Calix at Rosenblatt TMT Conference: Strategic Growth and Innovation

On Monday, 18 August 2025, Calix Inc (NYSE:CALX) presented its strategic outlook at the Rosenblatt TMT Conference 2025. The company expressed optimism about its growth trajectory, driven by technological advancements and market opportunities. While Calix anticipates challenges from market dynamics, it remains confident in its long-term growth strategy and margin expansion.

Key Takeaways

• Calix projects long-term annual revenue growth of 10% to 15% and margin expansion of 100 to 200 basis points.
• The company is leveraging its AgenTik AI platform to enhance customer growth and deployment speed.
• Calix is poised to benefit from market disruptions, including a competitor’s bankruptcy.
• The introduction of Smart MDU is expected to significantly expand Calix’s addressable market.
• Calix plans to reveal appliance revenue details by the end of next year.

Financial Results

• Revenue Growth: Calix forecasts annual top-line growth of 10% to 15%, supported by recent sequential growth of 7% in January and 10% in February.
• Gross Margin: The company aims for annual margin expansion of 100 to 200 basis points, targeting gross margins in the high sixties.
• Operating Expenses: Calix maintained flat OpEx during the pandemic to seize growth opportunities.
• Capitalization and Amortization: Development costs for the next-generation cloud are being capitalized and amortized over three to five years.
• Tariffs: Current tariffs have minimal impact on Calix due to equipment exemptions.
• Cloud Margins: Expected to improve with the re-architecting of Calix’s cloud infrastructure.
• RPO Growth: The AgenTik AI platform is anticipated to accelerate RPO growth starting next year.

Operational Updates

• Platform Development: Transitioning to Platform 3.0, enabling cloud operations in private clouds and sovereign data centers.
• Smart MDU: Characterized as a significant market expansion, potentially increasing the subscriber addressable market by 50%.
• Market Expansion: Calix is entering new product segments, including Smart MDU for multiple dwelling units.
• Supply Chain: Plans to establish manufacturing capacity in Southeast Asia and Mexico to mitigate tariff risks.
• Tariffs: Monitoring for changes, with strategies in place to adapt.

Future Outlook

• Growth Strategy: Calix aims to disrupt the broadband market through broadband experience providers (BXPs), enhancing customer success by driving subscriber growth and improving metrics like ARPU and Net Promoter Scores.
• AgenTik AI Impact: Expected to drive growth in software and services by accelerating solution deployment.
• BEAD Program: While not currently in Calix’s model, state applications suggest future opportunities in fiber and fixed wireless deployments.
• Customer Expansion: Ongoing discussions with medium and large customers indicate potential for future growth.

Q&A Highlights

• Competitor Bankruptcy: Calix benefited from a competitor’s bankruptcy, gaining market share as customers replaced existing equipment with Calix’s solutions.
• Subscriber Data: Calix prioritizes security and privacy, opting not to share subscriber data.
• Appliance Revenue: Plans to disclose appliance revenue by the end of next year.
• Competitive Landscape: Calix sees no direct competitors due to its focus on enabling BXPs.
• Cloud Business: Expected margin improvements with cloud re-architecting and AgenTik AI introduction.

Readers are encouraged to refer to the full transcript for a detailed understanding of Calix’s strategic plans and market positioning.

Full transcript - Rosenblatt TMT Conference 2025:

Mike Genovese, Analyst, Rosenblatt Securities: Hello. Good morning. Good afternoon. Depending on where you’re joining us from, I am Mike Genovese, the common communications equipment analyst at Rosenblatt Securities. This is the Age of AI Tech Conference.

And as as always, I’m super happy to be joined by Calyxt, one of my my favorite stocks, one of the best stories in the industry. And we have Carl Caruso, the chairman of the company, and Corey Sindelar, the CFO. Good to see you, gentlemen.

Carl Caruso, Chairman, Calyxt: Good to see you, Mike.

Mike Genovese, Analyst, Rosenblatt Securities: Great. So, you know, we we did this in June. We’re gonna do it again now, and I’m I’m interested to see kind of the incremental differences or or similarities between what we spoke spoke about in June and and what we spoke about now. So let’s begin just with at a high level, Carl and Corey. Just a quick overview of of of the company’s mission and strategy, and and help position Calyxt or sorry, Calyxt for those in the audience that are newer to the story.

Carl Caruso, Chairman, Calyxt: We prefer Calyxt, but Calyxt, whatever. It’s just remember it’s not Carlyxt. That’s all we we do know. So look, the mission hasn’t changed in the fifteen plus years we’ve been pursuing the vision of a service provider space that was going to be disrupted by what we call broadband service providers at the time. That legacy wireline and cable and wireless and enterprise networks would disappear and they would be replaced by a broadband network with a broadband service provider.

That broadband service provider would take advantage of the data and the metadata that was coursing through their networks and use it to deliver an unparalleled subscriber experience. So we call those folks broadband experience providers. That story remains constant literally for the last fifteen years and everything you’ve seen us build is literally a stepwise layered approach to a platform model with our platform based OSs, our cloud managed services. And obviously heading into the future, as you’ve heard Michael speak to on the earnings call, we are heading into an AgenTik AI world. So it is the same and continuing to build from there.

Mike Genovese, Analyst, Rosenblatt Securities: Great. I just want to let the audience know, as we have this discussion and questions come up, please type your questions into the Zoom interface, and they’ll come right to me, and I will make sure to ask the questions to to the Calix team. So team, let’s talk about the confidence that you’ve been exuding. You’re exuding it now. You were exuding it last quarter.

You were exuding it the quarter before. And, you know, I’m I’m simply talking about confidence in the business outlook. Where does it come from? We’re you were obviously in a higher rate environment than a couple of years ago. We have less new broadband experience providers being formed by the private equity market.

But what is it that existing customers are doing that gives you visibility and allows you to have the confidence you seem to have?

Carl Caruso, Chairman, Calyxt: It’s about that back to that disruption. It’s hastening and it’s beginning to cross the chasm as you’ve heard us speaking to. In essence, it’s the difference between a homes passed and a subscribers served world. When you have low interest rates and a lot of competitors that are running on incapable physical infrastructure, if you build fiber, you’ll get a certain take rate. As interest rates go from basically negative real interest rates to now positive real interest rates, to your point, when they move in between here and here, there’s a lot of uncertainty, but they’ve been stable for quite a while.

And so you’ve seen people settle in and say, Okay, I know what the interest rates can be. And now what are they focusing on? Well, the competitive environment continues to get stronger, and it’s really about the subscriber experience. And so it hasn’t changed for us. The demand is driven by the number of subscribers that are coming on to the model via our customers, the ARPUs that are growing, the churn rates that are declining, the Net Promoter Scores that are going up.

And we just focus every day on helping our customers succeed. So the visibility actually continues to get strong and stronger. The appliances during the pandemic went through its own wave. And as a matter of fact, there’s a very nice three minute video of Corey on our investor website that helps you understand what actually happened. But the software and services side has continued to grow every day unabated.

Mike Genovese, Analyst, Rosenblatt Securities: Okay, great. So I guess from here, it’s I mean, since I’ve been following you and for longer than I’ve been following you, the revenue growth has been roughly 15% average, maybe even slightly higher with, you know, about one and three quarters points of gross margin improvement, you know, per year except during the pandemic, which I think Corey talks about on the video that you that you described. So as we sit here today, is that is that still the right way to think about the company, you know, mid teens growth and almost 200 basis points of gross margin improvement per year?

Carl Caruso, Chairman, Calyxt: Well, it’s Corey’s video, so I’m going to let him speak to it.

Corey Sindelar, CFO, Calyxt: Yeah, Mike, nothing has changed from our long term model, which states that we’ll grow somewhere 10% to 15% per annum on the top line, that we’ll see 100 to 200 basis points of margin expansion. We don’t see that changing anytime soon. And then we can go through the OpEx. So from a perspective, that’s what we see. We still think we can operate within those ranges.

Carl Caruso, Chairman, Calyxt: Okay.

Mike Genovese, Analyst, Rosenblatt Securities: So

Carl Caruso, Chairman, Calyxt: okay. I mean, one

Mike Genovese, Analyst, Rosenblatt Securities: thing that investors have been asking me about, right, is that if you look at the last two quarters, the sequential growth in January, I think, was 7%. And then in February, it was even higher at 10%. And I think some of that had to do with taking share from from DZSI, a competitor that a small competitor that went bankrupt. But I’m constantly getting this question about, you know, this quarter quarter growth have to be slower going forward. Then and, obviously, if you grew 10% quarter over quarter every quarter or even seven, you blow away a 15% top line.

So I think that we probably shouldn’t expect that much growth. But but just help me answer my clients who ask me that question, which is, you know, can can Calix keep up this type of sequential growth? How should I frame that for them?

Carl Caruso, Chairman, Calyxt: Well, as a very large shareholder of the company, I would love to see that. But I think the way I would couch it, Corey, certainly feel free to add color, is the continuous commitment to sequential growth is actually even at a low number, a big challenge having been grown sequentially 710%. So the whole model has shifted up. You ask a good point. There is clearly footprint that is becoming available to us to talk to customers about.

And the whole business model when that door cracks open, when you have an event like a smaller competitor file that goes directly to Chapter seven. Now let’s keep in mind, it’s not like they had billions of dollars of footprint, but they did have a few $100,000,000 of footprint. And so that does afford you the opportunity to increase your bookings as you go out, win the customer, get an order, etcetera. The surprise was not that we were going to win a lot of these customers. We expected to win a lot of them and have them cap what they had done and grow from there.

A number of them decided not only to cap and grow, but actually to rip out and replace a lot of what they had purchased. And once they made those decisions, that caused them to want to get started quickly. And that was the unanticipated shipments that drove a large part of that revenue increase in the quarter.

Mike Genovese, Analyst, Rosenblatt Securities: So just to be clear, you’re talking about just with this one bankrupt competitor that you’ve seen them ripping out equipment or the

Carl Caruso, Chairman, Calyxt: competitors? Yes. There’s So also a footprint available to us in legacy accounts that may have had a different vendor. As you go forward and you enter that account, they’re typically not going to rip and replace what’s already there. And to be blunt, we likely would not counsel them to do it if it’s working and moving the bids.

We’d rather them invest those dollars in some place where they can have a material effect on subscriber experience. So there’s that as well, but the I got to get going now on a rip and replace that drives that upside. Corey, feel free.

Corey Sindelar, CFO, Calyxt: No, I agree. I agree with that.

Mike Genovese, Analyst, Rosenblatt Securities: Well, mean, a few answers ago, Corey, you were talking about the importance of subscribers to, you know, to your model. Your your customer subscribers, which I think, you know, we’re talking about subscribers for which Calix would be receiving, you know, recurring revenue from, which is Uh-huh. What where it makes them your subscribers too. But but, you know, we’re sitting here and we’re, as as analysts, expecting you guys to begin to talk about appliance revenues and appliance margins versus, you know, cloud and software. I don’t know if I’m breaking that out with the correct terms.

So if you if you wanna correct that versus, you know, cloud and software revenues and margins. So we’re really looking forward to that info. I think that’ll be great. You’ve also said that you’ll probably, you know, are very reluctant to ever share your subscriber data and give us a number on subscribers or for ASPs. And and I respect that, but I just wanna be reminded of sort of what the reasons why that is so sensitive.

Because on one hand, it would help people analyze the company so much more. But on other hand, if you’re being this successful doing what you’re doing, we don’t want you to change. But just help explain that for us.

Carl Caruso, Chairman, Calyxt: I love it when people say, please don’t ever change, Paul. So let’s try this on the first piece. So we have said for a long time that breaking appliances out from the gross revenue stream would allow competitors to better foot the model. And so we’re happy to take if there’s a trading discount that people believe, okay, we’ll take that trading discount rather than foment more competitors. Corey has convinced me that as the gap between us and potential legacy competitors continues to widen, then that reason sort of falls on false logic.

And so that’s why between now and the end of next year, we will break out the appliance revenue. Having said that, I don’t think we will ever give a subscriber count for a number of reasons, which is now you’re starting to talk about math that you’re footing it to the last cell on the spreadsheet, but you’re also starting to give out data that relates to your customers even in aggregate. And that’s not ours to give in that way. And so anything that relates to subscriber data so remember, we have real time telemetry coming in from the networks and real time information about their subscribers. We are we treat that data with the highest security, it is sacrosanct.

So anything relating to it, we simply won’t give out and subscriber count would be one of those things.

Mike Genovese, Analyst, Rosenblatt Securities: Okay. That’s fair. You know, I think that we maybe back up a little bit here because, you know, we talked about your growth being sort of, you know, mid teens or higher with, you know, seeing very impressive gross margin improvement. And and and we’ve talked about in the past, I think, that, you know, that it’s it looks like the margins over time are headed at least into the high sixties. And so for those who are sitting in the audience kind of scratching their head and saying, I just didn’t think the broadband market was that strong.

I just didn’t think the broadband market would support that type of growth. I don’t see Nokia doing that. I don’t see ADTRAN doing that. This doesn’t make sense to me. Help me answer the question of how a company like like Calix can grow mid teens with gross margin improvement every year in a market that people think is probably growing a third of that rate or if that?

Carl Caruso, Chairman, Calyxt: Great question. Because you look at the market and you say, well, this has been around for years. It’s a mature market. Actually, it’s not. That’s the point of the disruption.

The legacy markets are mature markets. The coaxial HFC, the twisted pair copper, the wireless markets are very mature markets. What is not mature are the broadband experience providers that are actually disrupting the market. And so that’s the immature part of the market that’s growing rapidly. It’s not us in a mature market hacking out two or three or four times the growth rate of the market.

The only way you would be doing that would be, to your point, driving your margins into the floor in an undifferentiated environment. It’s not so much what we are doing that is differentiated. It is. But it’s the platform that we enable our customers to become that’s differentiated. Our customers are differentiated to their subscribers, and they are in an immature market because they are disrupting the subscriber experience market.

And so that’s what makes what appears to be a mature market, an immature market. Let me give you a simple parallel. I had a cell phone, then a flip phone comes along. Well, okay. Then the iPhone comes along.

Are those the same markets or are they different markets? Well, at one level, they’re all in the same large market, but one is quite disruptive from a technology standpoint. The difference in our world, same level of disruption, but these markets last for a long weekend. We’re in the infrastructure space, and that’s a decades multiple decades long disruption. So it’s hard to see.

But that’s what’s driving it. Hopefully, makes sense.

Mike Genovese, Analyst, Rosenblatt Securities: Yeah. I just you know, like where I live, I don’t think that I have a provider that would have an MPI score over, you know, 10 or, you know, I just don’t think that’s available to me. Right? So, so, and I, and I feel like a lot of my clients are also coming from places where we just, maybe we don’t have the Calix powered

Carl Caruso, Chairman, Calyxt: By the way, and that speaks to literally our opportunity. The vast majority of subscribers are unaddressed by what we do. And as we cross the chasm and add ever larger customers, all of a sudden we start to reach more and more subscribers with the model as those service providers become more successful as they transform into experienced providers. And that’s why the phase of crossing the chasm where you go from the early adopters into the early majority, that’s where we are. We’re hearing this elbows starting to turn up.

And you hear it in the names from the customers that we talk about or customers that we don’t talk about yet. Yeah. So you did talk about

Mike Genovese, Analyst, Rosenblatt Securities: a new tier one customer on last quarter’s call and part of them or sorry, large customer. And part of that was a large carrier acquired a a customer of yours. But then that’s I think that same customer seem to have made a separate decision to invest in your cloud technology. Can you can you talk about that? And and and

Carl Caruso, Chairman, Calyxt: Well, what I heard Michael and Corey say was a large cloud customer. So in essence, our parlance, the largest 2,500,000 subscribers or larger, which basically makes it a Tier one. Purchased a cloud in essence independently of everything else. And I didn’t say it, they did. Sorry.

And that’s where it’s left. I’ll give you a couple of historical behaviors. We don’t announce anything unless it’s up and running ever. You will never hear Calix. And if you go back through time in memoriam, we’ve never talked about lab trials or this thing or that thing.

If it isn’t in, up and running and the customer is happy, we would never talk about it. And this was merely to help folks understand that this platform is crossing the chasm. You are now able to, in essence, bring a large customer onboard with simply our cloud. That’s a milestone. As you know, seven years ago, Verizon came on board with our AXOS E Series systems, right?

Those are very different sales to sort of different people.

Mike Genovese, Analyst, Rosenblatt Securities: Yep. Okay. And then, know, I think one of the highlights, know, obviously from the quarter was the announcement of which you guys characterized as a third generation platform with agentic.ai. And, you know, on you know, on one hand, when when we hear third generation platform, it makes it seem like it’s an entirely new appliances, entirely new software. On the other hand, I understand this is adding an agentic AI sort of umbrella framework, but but to the existing architecture, and it’s not maybe as big of a back end change for you as p as some people might might think it is.

Can you can you help us understand, like, I mean, on one hand, going from non agentic AI platform two to agentic AI and platform three is a really big deal. But from a sudden an investment that Calix has to do them, how big of a deal is this new platform?

Carl Caruso, Chairman, Calyxt: So let me see if I can if you’ll indulge, I’m actually going to start at square one and help you understand how it fits into our evolution and our customers’ evolution so that it puts it into the proper framework for what it is, what it isn’t. So when we began this journey on this vision of a broadband service provider becoming a broadband experience provider, we built AXOS and EXOS as the abstracted operating systems that run the appliances in the network and on the premises. We brought to market a cloud. At the time, we called it Compass Cloud in April 2011. But in essence, that brought in all of the real time telemetry and started to convert it into offerings.

Those offerings were oriented around tools. In 2016, we started actually, this was what Michael brought to the company actually when I was interviewing him. He said, If you take those tools and orient them this way to the personas that are using them, you can unlock an enormous amount of value for the customer and for the company. Big light bulb went on, and we, in fact, rearchitected our clouds to literally do this, to become persona based, and all the tools were subordinated inside of those personas. So if you were a service person, you still had a saw and pliers, but they were different saw and pliers than what the marketing person might have had.

That was, in essence, our two point zero version of the platform. On top of that, we started to add managed services, which then got bundled into Smart Home and Smart Biz and Smart Town, and most recently, Smart MDU, which is in its early phases of launching. And that’s the go to market that you saw. That’s what’s growing. That’s what’s continuing to enable our customers to win subscribers and be successful.

So now what of this Platform three point zero and AgenTik AI? So let me break them out. Forget the AgenTik AI for a moment. What’s core and central to the Platform three point zero? There’s really a couple of things.

Platform three point zero allows our clouds to do two things that they did not do before. One is they can function in a private cloud. So today, our cloud is in our cloud. If you were a service provider and you wanted to run that cloud on prem in your cloud, could not do it, would not do it. And so that is a big enhancement.

And look, we expect as we continue to cross the chasm that we’re going to have larger service providers that want to run it in their cloud on prem, not an unusual thing. The second thing it allows us to do is to place the cloud in sovereign data centers. So as you know, if you go around the world, there are lots of different regulations on personal information, personal data, data residency, etcetera. And we believe for the most part, as we start to look to expand internationally, we will be advantaged by being able to place our cloud instance in a sovereign data center in that country. And so it enables us to expand into geographies and customer segments that we might not otherwise reach with our Platform two point zero Cloud.

So let me stop there and see if that helps you understand what’s going on with that three point zero Cloud notion before I go to Asia to GAO.

Mike Genovese, Analyst, Rosenblatt Securities: Yes. From the cloud perspective, that helps. I’m

Carl Caruso, Chairman, Calyxt: and you’ve seen us continue to expand product market segments. SmartMDU is an expansion of a product market segment. By the way, to talk about expansions, Smart MDU is actually the largest expansion that we’ve done in some time. Why? Because fully onethree of people live in multiple dwelling units, which if you do the math, if we’re addressing twothree and we’re adding onethree, it’s actually a 50% increase in us being able to address the subscriber marketplace.

So it’s a huge step up for us. So those sorts of expansions continue to go on. Now, what are the agents? Well, agents run, in essence, on top of the model. They benefit from all the telemetry, from the data, from the operating systems into the cloud, into the managed services, you can see how that all works.

And the agents are there first and foremost to help our customers go faster. It is fundamentally a constraint for all of our broadband experience providers that they can go faster than they are staffed to do in almost every circumstance. And so these agents will literally leverage what they have and enable them to get more subscribers, by the way, help those subscribers purchase additional services that are valuable to them and on and on and on. So the number one goal of the agent is to help our customers go faster. So let me stop there and see if that helps.

Mike Genovese, Analyst, Rosenblatt Securities: It helps. I mean, my next question that kind of leads to is when do you know if when will you know if the agents are successfully helping your customers Because this just launched. So when will we have data to know whether this is When

Carl Caruso, Chairman, Calyxt: will you have it or when will we have it? Because trust me, we’ll have it and we may never give it to you, but that’s a separate issue. So I mean, we’ll start seeing it early, late this year, early next year. But ultimately, the way it will manifest itself is the software and services will grow faster. I mean, that’s where it manifests itself.

Will there be a fee? All those sorts of things. Sure. But that’s not what’s going to drive the software and services. It’s the agent actually speeding up the deployment of what we already know is a proven winner for our customers.

So

Mike Genovese, Analyst, Rosenblatt Securities: it sounds like there should be a revenue benefit coming. I guess my question is is there is the the the OpEx or or the investment or the CapEx investment you needed to make in this, these AgenTic AI capabilities? Is it already in the model or is it an expense that has

Carl Caruso, Chairman, Calyxt: to come before the revenues accelerate? A lot of it is in past tense and was in the model. And I mean, will the model change? What can change the model? Two things: revenue performance, right?

Revenue performance, gross margin expansion, as you know, allows the model to have a few more dollars. But the other thing that you’ve seen us do from time to time, and I’m not prognosticating this, I’m really saying the following: If we see an opportunity to forward invest and speed those curves, we will do that. But it would be premature. Right now, we’re just head down executing. But as you saw, let me give you an example.

When the pandemic curve, Corey’s video happened, we made a decision to hold OpEx flat, not take OpEx down to maintain the OpEx model. And the reason we chose to do that was in our minds, we saw a great opportunity to go land new footprint and grow. By the way, that decision from one years point ago yielded the first and second quarter of this year. I mean, that’s what drove that outsized sequential growth because if we had cut OpEx, I would guarantee you would not have seen that kind of move. And so if there’s an opportunity, we think, to go faster with effect, not go faster for the sake of going faster.

I would be remiss if I didn’t say the team may make that decision. But as we sit here today, an enormous amount of this investment is behind us. So Corey, please feel free to

Corey Sindelar, CFO, Calyxt: Mike, add any spend a moment covering the accounting. As we were developing the next cloud, a portion of that is being capitalized, right? That’ll then come back and go through co ops for a period of time until that initial development effort gets amortized, you know, call it a three to five year window, that’ll go away. However, I’d also say, Rajo, as we transition service providers, cloud providers, we’re not as efficient as we were in the past. So there’s a little bit of an overhang.

So you can kind of think of it as mostly a wash, right? So for example, as we go from one to another, ordinarily, you would go out and buy three year agreements and buy down some of your costing. Well, you can’t go do that. So you’re getting a little bit more inefficiency today. So whatever benefits we’re getting from the capitalization piece of it, it’s kind of offset by lesser cloud costs, if that makes sense.

Carl Caruso, Chairman, Calyxt: And what happens when you have more

Mike Genovese, Analyst, Rosenblatt Securities: experience with this, then you’ll be able to plan out three years in advance. Because it’s so new, you can’t go and do No,

Corey Sindelar, CFO, Calyxt: no, no, no, no. As you’re transitioning off of one vendor to another vendor, you don’t enter into those long term contracts with the old vendor. You’ve done that with the new vendor, right? So you’ve got that all laid out. And so you’ve got that, in a sense, a little bit of

Carl Caruso, Chairman, Calyxt: Well, yeah. Have an overlap time between the two clouds. You have an overlap time between two point zero and three point zero. You’re running dual until So you’re up and that’s also what Corey is referring to.

Mike Genovese, Analyst, Rosenblatt Securities: Yeah. But even within this conversation, I mean, from an overall company level, for the next year or, you know, year and a half, I don’t know, There’s there’s more from my perspective, right, there’s more operating leverage in the model than we’ve than we’re used to seeing. Right? We’re used to seeing you being at model and trying to

Carl Caruso, Chairman, Calyxt: For sure.

Mike Genovese, Analyst, Rosenblatt Securities: Invest to Yes. Couple revenue growth. But now, I mean, we’re talking about these issues, but these issues seem less important because we actually have a good deal of leverage in the model for at least the next year. Am thinking about that right?

Carl Caruso, Chairman, Calyxt: That’s correct.

Corey Sindelar, CFO, Calyxt: We were thinking about that correctly.

Mike Genovese, Analyst, Rosenblatt Securities: Yes. Anything to talk about on macro or tariffs, just kind

Carl Caruso, Chairman, Calyxt: of important headlines out of the way on that? Sorry. Just kidding. Corey, you want to spend a moment on just what you’re doing there, balance sheet supply chain, what you’re seeing, Jerry, etcetera?

Corey Sindelar, CFO, Calyxt: Sure. Everything I say is predicated on what we know today. And as you know, that could change tomorrow. It could change this afternoon. I haven’t gotten to the news tonight, so maybe it happens already.

That being said, we are fortunate that the tariffs that have been implemented to date don’t affect us given the equipment that we have, that we’re importing under, right? So they’ve been exempted under that. Again, stroke of a pen, that could change. So we hope to keep our head low and try to avoid any kind of distraction that that may result in if that got changed. But we’re not standing still on that.

We understand it’s a very uncertain environment, so we are working towards a strategy where we have capacity both, you know, in Southeast Asia as well as here in Mexico, on the North America continent. There’s still a price differential to manufacture in Mexico versus Southeast Asia. So there will always be kind of a cost benefit of what is the actual tariff rate that would get implied and whether we would move things. But nevertheless, we won’t have a presence in both places to give us complete optionality to determine if that were to come into play. But so for the moment, things have been stable.

Where we do see tariffs today in a kind of perverted way, is when we’re building America, buying America. So you might have seen some tariffs on imports of components into The United States. There’s a talk about tariffing semiconductors coming into The States if your supplier doesn’t have manufacturing in The United States. So there’s a lot of stuff moving. That’ll increase costs as it relates to manufacturing our Buy America, Build America components.

But that’s about the only place where we see it at the moment, knock on wood.

Carl Caruso, Chairman, Calyxt: Yes. So I would just add one piece. There are small tariff impacts that we have absorbed. But they’re small enough in the grand scheme of our model where you haven’t seen them affect anything. We’ve done nothing on pricing actions and will not do anything on pricing actions unless and until we see something where it’s very clear that this has to be done.

And the team has the balance sheet and a narrow SKU set, which is really important. When you have a small number of SKUs, you’re going to be willing to invest out into the future to grab components and other things. If you have a high number of SKUs, you’re always fearing excess and obsolete in the future. So I think comparatively, we’re in a wonderful position.

Mike Genovese, Analyst, Rosenblatt Securities: Great. Carl, when I asked you earlier, I tried to ask a question about crossing the chasm to larger service providers, but focused it too much you know, the the news of this one cloud win from from last quarter. So so just a more general question about crossing the chasm and, you know, how things are playing out in terms of, you know, more medium and large customers being interested in your solutions, what you’re seeing from that perspective?

Carl Caruso, Chairman, Calyxt: Lots of conversations, lots of interest. And interest is necessary, but not sufficient. But pretty clearly, if you don’t have it, you might as well hang it up. That interest continues to expand at a very good rate. And these things take time to work their way through the funnel.

So it is very clear from where the conversations at, what layers the conversations are having in our large, medium and small, what the future will indicate. So it’s coming. Okay.

Mike Genovese, Analyst, Rosenblatt Securities: And then what about separation from competitors? Like who is your closest comp? And is there a relevant grouping of how we should look at the competitive players out there?

Carl Caruso, Chairman, Calyxt: Well, so actually, was thinking about that earlier when you were talking about margin expansion into the high 60s. And I was thinking back, look, when we were in the 30s, getting a four in front of it was exciting. When we were in the 40s, getting a five in front of it was exciting. We’re in the 50s, obviously now approaching 60, getting a six in front of it is exciting. Why do I say that as the repose to answer your question?

There is one of the challenges we have and one of the challenges that investors have is there isn’t a comp to what we’re doing. So I’m not sure how to answer it other there isn’t a comp. Are there substitutes inside of a legacy service provider to do things in a different way? Of course. But our model is built around broadband experience provider and making sure that we’re doing our best to help people come along.

So the answer is no, not really.

Mike Genovese, Analyst, Rosenblatt Securities: Yes. Okay. So continuing with this theme of re asking questions, a little bit more focused on earlier questions that I asked. The so, you know, even before you announced AgenTik AI, I thought about your cloud business as being a business that was in some way subscale, meaning that the incremental margins are probably higher than the the total margins. You know?

And and that but but that’s just an opportunity, right, to reach scale and to improve margins. I think this is a bit you know, cloud was probably a big driver. And and now AgenTic is is part of that. Is it is it a similar like, should we be thinking about, you know, cloud being subscale and needing to, you know, and and and needing to reach and and driving margins? The the basically, AgenTic is just a continuation of that story.

It’s not it’s not that different than before, or is there something that I’m missing that makes AgenTic different? I’ll let Corey go first.

Corey Sindelar, CFO, Calyxt: Yeah, Mike. Part of the re architecting of our clouds is obviously taking the benefit of everything we learned over the six months and coming up with a new architecture. Part of the design goal was to help improve our margins, right? So to take in scalability into that and take those learnings and transform it. So you’re right.

Part of the new architecture helps us drive that, right? So inside of our improving gross margins, cloud margins will improve themselves over the next period of time.

Carl Caruso, Chairman, Calyxt: And irrespective of the COGS and the margin of the agent itself, the fact that it is speeding the ladder just simply drives more leverage into the clouds, I. E. It puts more transactions on the clouds, which are coming in at a higher incremental margin than the average margin for the cloud. So we have lots of levers to continue our gross margin expansion.

Mike Genovese, Analyst, Rosenblatt Securities: Yeah. And again, just the timing of seeing agentik.ai accelerate RPO growth, which we’ll be looking for?

Carl Caruso, Chairman, Calyxt: Next year. You should not in the near term.

Corey Sindelar, CFO, Calyxt: Mike, what I would say to Carl’s earlier point, the best way to think about the agents is they make our customers go faster. So the real benefit is the acceleration of the model being pulled forward as more subscribers come onto the network and you’re monetizing AXOS, EXOS, the clouds and the managed services, right? You’re monetizing the platform. It’s not so much the agent.

Carl Caruso, Chairman, Calyxt: And to that end, in order for that to show up in RPOs, somebody has to negotiate a new agreement. Otherwise, they’re just paying incremental software fees that you don’t see in RPOs.

Mike Genovese, Analyst, Rosenblatt Securities: Good. I just want to make a last call. We got five minutes left, so just the last call to the audience to submit questions through the Zoom interface so that I can ask the questions to the management team here. But but but if there’s no other questions coming, can easily fill five minutes. So, obviously, it sounds like smart MDU is extremely important.

It is. Characterize it as sort of adding 50% to the subscriber TAM is is is is what I heard. If if you wanna double click on that and talk about that anymore and or if there’s any other new cloud managed service offerings that we should be tracking that are particularly important?

Carl Caruso, Chairman, Calyxt: None of the latter. And on the SmartMDU, it’s an example of the power of the platform that we’ve built because it enables our service providers to literally deliver that broadband experience to an MDU as an extension of the platform they’re already running. And it is literally shaken big. If you go into multi dwelling units, hospitality units, it’s a very fragmented market with all sorts of downsized enterprise solutions sort of swedged into the application, upsized home solutions which stomp on each other, it hasn’t really been engineered to do that. It’s the same problem that exists in small businesses.

Small businesses have never been designed for. They’ve always either been taking enterprise solution and downsize it or try to scale up a residential solution, neither of which gets to the real need of a small business owner. And so it literally shows it’s a showcase for the power of the whole platform that we built and enables our customers to literally go and grab that subscriber share at very low incremental costs for them, if that makes sense. They’re not retraining all of their field technicians, they’re reengineering their whole network. They’ve got an entirely different go to market selling approach.

It all fits straight into what they’re doing. And so now they’re adding incremental markets at very high incremental margins. And what I’ve found is when you can help your customers add revenues at very high margins, they’re happy and they’re happy to share a bit of it with you.

Mike Genovese, Analyst, Rosenblatt Securities: Yes. Okay, great. In the few minutes that we have left, let’s talk about Bead. I’d like you to kinda touch, you know, one more one more time on on how, you know, important or not Bead is to the the Calix investment thesis. But, specifically, I saw that Virginia and, Louisiana have submitted their new applications.

Can you help us, understand that news and if that’s meaningful for the company?

Carl Caruso, Chairman, Calyxt: So the answer is it’s meaningful directionally because as you may remember, when the new administration came in, was lots of storming and drawing around low earth orbiting satellites and what’s going to happen here and fixed wireless and the benefit of the bargain, etcetera, etcetera, etcetera. And at the time, we said, first, it’s not in our model, by the way. That is true today, not in the model. However, what you’re seeing come in from Louisiana and Virginia, Virginia first and Louisiana second, are actually interesting indicators of where this may land, which is you’re seeing the soft dollars that were in the original BEAT awards because they were roughly a third of the dollars in there for training and other things, as opposed to building infrastructure. Actually, what you’re seeing is those states saying, well, we’ll give that back to you.

And on the stuff we’re actually going to use to build infrastructure, literally 1% or 2% is going to low earth orbiting satellites. And the largest percent is going to integrated fiber and fixed wireless applicants. And you might assume we know a lot of them, and I would leave it at that. So in actuality, after all of this churning, it looks like it’s coming back to, it’s going to be mostly fiber with fixed wireless endpoints. And guess what?

All the states that we’re hearing, say very few, want to have a scalable solution. So if they’re going to invest federal monies that are going to have to last them for a decade or more, They want the solution to be able to scale over that Internet growth as opposed to something like a low earth orbiting satellite that actually doesn’t scale. So that’s what we’re seeing.

Mike Genovese, Analyst, Rosenblatt Securities: All right. That’s that’s promising. Yeah. That’s that’s promising. It’s all

Carl Caruso, Chairman, Calyxt: good news and not in the model.

Mike Genovese, Analyst, Rosenblatt Securities: Well, thank you. I mean, we we’ve run out of time. We could keep going, but we’ve run out of time and actually have to jump on an earnings call now. But but Carl and Corey, thanks so much for joining us, and it’s good to see you coming on here, to exhibit confidence. And we’ll expect continued sequential growth out of you guys.

Maybe it doesn’t have to be 7% to 10%, but

Carl Caruso, Chairman, Calyxt: Well, thanks that. We’ll continue to put one foot in front of the other and stay tuned.

Corey Sindelar, CFO, Calyxt: Thank you, Mike.

Mike Genovese, Analyst, Rosenblatt Securities: Perfect. Thanks, Mike. Well, thanks everybody for joining us in the audience as well. And I will talk to soon. Thanks, all.

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