CALX

AI Platform Transformation

• The full first quarter of the AI-native CalixOne platform being live marked the start of Calix's position as an AI leader for the broadband industry, built on 15 years of platform investment. CalixOne enables service provider customers to improve operations, marketing, support, and subscriber experiences, and counter broadband commoditization to drive subscriber growth, higher revenue, and lower costs.
• The number of customers signing for Agent Workforce Cloud tripled in Q2, with adopters spanning the entire adoption lifecycle from early innovators to the late majority. This late majority adoption confirms CalixOne is a secure, trusted, and predictable AI solution for all customer sizes.
• Calix's architecture solves the core industry problem of unpredictable AI costs: it uses hardened open-source models and pure compute acquisition instead of token-based pricing, delivering predictable AI costs that enable clear ROI calculation for customers.
• Innovation velocity has accelerated dramatically: first-generation platform annual feature output peaked at 181 in 2018, second-generation at 918 in 2024, and the third-generation CalixOne platform will surpass that pace quickly.

Internal AI Deployment and Operating Leverage

• Calix is pursuing a human-centric approach to internal AI adoption, agendifying high-impact business processes to generate operating leverage across the company. Q2 non-GAAP operating expenses were ~$122 million (42% of revenue, down from 45% in Q1), reflecting early productivity gains from AI investments, lower incentive compensation, and expense timing.

Balance Sheet and Operations

• Calix ended the quarter with $194 million in cash and investments, after deploying $69 million to repurchase 1.6 million shares. Days sales outstanding was 42 days, and inventory turns were 2.7, reflecting deliberate inventory investment to secure supply and meet strong demand.

• Q3 2026 Revenue: Expected to be between $301 million and $307 million, representing a 4% increase at the midpoint compared to Q2 2026, reflecting continued strong broad-based demand even as customers manage inventory tightly in response to higher memory costs.
• 2026 Full Year Revenue: Expected to grow at the higher end of the prior 15% to 20% growth guidance range, driven by strong underlying demand and accelerating software growth.
• Q3 2026 Margins: Non-GAAP gross margin is expected to be 52% at the midpoint, pressured by higher memory costs. Management expects appliance gross margin to bottom in Q3 2026, and software and services gross margin to set a new record in Q3.
• Q3 2026 Operating Expenses: Expected to be $124.5 million at the midpoint, with a sequential increase driven by expense timing and higher incentive compensation, partially offset by ongoing AI-driven productivity gains.
• Long-Term 2027-2028 Guidance: The 15% annual organic growth target remains on track. Management reaffirms the expectation that operating expenses will grow at a lower rate than revenue, delivering operating leverage, with a goal of OpEx growth at half the rate of revenue growth or better (not a formal commitment). Software and services gross margin has a clear path to 70%, with additional upside beyond that level.

Calix reported total Q2 2026 revenue of $293 million, a 5% sequential increase and 21% year-over-year growth. There are two primary product segments:

1. Software and Services: Revenue reached a record $50 million, up 7% sequentially and 16% year-over-year. This segment contributed 17% of total Q2 revenue. Non-GAAP software and services gross margin improved 810 basis points sequentially, driven by cost reductions from the single cloud infrastructure migration and higher demand for AI-native platform offerings.
2. Appliances: Revenue hit a record $243 million, up 4% sequentially and 23% year-over-year. This segment contributed 83% of total Q2 revenue. Non-GAAP appliance gross margin was 52.9%, a 460 basis point sequential decrease and 170 basis point year-over-year decrease, driven by elevated memory costs partially offset by implemented memory surcharges.

Additional segment performance metrics: Record total RPO of $386 million, up 3% sequentially and 11% year-over-year, with current RPO of $162 million (up 3% sequentially, 21% year-over-year). Non-GAAP net income was $31 million ($0.47 per diluted share), and free cash flow was approximately $12 million.

• Elevated memory costs are an ongoing industry-wide exogenous headwind, creating pressure on appliance gross margins. While the surcharge program is designed to be long-term gross profit neutral, the impact on margin will persist until memory costs stabilize or the full surcharge program is fully implemented across all revenue.
• Unpredictable future memory cost volatility makes it impossible to forecast the timing and magnitude of appliance gross margin recovery beyond Q3 2026.
• AI deployment carries inherent security and trust risks, which Calix has mitigated through its 15-year platform track record and secure architecture, but remains a general industry risk.
• Higher overall industry inflation (including fiber, labor, construction, and fuel costs) could pressure service provider CapEx budgets for network build-outs, potentially impacting demand for access-side appliances.

Q: What is driving management confidence that appliance gross margins will bottom in Q3 2026? Are there factors beyond cycling past grandfathered backlog not subject to full surcharges? / A: Confidence primarily comes from the structure of the updated surcharge program. Grandfathered backlog (not subject to repeated price adjustments) will shrink as a percentage of total revenue over time. New orders now have surcharges adjusted monthly (instead of quarterly) to reflect current memory costs, which will close the gap between current costs and recovered costs over time. The program's goal remains to reach gross profit neutrality for memory costs, and this structure will get the company there by Q3.\n\nQ: What is Calix's perspective on the competitive landscape, including Starlink/satellite competition? / A: Terrestrial fiber competition varies market-by-market, but Calix's full solution gives customers a unique advantage by helping them build local brand dominance through community-focused offerings like public Wi-Fi for students and public service roaming. For satellite competition like Starlink, satellite will only serve 5-10% of the market primarily in unserved rural areas. Fiber offers vastly superior capacity and experience, and terrestrial providers who deliver good customer experiences with added value like whole-home Wi-Fi will easily retain customers against satellite competition.\n\nQ: Is Calix's bundling of Agent Workforce Cloud with existing cloud offerings (instead of a la carte pricing) still the right strategic approach? What early feedback have you received? / A: Management is even more confident in the all-in bundled approach after a full quarter of commercial availability. AI deployment requires cross-functional workflows across operations, marketing, and service, so siloed a la carte offerings do not work effectively. Bundling also lets customers adopt AI capabilities at their own pace, and monetization comes from increased subscriber acquisition and retention rather than incremental per-user fees, which aligns with Calix's core growth driver. Early feedback is positive, and formal ROI measurement is ongoing, with results expected to be released publicly starting in Q3.\n\nQ: Can RPO growth be expected to accelerate through the end of 2026 and into early 2027, following the CalixOne launch? / A: RPO growth will definitely accelerate from current levels. The Q2 platform launch already delivered a tripling of Agent Workforce Cloud contracts, with adoption across all customer categories including the traditionally slow late majority, which is a break from historical product adoption cycles. Universal CEO pressure to have an AI strategy, combined with Calix's unique value proposition of secure, cost-predictable AI, will drive rapid customer conversion. All customers now recognize AI adoption is non-negotiable, and Calix is the easy button for broadband providers, leading to sustained acceleration in new bookings.