic and dynamic and outcome-oriented, it touches multiple personas. Everybody's involved. Marketing has a role to play, engineering, operations, customer support, the needs of the subscriber, all of that changes. We started testing our proofs of concept. Q1, we released assistants. We want to help people. That was really our first agents. Q2, though, you start to get into these dynamic workflows that touch multiple people. You start getting into upsell, cross-sell, which is a marketing workflow, but operations needs to know about it. Engineering needs to know about it. Customer support needs to know about it. It touches subscribers in different ways. Same thing with churn workflows, same thing with acquisition. You're going to see us starting to see acquisition workflows, upsell, cross-sell workflows, churn prevention workflows, loyalty workflows. You start getting into customer support workflows.
How do I help the customer? Shortest time to happy customer. You start getting into subscriber workflows and how do I interact directly in the subscriber with the app? We start to deliver those in Q2. You're getting into call center workflows and network operational workflows. Those are going to be the swim lanes that you're always going to see us delivering in. We're putting the first ones in people's hands in May. We augment with additional ones. We start moving closer into the home device anomalies. We move from, hey, we understand the network, we understand the demarc of the network. Now we've moved into the home itself and into the business itself, and we're trying to understand anomalies there. We start getting into critical incidents, which get into notifications.
How do you interact with subscribers and tell them, "Hey, there's an issue. We're working on it. Here's the meantime to when we're going to resolve it." How do you continue to update them? You start getting into optimization workflows, AI-enabled network optimizations, planning type of use cases. Upsell, cross-sell also starts to evolve from, hey, I'm doing customer support. The issue is really the person has the wrong package. They're not doing anything wrong. The network's working the way it is. They've got an unmet need. How do I upsell, cross-sell at that point of contact also? That's with types of things that we start to deliver in our August release. Okay. With that, I'm going to turn it back over to Michael. Hopefully I've given you a sense of we have a vertical platform, we understand the how, we understand the what and why.
We work closely with our customers, and we're at a point now where we're delivering dynamic workflows that change the way people work today. Thank you so much.
Thanks, Shane. At the same time, he's going to transform his organization. If you didn't see on the last slide, the productivity gains he's going to get from rapid prototyping from an accuracy point of view and a use case point of view, but also codegen is a simple thing. It's actually how do you go from use case to tested code and product out the door that transforms the customer? This is the roadmap, and you're going to see this accelerate at a rapid pace. When I was at Mobile World Congress, this is the first time we've really been there. We got invited up to do a keynote. The keynote that I did was, What's the AI Future? It was the AI architect session that we did this in, and I talked through how do you rethink how we work marketing?
In this scenario, this is one we've been talking a lot to our customers about because they generally buy our platform end to end. The scenario becomes, I have a subscriber agent, and agents are task-based entities. They can think and reason, and they can evaluate data. They look at a subscriber. They see things are going on, working is optimized. Then as the person moves from inside to outdoors, they move out into the backyard to do some work, they see something bad happening, which is their experience gets challenged. That is a Wi-Fi degradation because they don't have coverage in the backyard. Maybe they wanted to go work in the pergola.
At the same time, the subscriber agent can grab insights with regards to that customer, taking external data and look at, for example, they know that there's a pool in the backyard because they have a warranty for a pool pump. I actually am registered somewhere with Pentair for my pool pump, and so you can do that correlation. I saw them leave the house. I saw the degradation. Oh, by the way, they have a pool pump. Chances are they have a pool in the backyard. This becomes important context in the marketing scenario. This is all automated. In the past, can you imagine an individual trying to go through and sort through all the external data to say who's got a pool pump and then who has an issue? That's a huge amount of work that is unfathomable.
You cannot scale that. In this case, it's agentic work, doing it at an individual level. It passes it on. An operations agent says, in this case, Brad and his organization also sell mobile phones. They signed up for an ALLO MVNO. It also looks at that home and sees the devices. Well, there's two iPhones and those are on my MVNO. There's two iPhones that aren't. Okay. That represents a mobile opportunity for Brad and his organization to upsell. There's two devices to be won there. More context. It then passes over that workflow to a service agent who does all the correlations with regards to what's been going on in that home over the last 30 days. It sees he's moving back and out. It also sees things like he's been working on Salesforce and different applications without breaking privacy.
We just want to know what they're doing because we want to optimize their experience. Then it bundles that all up and it passes over to a marketing agent, which builds a campaign. In this case, the campaign is contextual. It actually grabs, and as we showed with that video, there's no reason why you can't go create a video based upon someone hanging out in the backyard at a pool doing work. Put the video, it builds that context, it puts the offer in place, and then it chooses, based upon their social media preferences, where should I surface that ad? Should I buy an ad from 8:00 P.M. till 10:00 P.M. on YouTube? Should I actually surface it on their mobile app if they're using our CommandIQ application branded by the customer? Then when they go into a buy cycle, they click to buy.
Doing this type of a workflow at an individual level by subscriber is impossible unless you actually scale it with AI. Now, that's how our regional customers would use it, because the fact is they use all of our tools. As we migrate into different markets, Calix, from an agentic point of view, becomes a different entity for those companies. We become a toolkit. In each of those scenarios, we recognize that they have all kinds of other systems. Brad and his organization use other systems because they're a big scale company. Whether they're using Salesforce or Adobe or pick your system, what we can do is as they go through their workflow, we can then become a component part. Where in a smaller customer, we're going to do it end-to-end. In a bigger customer, we're going to become a component.
In that scenario where we do cross-sell, upsell into the pool and drive the data, we may be the one who identifies the pool. We may not be. That might actually sit with another agent in a data science AI agent, and it's actually servicing that data. We provide the subscriber insight. It goes into a workflow and off you go. Our role changes, and Shane and his organization, from an architecture point of view, part of our re-architecture was also to ensure that we can serve any size of customers. How? Because in the past it used to be APIs, which we're great at. The new terminology for agentic is model context protocol, MCP, which is you put a server in front of it, and we share our context without moving data, or A2A, which is agent to agent.
It's our agents talking to their agents as part of a workflow, which we've embedded. We're very good at being an industry standards organization, and so for a company that has all these back office systems, no problem. We can add value from an AI point of view with our platform in a very different way. It represents a significant opportunity. The other part of this agentic workforce is that it also gives us an opportunity to help our customers rethink how they do work. This is a transformation of your business. This is also a transformation of your business in a different way.
To understand how we help our customers go faster, accelerate differentiation and the experiences that they deliver into the market so they can win more subscribers, I'd like to invite John to the stage, our COO, who's going to walk through how we accelerate their customer success. John?
Thanks, Michael. Good morning, everyone. I want to share, first of all, how do we think about success, right? At Calix, we deliberately align with our customer's life cycle around build, around launch, and around optimize. What does that look like in practice? In practice, that may mean that we consult around our strategic funding. They have questions around that. It may be around setting up their Wi-Fi or their network design. It could be around subscriber activation, right? Or projects driving market growth. Lastly, it's around optimize, right? What's the most important thing is business performance or accelerating growth or thinking about what is that subscriber experience. We'll get engaged with customers in the subscriber experience that NPS scoring. We actually help our customers drive that. Why do we want to know what that NPS is?
Not just because it's a great score, but there's opportunity within that score. How do we continue to improve the experience and change that relationship? We're relentlessly focused on three things with our customers, helping them to attract new customers, retaining their existing customers, and thirdly, growing that customer base. When our customers are successful, we're wildly successful. This is an example in terms of this visual, in terms of our ability to help our customers grow, right? Because we win when our customers win. Innovation isn't just a product focus at Calix. It's a company focus. How did we help our customers grow their attach rate? Well, we listened to them.
They came to us with challenges, and we created a marketing acceleration program, which helps them think about their offer strategy, think about persona-based offers, and really change how they go to market to really focus on that experience. We continued to listen, and they said, "Hey, we need help in this area." We created a workforce transformation program, and that was intended to help them attract talent, retain talent, and grow their existing talent because they have an aging workforce that they needed help to make sure that they were ready for the future. They came to us two years ago and said, "Hey, you know what? As we get into smart business, it's a really different selling motion, and we're not that experienced in that." We created this sales acceleration program that thinks about what does the sales structure need to be?
What does the incentive compensation need to be, and how do we create a sales culture, right? We're doing these things, we are partnering with our customers in that continuous life cycle. Now, the most exciting part is around this AI opportunity that's in front of us. We could talk to our customers in an academic way, but that's never my style. I want to get out there and be a practitioner. Everything that we are going to work with our customers, we've done already. Right? We've activated our organization. We've done a great job of driving adoption, but not only adoption, but actually building agents. Right? My team in particular, I'm pretty proud of that, has a majority of those 400 that have been built out there that we're using to transform how we do certain activities.
When we did those, we found huge improvements in how it took time to go and build something for a customer. Right? We really automated that. As Shane and Michael both talked about, the biggest opportunity is around that end-to-end workflow. We're doing that internally as well, as we're thinking about our three biggest workflows and how do we reimagine those so that we can apply AI not in a episodic or on a functional basis, but across the entire thing to eliminate rework, right? To automate processes today, to reduce the number of handoffs, and that's fantastic. None of it matters if at the end of the day that you can't actually measure and get value realization. We've done that. We had a project going on around our supply chain, right? Next generation supply chain.
We're looking at signals to build and transform that. If you're interested in that, Jerry will be up here at the supply chain. He can talk to you all about how he looked at the signals, automated that, and reduced the number of people that he needed to go actually run his business, which was fantastic. Again, we're going to now take all of these learnings, and we've built them in something we're calling the AI Leadership Playbook. That's from our first-hand knowledge of how are we doing this? How are we governing, right? How are we activating pilots? How are we doing the change management to get everybody behind this? Because many employees could be threatened by this, but we think there's a huge opportunities. Why am I excited about this?
Because when we are working with our customers on ideation of things to do, their biggest challenge is capacity, right? As all of us have a capacity problem. How do they do more with less? I'm excited about how our agents are going to fill that need so that when we come up with an idea and they want to do this, we can get them all the way there. Now there's an agent to do the work for them to go faster. With that, I'm going to turn it back to Michael for the customer Q&A.
ALLO Communications-
Go ahead and cue the video.
ALLO Communications is based actually in two places, Imperial, Nebraska, a town of 2,000, and Lincoln, Nebraska, which is 300,000. We serve business, governmental, residential. What's really changing our business is Calix SmartTown, how we serve everyone through a variety of modes. The industry is changing at a more rapid pace than it ever has, and what we can deliver to our customers is just phenomenal. ALLO is going to be here to take care of our customers. However, how we take care of them is going to be ever evolving. It's going to change at a pace that we've never seen before. That's why I'm excited about our partnership with Calix. They'll help us get there.
Lumos Fiber is located in High Point, North Carolina. We also have a major office in Waynesboro, Virginia, and Roanoke, Virginia. Lumos Fiber has been in business for actually hundreds of years. We are currently building fiber or in serving fiber in 10 states in the Southeast and the Midwest. In terms of technology we use, it's predominantly XGS-PON. That's what we provide to the home. Calix has been a key partner for us at Lumos as we've grown and expanded. They have scaled as we've scaled. They've become more embedded in ensuring that we have the appropriate, not only physical technology, but software technology that allows us to do proactive troubleshooting, proactive maintenance, and resolution of troubles when they occur. Our partnership with Calix has allowed us to be the world-class internet provider.
The experience that we provide with the Lumos Fiber and Calix technology allows us to be best in class and allows us to change people's life with their internet experience.
Tombigbee Fiber is located primarily in Tupelo, Mississippi, and the seven counties that surround it. Tombigbee Fiber has 28,400 customers that we're proud to serve, both in Tombigbee Electric's territory and the neighboring co-op of Pontotoc Electric. Thanks to our friends at Calix, we learned the difference in an experience provider and just an internet provider. Very early on, about a third of the way through our construction project, we started offering everything that Calix had to offer for the add-on suites. We have worked forward from that and piloted things like SmartTown, bringing Wi-Fi to our communities, our baseball fields, our community centers, our parks, our cities, our downtowns. When competition comes in, they're about the dollars, they're about the profit. They're not about the customer, they're not about bettering their communities, and that's what Tombigbee Fiber is all about.
Blue Stream Fiber is one of the most reliable companies in any industry. We've been in operations for over 45 years and proudly service each region in Florida and now the Texas market.
Our business focuses on bulk fiber to the home, internet and video services for homeowner associations, condos associations, and new master plan developed communities. Our business focuses on service reputation, reliability, and is the reason that we have a 99%+ renewal rate of the communities that we serve. We've been partnering with Calix for the better part of the last decade to fuel our expansion into the markets that we serve, as well as new verticals. We most recently expanded to offer the SmartMDU solution by Calix, focusing on our apartment buildings and similar platforms. The results have been fantastic. With each of the residents that we survey in those buildings giving us a 4.9 out of five-star ratings. We're excited about what the future holds with Calix and look forward to partnering well into the future.
Good morning, gentlemen. Thanks for being on stage with us.
Nice seeing you, Scott.
Thanks, Michael.
Thank you very much, Bradley.
No problem.
All right. Let's start out with we've been talking to all of you about what's possible with artificial intelligence. Right? Why don't we start right here, Brad, because back last year, you came to me in May and said, "Hey, my team wants to go build out a whole bunch of things. We really need to start collaborating on how we can partner together." Why don't we start out with kind of your view of what the potential is ahead and how we partner together.
Well, what's been done several times between our organizations is we really have a mutual challenge, opportunity, problem, whatever you want to call it. What I found is we were working separately, and every time we work separately, we waste money.
Right.
What we talked about and got everybody in the room and said, "Here's what we're developing. Here's what you're developing. Hey, we have other systems and other complexities." What we did is we came to a common view. With that, we switched to the Google Cloud. That was a huge lift for us. Now what we see going forward is not just the first 14 things that we talked about, but now the ability to work together at a true partnership or stakeholder level to solve problems. Because it can't be just that the network performs better. It's every piece of our customer's journey has to work with Calix, with some of our other vendors and teammates, and create solutions that I can't even imagine.
Right.
I hate to say it, but what our teams are working on was never imagined two years ago.
Right. Brian, yourself, how do you think of it from a competitive point of view and where we're going to go as a next stage? Because you've gone through some big transformations in your business too, right?
Yeah, we really have, and it's been the partnership with Calix that's allowed us to do this, and I'll be the first to say, we're not really a first follower. We're more of a fast follower on the AI. We leverage the work that Brad and you guys do, leverage the things that your team does, but it really helps us focus on our business outcomes.
Right.
I think what people don't fully appreciate, you talk about our NPS score of 84. Four years ago, it was 77, 78. We've grown. We're building 10 x more households than we were four years ago.
Right.
We've added exponential number of subscribers. We have not added new customer care agents.
Right.
To grow over 4x not have to add customer care agents because of what we're doing and what you're doing in the background. What I would say is we're still evolving, we're still learning, we're just kind of getting there, but it's really your focus that's allowed us to focus on business outcomes.
Your point is that Brad, his team was going to start doing the AI, so he partnered with us in that way. Yours was, "I don't need to invent it, I just want to actually keep my head count flat and expand profitability.
Yeah, grow NPS and customer experience.
Grow NPS. Yourself, the conversation was around marketing that we had at Christmas, right?
Exactly. We're the smallest ones on stage. I may not look to be the smallest, but I am. We're coming from a world where I have six CSRs and one marketing girl who just graduated Ole Miss a year ago. She's wonderful. Hope she's watching. She's doing a great job.
Right.
We can't pull the data. We can't gather the things.
Right.
We couldn't do any of this without you. Without Engagement Cloud-
That's why you didn't do Engagement Cloud. You're doing very basic marketing because of the fact you didn't have the capacity to do that.
We don't have the time.
Right.
This is a game changer from us, so we're the opposite. Where some people are afraid of downsizing because of AI, I view it as upsizing. I'm going to take my six-person CSR team and my one-member marketing-
Turn them into 60.
Turn them into 60 or more
Right.
because of your help.
Right
Because of your partnership. We can do that, and we can reach people in ways we never could.
Right.
There was a gentleman ran for political office in Mississippi once, and he was running against somebody who had been an officer in the military, and he said, "All you colonels and generals vote for him. But all you privates vote for us." I represent the privates of your customers.
Right.
Of the 1,200 customers, you've got a lot of people that look a lot like me.
Yeah.
Brad is my hero over here. Lumos is amazing. These guys are awesome. We're the meat and potatoes of what Calix does, and this makes us have the resources that an ALLO has, and that's amazing.
Right.
That's a game changer in rural Mississippi.
Well, it's the democratization of AI, right? We are in this phase where technology's going to democratize at a pace we have never seen before, where the big guy doesn't necessarily have access to things that you don't have the access to.
That's right.
That's, by the way, the same for Calix, because all the LLMs out there are now readily available to us as AI becomes the biggest commodity out there. We have the opportunity to use the latest and greatest, swap it in and out, and bring that capability to you. Now, Gavin, your conversation with us is a bit different when we talk about what we're doing there, because we build product together. I want you to walk through kind of how we actually partnered with regards to the MDU market.
Yeah. Look, our story with you all is really the better part of the last decade, and it almost started out with our business a little bit different than the folks on this stage. We offer community solutions. We do long-term contracts. We work with HOAs or MDUs. We do master planned communities. We first started to see, as you look at that product curve that was up there earlier, route to some of the innovation, where we leveraged SmartTown for, you think master planned communities, the pool, the gym, the pickleball court, all that goes with that, and really sort of have that ubiquitous coverage. As we started to really verticalize and focus on some of our different segments, MDU, and you saw that TAM that's up there, we think that's a major growth engine for us as a company.
What we really tried to do is step back and say, "Think about it. These are long-term contracts. These are truly partnerships with these communities. What is going to get-
Yeah, they're 10-year contracts, right?
On average.
In a lot of those HOAs, you're doing long-term.
You absolutely-
It's not a consumer who's deciding month to month, right?
No, they want to know about your long-term customer experience. They want to know about what I'm getting today, but what am I going to get at the end of that contract? Think about a 99% renewal rate. This is a long-term relationship that continues to build on it. I work with Calix. We really focused on this Smart MDU solution, and we've now rolled this out to a number of our communities, and it's in a number of our backlog. You saw the scores in the video. Some of the early communities are a 4.99 out of five. Even every single one has been a 4.9 out of five as we deployed this.
We think that differentiates, and it gives us something from a product standard that we can go out to each of these larger portfolios, property managers, asset owners, and talk about this as a key differentiator for us in the market.
Well, the way that you used to do it was you would cobble together technology. Maybe you can explain to the investor group, right, how you actually used to do it.
Yeah, I think that's right. About three years ago, we went on this journey. We call it as a company customer experience excellence. It's about consistent, scalable, predictable processes, technology, and talent. A lot of the similar themes you heard in today's presentation. As we looked at that, we wanted to make sure that we had product and brand standards for each of the segments we focused on. We started to work with Michael and his team to really get down to the nitty-gritty around what makes the most sense, and going back to the pure use cases. What we found was a number of these Calix solutions, particularly in the MDU segment, were truly differentiated from X vendor or Y vendor and allowed us to have a solution sell that could ultimately scale for the test of time.
Right. In your markets, so as you look at it, Scott, one of the ways you differentiated, we talked about how you used SmartTown, Gavin, to go across an HOA so you can cover the event taking place. You actually went to a very different level because you actually went and covered all of the football fields, the baseball fields. You really focused on, because you're very community-oriented, around how do you use that technology to kind of cover everything, right?
We started on the football fields, and because of the ease of the platform, had that in a five-week period covered nine schools.
Right.
Then we took it from football to track to softball to all sporting events, to all schools, to all parks, all downtowns, all community centers, all volunteer fire departments, all parks. We've hit our whole service area with community Wi-Fi. If you sit in the stands in Mantachie, Mississippi, a 1,200-person town in a football game, you have better service than the competition has in your home. Why wouldn't you switch to Tombigbee? Why wouldn't you want the experience with us? The whole SmartTown platform, Calix partners with you. We were one of the innovators of that. ALLO was as well. But we were out front. We were one of the first few to try that. We were the first few to turn 19,000 units on in one day. We have a first responder network from that.
It's just amazing what impact you can have in your community. I've sat in a room with a customer from another company that was a first responder, and he looked me in the eye almost crying and says, "Why would I do business with anybody that wouldn't care about me like you do?" I said, "You shouldn't." That's the difference that we can make in our communities because we work with Calix, a company that cares about us, that ultimately cares about my communities, and that's what makes it special.
Well, let's expand out a little bit on that. The power of a platform is that you didn't have to go. You talked about you only have five CSRs and a marketing person, right? So you didn't actually have to go, like what Gavin said was, in the past you cobbled together a whole bunch of technologies. You could just turn it on, right? Maybe you could expand a little bit more about how simple that was for you to differentiate in your market.
Well, on two occasions we've done that with you, with SmartTown and with Bark. Very easy, we turned Bark on in less than seven days.
Right.
If you make a decision to go down the road with one of these platforms or one of these products to scale for the community, it's just a matter of working with your team, my team, put them together, talk. Within days, within weeks, it's up and running. It's seamless, it's easy, it's simple. I'm not doing this with rocket scientists. I'm doing this with a team that's good, hardworking American team, because you've got the rocket scientists for there. We just watch the rocket go off, and it's a great show. I appreciate folks like ALLO piloting that with your ALLO. I want to be like Gavin and get 10-year contracts, so he's my new hero.
Yeah.
He's your new best friend. How do you get a 10-year contract?
How do I get a 10-year contract with the whole HOA? That's a good deal. We're going to talk after. The ease of that is because your people care. Your people care about my community, your people care about our success, because our success is your success.
Right. Well, let's talk about how this can scale. Brian, you got bought by somebody, right?
We did.
Maybe you could share that, and then how do you think about scalability?
Yeah. You might have heard, we are now 50% owned by T-Mobile. It's a joint venture between T-Mobile, where we grow T-Fiber, and EQT.
They change scales.
Yeah. We've ramped up. We were growing at our builds at probably double our pace, and we're more than double our pace again on our builds. The installations are coming and having that service model and all that. I want to share, I haven't even shared this story with you.
Okay.
As part of the deal, when the founding genesis of Lumos was Segra. Segra got sold to Cox Communications. Cox kept the B2B. They spun out the residential to EQT. We were exclusively focused as a residential business.
Right.
That exclusivity is gone now.
Right.
T-Mobile sells residential, is responsible for selling residential, the joint venture. We're responsible for selling enterprise and complex business.
Ah.
We got to do one thing, right? We got to either say, "Okay, we're going to go build a DIA network, dedicated Internet network," or we can take what Calix provides us on our XGS- PON, we can put some SLAs around it and sell it as an enterprise network with XGS with SLAs. Guess what we did? We just about a month ago launched that. It's been a huge success.
At a higher ARPU.
Higher ARPU.
Big contracts like Gavin.
We're working on those. It was the easiest product rollout that we've ever did in my entire life.
Right.
Because we just took what you already did in the back end, we wrapped some SLAs around it, and now sell it enterprise.
Well, that's the same thing that we did with Verizon. When we did the collab with Verizon, it was all around how do you actually bring the different networks together onto a single fiber?
Yeah.
Put MPLS and all these other capabilities that would normally be. I'd have to go build a separate enterprise. I'd have two fibers. I have my consumer fiber. Now because of the software, I can do it on a single and create a new business opportunity at very high margin because there's a lot of capacity in there.
Exactly.
Right. Well, we'll get to capacity in a moment. Brad, you do that all the time because your belief is that when you go into a market, you want to dominate the whole market from consumer all the way up to enterprise. Maybe you can talk about how we enable that because you've been doing that like Brian's doing now for a long time, right?
Well, there's ways that you differentiate your business and one of ours is, and maybe it's my fear. My fear of a competitive threat coming in.
Healthy paranoia. I think that's what.
No
Andy from Intel always said, right?
No.
The paranoid survive, right?
Well, sometimes it's unhealthy paranoia.
It's not paranoia if they're really out to get you.
Yeah. That's right. What we did is said, "The most expensive thing we're going to do is put in fiber.
Right.
Why not make everyone that fiber goes by a potential customer?"
Right.
From Grandma's house to the-
Corner store.
the small business, medium-sized business. The state of Nebraska is our largest customer. Make the ecosystem work together.
Right.
Well, when we started this was probably 12-15 years ago, we didn't realize things like DIA circuits could be done by the current level of PON architecture. Oh my gosh, that collapses. Guess what? Mobile. Mobile ties into our company just simply.
From offload.
Streaming.
Right
All these things, and then the SmartTown. I met with an electric utility last week and the CEO, and it's a pretty large electric utility, said, "You know more about our electric grid than we do.
Right
Can we share information?"
Right.
Okay. Now that's the ecosystem. Can we work together, and we do have this with some of the low-income developments, how can we lower these financially challenged households' electric bill? Well, by lowering their thermostat at certain times when no one's there. Well, we know no one's there. We're doing some things that are pretty innovative, and it's helping society and it's helping education and it's just.
Doing good is very profitable, right? Honestly, there's a huge opportunity. We'll get to you because I imagine you're just biting your tongue seeing how you also have an electric utility. We'll get to you in a second to talk about that.
Not only is it doing good, but operating in an exceptional fashion is less expensive.
Right
Makes the customer happy and it's less expensive. This idea of white glove, that's offensive to me. Why don't you just take care of
Every day.
Everybody all along?
Right.
I think people like me, but no one wants to talk to their utility.
No.
We're a utility.
Oh, come on now.
Be like the water system. It always works, you always have plenty, and it's good and clean. Well, they want their communications the same way.
Well, the platform makes it very simple for you to do the things that you used to cobble together. That was one of the things that you and I have partnered on a lot, is that part of our product roadmap has been driven by build this, build this, build this so you can eliminate the complexity of incremental vendors and actually collapse everything onto a single platform, right? Smart business, what we did with the roaming, and then where you go with MDU, right? Let's talk about capacity, because in this crowd, there's a lot of people who actually think that Starlink is a competitor, and I know Amazon's a competitor. We've talked about that because they have a direct consumer relationship. Let's talk about it. You have a ton of capacity. Why is it that a customer would ever change?
Well, if you do the experience right, like you're talking about, they wouldn't, right?
Well, it's not binary.
Right.
I have two subscriptions for a low-orbiting satellite.
Right.
Well, one is in an aircraft and one is at a cabin that's down in a valley. It's the right tool for the job.
Right.
My fiber isn't going to solve either of those challenges.
Because it's $10,000 or $100,000 to run it to that cabin, right?
Yeah. I'm not sure how you'd tether a plane.
Right.
The reality is, w e work together.
Right.
We all work together, and we always have. Our industries came out of these monopolies.
Right.
The cable industry, the telco industry. It's not a monopoly anymore. If there's 10%-15% that's solved in a better or different way.
Great
Who cares?
Right.
It's more efficient.
At the same time, build the experience so that where you have capacity, you never lose. Right? Is that how you think about experience?
Absolutely. No, absolutely. It's been a little bit different since this joint venture, but prior to the joint venture with T-Mobile, we learned pretty quickly, because I came from the telecom industry where nobody liked us. Probably for fair reasons. To going into this.
You're very relatable, Brian. I just want to say that.
We came to Lumos, and we had a chance to create this new brand. Customers love our technicians, customers love our customer care, and they just absolutely hated the cable company. Hated them, right?
Right.
I said, "Okay, let's just provide a fair value. Our prices included taxes, fees, and everything else.
Right.
Fair value, great customer service, don't chase the pricing game, and just focus on customer experience and double down on customer experience. Do everything we should've done at the telecom business, and it worked out great, and I couldn't believe it. That's why Calix is such a great partner, because that's how you believe, right?
Right.
You guys go above and beyond on the customer experience. You're with us almost every day. What can we do different? What can we do better? That's the type of partnership that you have to have to be successful."
When, so now let's go back to the utility side. You also run an electric utility.
I do.
Broadband business and electric utility. There's a huge opportunity coming down the path with regards to utilities, too, because you can either run a network all by itself or you can actually say, as utility needs to go through a massive upgrade to deal with EVs. I've heard the number $1 trillion thrown out just in the United States with regards to the investments needed to go after those markets. How do you think about your broadband business, and then also how do you evolve your utility business to bring those together? Because your teams have been pushing us on how you actually carve off that fiber to build out great utility experiences and all those parts, too, right? Like Brad mentioned, which then goes to a true customer experience of where you can control the home.
In the utility world, we saw it coming. We have no option other than move to where we have the fiber to the home, move to where we have the experience where we can control the thermostats, where we can control
Right
the water heaters. It's a capacity issue, it's a cost issue.
Right.
If everybody-
There's only so much electricity, and every time you're adding all these EVs with gas going to $6, right?
If every house has two cars and they're both EVs, that one transformer that powered four houses, now you need six transformers, unless you manage the load.
Right.
We need to manage the load for that. That is a strong possibility, if not an inevitability, of what's coming. Load management itself is smart as well. If you look at electricity, it's grown very little in the last 50 years because you've had efficiencies added.
Right.
Now, the-
Yeah, right. Like an incandescent to an LED and things like that, right?
That's right. The next logical step of that is we need to manage the network. The management of the network needs to be consistent across all aspects, and it's either going to be the Tesla managing the house or us managing the whole network.
Right.
We need to manage the network. The only way we can do that is build the fiber. Well, for my system-
Put the software and the AI on top of it to make sure it actually really understands it.
Well, that's right. The only way we could afford it is monetize the network by providing the service that we provide.
Right.
That has opened the door. I built two fibers to every house. If I have a fiber-fed meter, it's there. I've built it. I serve 61% of my market, which is incredible. I've built to 100% of that market. I can serve every customer I've got on the electric side and make a fiber connection, and now I can afford to do that. It'll let us do that and control it and go places we never could've before, that we had to go, but we couldn't find a way to get here but for this. Partnering with you has allowed us to do that well, has allowed that to be more than a service. Internet's a commodity. We sell service. I sell service that you and Brad pilot. My goal of doing business is the same as Lumos.
We want to give you that customer experience that you deserve, and I think you can have that in a big city, and you can have that in a tiny town in Mississippi because of what we get with you. Your team is part of our team. It's family. We work together. We pull it together, and we can take the next step forward, and we can untether that plane. A tethered plane only flies in a circle, Brad.
I had one of those when I was, like, eight.
I did too.
From a profitability point of view, how has it changed your profitability across eight, b ecause your investors are different. Your investors are actually your members.
Absolutely.
There's a massive profitability gain here.
My electric co-op is very unprofitable. We break even, we have a very, very thin margin, and not fat enough. I've been in business for six years now. My fiber margins are six times what my electric margins are with half the customers.
Right.
It's allowing to add infrastructure back. We transfer $1 million a month back to the electric co-op, or more, that's putting money back in the system that we can grow and expand and do, and it will allow us to have this modern grid as time goes on that we could not do but for this business. While I don't return the profits to my members, I'm a TVA co-op.
Yeah, right.
I provide better service. I have better products. I have more employees.
You invest.
We invest in the system in ways we never could've before without this.
Right. Gavin, as you look at your profitability as the business and where you see it going, how does this level of automation, the elimination of complexity, how does that all play into where you go and this future that you see?
Well, I think it does go back to our conversation we had to start out with around SmartMDUs and some of the new verticals we're focused on. Classically, we've leveraged a lot of the experiential to build references and HOAs and condo associations. We're really focused now on the MDU and asset owner as a channel, as well as new home builders and developers, in order to really scale to new markets. If you do it really well in this market and that market, it starts to be more and more again about just what is the value proposition and how do you offer in that space? In that motion, it's really around making sure that you have the right solutions, they scale across markets. By doing that, you add significant more scale, more communities that come online, more MDUs that come online.
Ultimately, that leads to a major increase in our EBITDA over time if we can maintain our fair share and margins.
So that market is one that hasn't changed for a long time. In fact, I had an investor ask me that question saying, "Okay, so as you enter into the MDU market, because you're one of our early entrants into it."
Sure
It's actually something that has a strong incumbency, right? And they haven't changed in a decade, right? How do you actually see the step forward in partnership with us guiding us to how do we actually drive differentiation and spur that market on to allow you to win more?
I think it's twofold. When you go back to some of just the core fundamentals of doing that, there is a lot of legacy solutions that have been there for a long period of time. It's no different than our roadmap with you, sort of every year we've sort of brought out the latest and greatest technology. Like SmartMDU and similar platforms, when you get to 3.0 with that one, too, they'll continue to iterate and we'll have more access controls, and the property managers can do new use cases that they couldn't before.
Right.
All of a sudden, that creates a value proposition that we're allowed to go in and speak about that as Blue Stream, and collectively come in with a solution that makes a lot of sense.
Well, to your point, it's also a very fragmented market with a lot of different proprietary systems, correct?
Without question.
Like zillions.
Well, I think zillions. Look, this is not the MDU space, going back to what you said. Some of these have been in place for decades plus-
Right
As far as what they've leveraged. When you come out and you say, "Here's the latest, and there's all this AI intelligence that we can also give to you about your residents, everything else that's going to now allow you to offer a better service and a better resident experience," we think that's different.
Right. Yourself, what's next?
Oh, what's next? I'm excited for what we're going to do with what you're bringing us. I'm going to expand that marketing base. I'm going to make my service better with my techs, and we'll have better informed service crews. We're going to get to problems before they exist, or before the customer knows they exist.
Right
is a better way of saying that.
Yeah.
We're going to have better knowledge of our network. I think something that comes as part of that marketing discussion, I don't know that I said to you. I'm an electric co-op, so my CSRs have never been in a business where they had to sell something.
Right.
It's hard for them when the grandmother calls and said, "I need fiber service." "Oh, ma'am, that base package is all you need." When she may need more. The grandkids may be gaming upstairs.
For sure.
That I will be able to use this AI technology to know that they are.
Right
Have a call with the grandmother. "Your grandkids can have more fun, they can game better, they can have less latency if we do this greater package." My CSRs probably would never make that call, and I can use your AI to either prompt it or send a customized email to them.
Right.
That's going to be really cool. It's a game changer. I can get a more aggressive marketing stance from less aggressive people by this product that'll make it comfortable. When the grandmother calls back in, they will have a great conversation with her because she's asking for it rather than their having to sell it, and then they will be the persona of explaining it, and it's symbiotic.
Right.
The AI gets us to that point. That's what's next for us. Continue to grow as best we can, but increase that service. I'm not happy with the 92 NPS. Apple may be happy at 58, but I want higher.
I'll take it. Yeah. Well, by the way, that's almost a cult. Did you know that?
Yeah.
It is.
That's almost a cult. Brian, what's next for you?
Yeah. It's a little bit of a complicated world right now.
Right
As you might imagine. I'd say to really wrap it into three things. Number one, we have one single customer. It's a very, very big customer. It might be one of the world's largest customers based on private equity market or equity value, that we have to provide performance, operational performance.
Yep.
We have basically contracts with it. We have financial penalties if we don't deliver that. It's really building that world-class, smart, intelligent network behind the scenes to ensure that we are solving problems before anybody sees it or before it happens. That's kind of number one. Number two is, as we grow exponentially, we are now evolving into going to be getting more involved in the MDU space, getting more involved in the enterprise space where we're more opportunistic. That's becoming more and more of a real business model.
More.
Yeah. Thirdly, it's going to evolve as our new marketing agent learns the fiber sell business versus the wireless sell business and the different processes associated with that. I think you'll see this continue to evolve and get a lot more intelligent about how we'll go about doing it collectively. Those are probably the three pillars I would say.
Brad, you're actually coming into our San Jose office in a couple of weeks.
Yes.
We're actually going to do what we do annually, which is the planning on how we actually do joint innovation. As you think about what's most important for you in this next step, especially with all the talk and the partnerships that we've been doing on AI, what's next for you? How do you see this evolving out?
Well, a lot of it is we're just crawling with AI and crawling with the partnership there. Hopefully over the next year or two, we'll start walking.
Right.
Then it's a run after that, to torture the analogy. The real thought process is moving from efficiency. I don't know what efficiency means. We haven't added to our customer service even though we grow at 25%-30% per year.
Same amount of heads. Yeah, right.
You know, in that. It's making them smarter.
Right
Being able to push more products through them, delighting the customer. I think what the piece we're really missing as an industry, that I think is maybe a bigger opportunity than all the network-to-network work and all that, is what products should we be delivering to the small business or the home that allows another $10-$15 of ARPU?
Right.
Not in a transactional format. In much like the mobile phone has developed, there's this little heart thing on the mobile phone, and I can't tell you what it costs me, but all of a sudden, as I got older, I learned I needed to start walking more. I look at it once in a while. I don't know what it costs me. It doesn't. It's included.
A better experience.
It delights me that I have it, and I think that's where our businesses are going, is we were very focused. We were electric, we were telco, we were cable, we were mobile. It's all coming together, and I think that's where Calix's real play is over the next two, three years, is enabling that and allowing us to be exceptional.
Great. With that, let's thank them very much for their time. We really appreciate it, gentlemen. Thanks. Thank you very much.
Thank you.
Appreciate it.
Thank you, Mike.
Thank you.
Thanks, Michael, very much.
I really appreciate it. With that, now I'm going to welcome to the stage Cory Sindelar, who's going to walk us through our financial model. Go, Cory.
Thank you, Michael. Good morning. Appreciate you spending some time with us today. You probably realize that this is a really big story. We are building a company with agentic workforce that allows us to transform the service provider industry. It's on scale of Uber transforming cabs or Amazon transforming retail. My job here for the next few minutes is to wrap up everything you heard and how that's going to affect our financials over the next three years, and ultimately what it means in terms of return to shareholders. You have seen us talk about these four financial objectives. We've been talking about it since we began our platform journey and from 2018. As we go forward, nothing really changes with these other than we go faster and we go better.
What you've just seen in terms of the prior presentations is that each one of these objectives is enhanced by what we're delivering with our agentic platform. You've heard us talk about on the call that our visibility in terms of our business has improved and is near an all-time high. You might be wondering why we say that and what gives us the confidence in saying that. Let me share this with you. What this is it's showing a kind of a cohort analysis. It's the basis of our land and expand part of our model. Once we land a customer, they grow in time. What you see here is going back to 2018, we added 147 customers, and you can see how that just grows over time. As you know, as Michael said, all our services are tied to subscriber, right?
We monetize on a per subscriber basis, and so we are maniacally focused on helping our subscribers win, our customers win new subscribers. It's why we've developed our customer success team led by John, and it grows over time. You can see by this chart, it's up and to the right. Sometimes it grows a little faster than others, but inevitably it is up. Because our customers are focused on delivering experiences, they are winning in their marketplaces, and they are taking subscribers every single year, every single quarter, every month, and every day. Now, this is where we're at today, more or less. Let's talk about what the opportunity is. This is the U.S. total addressable market. It's a fraction of where we're at today. We have an enormous opportunity in front of us. We are now beyond the elbow. We're in a sustained growth phase.
We have everything that we need to be able to go work against this, and so that's the opportunity we have. How do we get there? Well, largely the same way we have so far. First and foremost, we're going to grow our customers. Our customers are going to continue to add new subscribers, and with the power of Calix One, they'll be able to go at a faster rate. When you have the ability to market to the audience of one, their chances of improving their success of landing new subscriber goes up. You saw that the Agent Workforce Cloud. It's going to free up additional resources. Those resources, you heard the panel up here today talk about how they can redeploy those resources to go deliver new services. Maybe it's SmartTown, maybe it's MDU, maybe it's smart business. They're going to roll out additional new services.
Of course, we're never going to stop adding new customers to our base. With this agentic platform, I think we're going to be able to attract more at a more rapid pace than we have in the past. All of that is accelerated by Calix Agent Workforce Cloud. Let's talk about the numbers a bit. On your left is kind of where we've been operating in terms of a target financial model. On the right is kind of where we're looking at in terms of moving forward. On the revenue line, we've typically said, "Hey, we're going to continue to grow sequentially," and we still believe that's the case, and then we provide you a range. In 2016, we said we'd be at 10%-15%. Yesterday, we just took it to 15%-20% on the back of the memory surcharges.
For 2027 and 2028, we're going to call it right up and down the line at 15% growth. It's based on all the visibility, our backlog, the recurring revenue, everything that we're seeing with our visibility being as high as it is. You might be asking me, "Well, can't you grow faster?" I'd answer to you, possibly so. This is what we're committed to delivering in this timeframe, and we'll see how it goes. On the gross margin perspective, we've been using and operating under 100-200 basis points for some time. Over the past three years, we've done really well. We've exceeded that target, greater than 200 basis points in each of the last three years. Unfortunately, in 2026, it's a little bit of a different story. We have some short-term headwinds that we're going to be facing.
I'll talk about those, memory and dual cloud costs. As we get beyond 2026, I think we have the opportunity to continue to get back on track to deliver 100 to 200 basis points of margin expansion. Let's talk about memory. It's probably the one that's affecting us most. When you have a demand supply disconnect as large as the one we have now, forcing the kind of price increases that you've seen, over 10x increase in cost, somebody's going to lose out. The music's going to stop playing, and somebody's not going to have a chair. Our number one priority is to make sure that we are one of the people that have a chair. Jerry and his team over here are world-class.
You've seen us execute through COVID, one of the few companies that never missed a beat, and we went into COVID and came out of COVID stronger. We will take the same opportunity here, and we've been aggressive in the marketplace in terms of acquiring memory, because at the end of the day, when Brad and the rest of the team up here are winning their new subscribers, we better have units to supply them. Right? For us, we don't want a top-line problem. It won't be a top-line problem. Now you have to deal then with the cost side of this equation. It's unfortunate. What we've decided to do was to go ahead and pass along those costs in the best way possible, which is we will just look for cost reimbursement. Not going to put a margin stack on top of it. Okay?
We're doing that in the form of a surcharge. Surcharge is deliberate. We don't want to raise price. If costs go down, we'll pass that through. Costs go up, we'll pass that through. This will be persistent likely into 2027. As I said yesterday on the call, I sized that headwind for 2026 at about 200 basis points. That's just the fact that you have zero margin business running through your P&L. Right? You're putting a whole bunch of incremental revenue at no margin on top. If we take a look at the second headwind, dual cloud costs. Well, the best news story there is, it's past tense. It's done. It's over. It was a one-quarter phenomenon. That's probably the best thing I can say about it, and it's short-lived, but yet had some headwind to us on our annual numbers.
trick of looking at the operating expenses. You've heard how we're using AI internally. You can share some time over here with Jerry on how we're using AI in supply chain. We're using AI to help our customers to go faster. Well, we're also looking into doing it internally. You ought to expect us to see some improvement in terms of the way we run business. There should be some OpEx savings as a result of it. As we look into 2027, we are still forward investing in some of the things that we want to do for AI, and there's a couple new markets that we're going after in terms of large customers, MDU, that we need to build into. We're setting that target in 2028 that we should be able to grow OpEx at half the revenue growth rate.
We'll make some progress into that path in 2027. To kind of recap, the end of 2026, we'll be back in that old financial target model, because we told you we would forward invest, but that we would be back in target model by Q4 of 2026. From there, we'll actually make some improvements by growing less than the revenue growth rate. With OpEx in 2028, making some more substantial progress. Let's roll that all kind of together. Over this next planning horizon, we see our gross margins drifting back into the 60s%. OpEx will drift down to 40% or below. We can see clearly during this period of time that we can get to a 20% operating income for the company. This business is going to generate a tremendous amount of cash. That cash is going to go to the balance sheet.
These are the metrics that we are gauging how we're going to operate our balance sheet. There's reason to make no change to them. We can still run a very, very tight DSO. By the way, we frequently do much better than the 35-40 days. For example, last year, we actually hit 24, which is unbelievable. Inventories, no change. Let's stay three to four . You know we're running it on the higher side of inventory level for three, and that's largely because of the current supply environment that we're in. We need to do more to be prepared to meet the demand equation and to be available for some of the memory and other components that we are buying ahead. In this battle for memory, one of the things you want to make sure you do, pay your vendors. Maybe pay them early.
You want to be one of the best customers to your vendors as possible, so that when they have that memory and they want to allocate it, they want to pay one of their favorite customers. That's Calix. The DPO is important. That gives you your cash conversion cycle. No real changes to it. We'll continue to operate a very clean balance sheet. What do we do with all that cash? I personally would love to have it all stacked up around me. I have visions in my head of either think of Scarface or Peaky Blinders or something like that.
Carl tells me we're not a bank. I can't keep it. At the end of the day, we have a very disciplined capital allocation process, and we've talked about that. I might as well recap it one last time for those that may be new to the story. We think about our cash in three buckets. Our operating cash, our strategic cash, and our rainy day cash. Over the next three years, we would anticipate that we need some additional cash in that operating bucket. Not only to grow the growth in the company in terms of expanding the balance sheet, but to have those inventory investments. If I think about the strategic balance, we are an organic grower and have.
We've always set some money aside in our minds thinking about, hey, there may be an opportunity to go buy a technology or do some kind of tuck-in. We have recently just continued to build onto the platform. Take MDU, for example. We would rather have actually built in the platform, creating greater DVs for our customers than to go out and buy a piece of technology. I think over the next three years, that trend will continue, and so our needs for the strategic cash probably go down. That means the cash that we're generating will likely drop to the third bucket, the rainy day cash bucket, at a faster rate, and it'll be the fastest growing part of the bucket. We do a disciplined model. We come up with a long-term model. We're going through it with the board every quarter.
As I shared many times that the larger the cash balance gets, the less sensitive we are to price. Every quarter we put a trading plan together, and the shares will be repurchased. You've seen that we've done a significant repurchase here in the first quarter, and it will continue to be that way. For the next three years, I would expect us to continue to retire shares at a healthy clip. There's another part of the story, and it gets better. As we've moved from this early development part of the company into where we're now in the early majority with sustained growth, we are realigning our equity programs. In the past, we were using performance stock options, and we had two employee stock purchase plans.
Going forward, we are pivoting to performance stock units and collapse those two employee stock plans into a single plan, which creates more and more of like a employee stock ownership plan, closely aligned to long-term shareholder value. The effect of which should be fewer shares being issued. We think the combination of cash being returned in the form of share repurchases should more or less offset the share being issued through the equity plans, and we become dilution neutral. Obviously, in 2026, with the large purchases that we did in the first quarter, we'll probably be dilutive negative. To wrap it all up, just recap, we are the only company that has built an agentic workforce platform capable of transforming the service provider industry. The TAM is enormous. We have a proven model that works.
We are asset light, and therefore, investors should expect significant cash returned to them over the next three years. Thank you. With that, invite the leadership team on up here.
Grab a seat, Cory. You are part of the team. Shane and John are going to join us. All right. Can the Donahues pass the mics? Put your hand up. Glad to take questions.
Hi, morning, and thank you for the presentation. Maybe a couple of questions. You highlighted the managed services opportunity, and you've talked about it since Carl's days as well, about that sort of $1-$10 per subscriber range.
Yep.
You've made a lot more progress on that front. Now with the visibility that you have, can you help us quantify that a bit better in terms of where you are, in terms of progress there, including now the AI-led opportunities that you're sort of looking at? How should we think about what's a reasonable milestone for that to get to during this sort of model period that you're discussing? A follow-up would be maybe, Cory, more for you, is you talked yesterday as well about BEAD being an accelerator on the model.
Mm-hmm.
When we think about the growth target that you're outlining today, which is the 15%, is BEAD incorporated or are you saying, "Oh, let's see what goes, sort of how it plays out?" Is that sort of what's embedded in there? Just want to understand because you did refer to it as the accelerator yesterday. Thank you.
On the first part of your question which was around, is there an opportunity to accelerate the business? John talked about how we were currently doing it, and one of the issues that we always had was capacity of the customer, right? Because you heard from literally sitting in his seat when Scott was talking about the fact that he only had this many employees and didn't have the capability to expand out, couldn't use all the products, couldn't get them launched faster. We think in our existing base where John showed an attach rate of only like 40%, there's a huge opportunity for us to first of all actually put the capabilities in place using agentic to actually do the work for them.
John's organization is going to change radically in how we support customers because, and I've said this time and time again, this next stage for us and what we've built over the last 2.5 years is in the past, we would have to cajole the customer to please launch that product. Please listen to us. Please change your website into an experience-based website. The next stage for us is going to be push the button. Push the button. Here's the ROI, get it done. We think that represents a huge opportunity to radically expand at a faster rate with the existing business. The second part of that is, as we look at the new markets, we showed some of the TAMs. These are very logical expansions of our existing platform. We have incredible partners.
Again, you heard from Gavin on what the opportunity is in the MDU market, which is embedded legacy companies who frankly aren't investing to actually innovate. We come in with a very different mindset. They basically brought their technology enterprise down, and we all know that things don't scale well down. We brought our technology from consumer up, and we actually have an opportunity to completely transform and disrupt that business. That's the ones like Gavin, which are the ones we partner with, why he's so interesting is because they're a challenger in that market looking to significantly grow market share.
When you partner with them, what they do is they say, "Hey, I can try to be like everybody else, but here's all the opportunities to completely change the business because I want to disrupt." Gavin doesn't want to go and be like everybody else because that's not how you make money. If you're like everybody else, then you're just kind of, who do I pick, right? Versus partner with someone like us and be first to market. That's the other part too, is he wants to be first to market. This represents a significant expansion of TAM. You look at the MDU market, that's excluding hospitality, international, what we can do in eventing. Just the North American MDU market alone is bigger than the global tier one market for us, which would only be software, and is frankly as big as our incumbent market today.
What we're really good at it is going into markets that are highly not decentralized. If you look at the U.S. regional market, what is the U.S. regional market? It is unlike any market in the world. It's not dominated by a single provider. It's like 3,000 companies who are highly distributed. What do we do in that market? We dominate it. As we go into this MDU market, this is what we actually do really well. It's the exact same type of market as we're currently in regionals versus going after one big company. We know how to do this.
What's great about the regional market and the way that not only our products are built, the partnership and trust we have with customers, but also our selling and success motion, that creates a moat around the business that we have because our customers trust us, and we're going to go do the exact same thing in that market. It represents a significant opportunity for growth. The second question is over to you, Cory.
I'll just add a little bit on the monetization of $1-$10. All our offerings have been on a price volume curve. as we go into large customer segment, obviously they'll bring a lot more volume. I would expect them to be on the lower side of that scale of $1-$10. Okay?
Well, that's why the TAM is different because of the fact that the other part too is they're also going to be running it on their own private Google instance. Therefore, we're not going to have an appliance element in there, and we won't actually have the COGS. Shane's team's not going to be running it like we do with our current customers. It's actually going to be their Google instance with our stack and a pure software-only sale. Which is why when you look at the TAM, what's so different about it is that that's 100% margin or pretty close to.
Yeah, and on the BEAD side of it, the answer is some. Right? Our forecast is being built on the orders that we have and the pipeline that we're driving, and our customers have provided us with their initial set of builds.
I would say that there is some upside in those numbers. It doesn't include all of it, should it come to pass. It provides an opportunity to outperform that 15% should we get what we think we might in terms of share.
Okay. Next question. Mike? Mike, nice to see you in person versus on a Zoom, like always.
Hi, nice to see you too. Mike Genovese from Rosenblatt. A couple of questions. First of all, Michael, can you talk about expectations for selling software only to customers that don't buy hardware, how big that business could be, but also how does the telemetry work there if you're just taking the data from publicly available sources and not your own captive equipment? How's your competitive advantage in that area? I'll follow up with one for Cory next.
Yeah. By the way, it's the same. For example, what we do currently is that we have millions and millions of non-Calix systems actually being managed by our system today using industry standards like TR-069 and those things. While Shane talked about being in the data path, we're not in the data path there. We're actually using industry standards to collect the data, so that still becomes available to us. It just means that the customer can't do quite as much, right? With the new business model, what we do is we actually our operating systems can run on other systems. We put our operating system on, let's say you're a big customer. You say, "I would like my volume SKU to be, I'm going to go direct to a manufacturer." Right? I go do that.
I still put the Calix operating system on that, and so it sits on top of it, and it can be an industry standard operating system. We've openly talked about how we're going down the path of prpl, which is a standard. We'll be prpl certified. They pop that on. They then have containers where they can add the services. When that OS is there, it is also collecting the data, right? It can link into our clouds. Because what people don't really understand is that they're thinking about the OS and how to grab data, and Lord knows you and I have talked about this a lot. You still have to have that cloud system that sits on top of a private Google instance, and it provides access to what are the operations, services, marketing, all those capabilities.
Then in that customer as identified in the workflow, you're just going to consume it in a different way. For example, I'm running ServiceNow or Salesforce in my call center service environment. What I do is a Calix agentic agent is going to be a component of that. It's going to feed data into the Salesforce or ServiceNow technology. Then what's going to happen is if I'm a call center agent and Shane calls in, I actually am going to click through, an iFrame's going to pop up, and you might be in, if you choose, you can be in Service Cloud to diagnose our issue, then close it down and go to the bigger view of the customer. This is something we're very good at.
The other part of this is that when you look at the evolution of open systems in technology, that's what model context protocol is, which is how you don't move data. You can actually use context or agent to agent so that we can actually have what is basically an API framework for agents. We have had a long track record of standards-based, right? We're very good at integrating into disparate environments, and we see this as just the next evolution and the ability to enable those customers to do those things. I'm assuming you had a second question, which would go to Cory.
Yeah, if I could just follow up first, Michael.
Yeah.
Are you expecting to win other new large customers with this?
100%.
Yeah.
Absolutely 100%. Shane and I didn't go to Barcelona because we like prosciutto, right, and cappuccinos? We were in Mobile World Congress talking to big customers. This is the start. We had to get past the. We went to Mobile World Congress to kind of say, "Hey, we're here." We have some big customers. We have Verizon. You heard from Lumos what we're doing with T-Mobile. The next stage for us is now to go after that big customer base worldwide. We kicked that off at Mobile World Congress. Shane and I were there. That's why I did a keynote there to start having those conversations. Absolutely. What's different about us, though, is that we also don't have to go after a large customer in one way.
What you also heard from Brian with regards to where we are in MDU, a large customer has many facets and highly dysfunctional, right? Having been in the big companies, I know how this works. It's silos, right? That's how they function. You have a consumer, you have a small business organization, you have a multi-dwelling unit organization, you have a business organization, and all those segments in there are filled with executives who actually run their businesses. What's also unique about us is that our platform does everything. It's just about where is the entry point. If you look at my career history, I've been in leading sales transformations and transformations of companies for, this is my sixth, right? When you're in a sales and marketing role, the most important thing that you want is lots of opportunities to get into a customer.
If you're a one-trick pony and the only way in is and they slam that door, that one opportunity that you had is closed. That leads to a lot of disappointment, and in the end, a small pipeline against a TAM. If you can actually talk to a large customer and go to talk to all the different organizations about everything that we offer, what you can do is search for a beachhead. You're searching for. In the end, those beachheads and large customers generally come from who wants to make a name for themselves? Who's driven to drive change versus who's actually just waiting for retirement? You have to go find the people who are saying, "You know what? I just took over this organization." It's the same as when I got promoted at Microsoft.
The people before me, and when I went to Bell, some of the people before me weren't driven to drive change. They were just like, "I want to keep doing the same thing." When I took over a business when I was at Microsoft, anyone who come to me with regards to, "I need to change my business. I want to go and take us from 2% growth to how do we do 50% annual growth," I'm ready to listen. The good thing is that we just have to seek within those customers who are the ones who want to drive change, and then enable them with our platform. What happens is once the platform gets in, you have the beachhead, and everything is available now to the entire customer. They just have to turn it on.
Because once you integrate into the back office, everything works. For example, if I go into a large enterprise customer, a tier one, and we win the small business go to market, all of our capabilities in the platform are enabled for all segments of that customer. You're in. You can start saying, "Well, you don't have to do a two-year OSS/BSS integration into Amdocs because it's already been done. Just add it to the product catalog, and you can be up and running in 90 days." That's a huge change.
Okay, finally, Cory, I just want to get your confidence on the idea that the second quarter could be the bottom for gross margins and that will grow sequentially from here. Given the uncertainty about what's going to happen in the spot pricing for memory, how do you factor that into what you're thinking there?
Yeah. Mike, I don't know it is the bottom because the gross profit is going to be the same or better, but the margin might be down.
Right.
Because if you think about what we're talking about, and I said 200 basis points headwind, it's not even. We're just getting started with the memory surcharges in the second quarter. You're going to get a full quarter in the third quarter and fourth quarter of those memory surcharges. How much $0 margin revenue I'm blending in will have an impact on my overall margins.
EPS goes up.
I can tell you the GP will improve.
Right.
Right? Does that make sense?
Yeah, you're going to keep seeing EPS growth, but the margin is going to wash out until we get through the memory elements.
I will say on the software side, though, let's just talk about that because that's a positive. With having the dual cloud cost behind us, we'll spend Q2 kind of optimizing the new GCP platform. I would suspect by the time we get to the third quarter, we'll be setting new records in terms of software services, gross margins, and from there, build on it. You're going to have that as a tailwind as we move forward.
I'm actually going to make one other point on that topic too. When I was up here, sorry, just got to scroll back a lot, to when we talked about the velocity of product. You see the dip, right? The dip actually in 2025. To be really clear from a selling motion point of view in the end of Q4 and all through Q1, it actually had a dip on our selling motion too. It was all hands on deck. It was all hands on deck for Shane's team to get it out.
Mm-hmm.
It was all hands on deck for John's team to support customers through that transition. It also took a lot of our selling capacity in Q1 off the bench from actually selling because for example, all our sales engineers were working with customers to make sure that those customers had support as they went through this transition. It was all hands on deck. In the same way, I think that, to your point on software sales, the other part too is we go through Q2, Q3, we're back to regular cadence. As an example being what Shane talked about with MDU, the big last release that really makes this platform grade is in May. We're two weeks away from that, and we go hard at that market. Now those selling resources aren't supporting customers, which is you never want that.
We never want our selling resources supporting customers, but that's what it took to do something monstrous for our customers. With that, we can take one last question or not. We're out of time. Okay? Yeah.
Scott.
Scott, one last question because we're over time.
I always have multi-part. Just real quick, Cory, in terms of the outlook for 2027 and 2028, I'm wondering what you could tell us about your assumption on memory pricing. Kind of what the baseline is that's going into that forecast. Then Mike, going back to the private clouds. Huge opportunity there. I wonder if you could distill a little bit what the pipeline looks like, how big, how diverse the engagements are. And these are larger, complicated sales, so kind of the closure time period of when we would actually expect new customers to be coming on board. Is that 2027? Is that 2028? How are you thinking about that? Thanks.
Yeah, Scott. The underlying assumption is that memory will find a new equilibrium sometime in early 2027. I don't think it goes back to where the pricing was. It'll be at some new higher level. I think you'll start seeing, and you're seeing the memory guys already putting more fab capacity to it, and Micron has stuff coming on in early 2027.
You'll have other people that are optimizing the amount of memory that they're consuming. All those supply-
We also even saw what Google just did, where they saw a 10x reduction in memory. You're going to start seeing those optimizations, and as the fab capacity increases, that represents an opportunity too.
Right. I think it goes to early 2027, and then we'll see a new baseline.
I'll close off with this. With regards to driving market, one of the great things is that the competition is increasing for our customers. It's not great for them, but the great thing is that we're partnered with them. We understand their challenges, and we understand their markets, and how they are going to compete and win in their businesses. So I would say, as we go after these incremental TAMs, one of the important things is that it isn't where we went back to, and you had one provider per market, and there wasn't a lot of competition. So you know what? If I have a fiber and I show up, I win. Those days are way behind us. There's a lot of competition.
I would say, with regards to the selling motion, the good thing is that customers see a need. You heard that from the four people who were up there. They're all like, "I want..." Brad said, "I find white glove offensive. I want to have the best experience all the time." You heard them talk about how they dominate in their marketplaces. You talk about what Scott said with regards to everything that we're doing for the customer. In the past, John and his team would have to spend a lot of time to try and convince customers to do these things, but with the threats and the pressure there, that represents an opportunity where people are starting to say, "You know what? I also need to do these other things. How do I build the best experiences?" Yes, these cycles take time.
Yes, you have to build out the pipeline. The great thing is that there's demand because of the fact that there's threats, and we're best positioned to deal with it. The pipeline grows.
Thank you.
With that.
We'll wrap it.
Yeah, we'll wrap. Gentlemen, off you go. Thank you very much. Thanks to the leadership team. Sorry, now I've got to cycle right back to the end of the slides, which actually just says thank you. To everybody in the room, to the customers who took the time, huge thank you for coming and joining us on the panel and giving color on what the business model is. To all of you as investors, thank you for investing in Calix. We really appreciate your time, and we hope you have a great day. Thank you.