Download pdf - 2017 august calix investor presentation final

Investor Presentation

August 2017

1

Proprietary and Confidential

Safe Harbor

This presentation includes forward-looking statements within the meaning of the Private Securities Litigation

Reform Act of 1995. Such statements relate to future events and expectations and involve known and unknown

risks and uncertainties. Examples of forward-looking statements include, but are not limited to, statements about

our anticipated growth and growth drivers; our future financial condition and results of operations; our future

business, financial and operating performance; our growth strategy and market outlook; our development of new

products and product features; our cost estimates and plans, including planned cost savings related to our

restructuring plan; and the success and/or market adoption of our products and solutions. We have based these

forward-looking statements on our current expectations, assumptions and projections. Our actual results or

actions may differ materially from those projected in forward-looking statements. These forward-looking

statements are subject to a number of risks, uncertainties and factors that could cause results to differ materially

as described in our filings with the Securities and Exchange Commission, including our annual report on Form 10-

K and quarterly reports on Form 10-Q. Except as may be required by law, we undertake no obligation to, and

expressly disclaim any obligation to, update or alter any forward-looking statements, whether as a result of new

information, future events, changes in assumptions or otherwise.

Financial guidance included in this presentation speak only as of the date of our last quarterly earnings press

release issued on August 8, 2017. We are not providing any financial guidance update in this presentation.

2

Please refer to the reconciliations of GAAP to Non-GAAP financial measures in the supplemental information and on the Investor Relations section of calix.com


1.

2.

3.

4.

Calix at a Glance

The Coming Wave – Access rEvolution

The Rising Tide – Infrastructure Investment

Financials4.

5. Supplemental Information

Agenda

3

Calix at a Glance

4


Calix strategic focus: The access network

5

Content

Applications

Device-enabled

Subscriber


Our Customers – Over 1,300 and growing

6

21%

15%

54%

9%

Customer Mix - 2016

CenturyLink Windstream

Other Medium/Small Domestic International

Source: Calix, Inc.

http://www.frontier.com/


$121.2M

$131.8M

$117.5M

$126.1M $128.0M

$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

$140.0

3Q16 4Q16 1Q17 2Q17 3Q17E

$ in millions

Our Revenue Growth

7

$330.2

$382.6

$401.2 $407.5

$458.8

$200.0

$250.0

$300.0

$350.0

$400.0

$450.0

$500.0

$550.0

2012 2013 2014 2015 2016 2017E

$ in millions

CAGR

+7.3%

Y/Y

+12.6%

Y/Y +

>10%

Y/Y +17.4%Y/Y +7.9%

Note: 2017 and 3Q17 revenue estimates based on mid-point of guidance provided in First Quarter 2017 Financial Results earnings release issued August 8, 2017

Y/Y +25.5%

Y/Y +19.5%

Y/Y +5.6%

The Coming Wave

8


Our Place

9

Content

Applications

Device-enabled

Subscriber


Global Device Growth

0

10

20

30

40

50

60

2015 2016 2017 2018 2019 2020

Estim

ate

d D

evic

e u

nits IoT

Tablets

PCs

TVs

Non-Smartphones

Smartphones

Other

50B

16B

(B)

Source: Cisco VNI and Business Intelligence

10


Cloud Growth

-

100

200

300

400

500

600

700

2006 2011 2016 2021 2026 2031

Public

Private

Traditional IT

To

tal W

ork

load

s

(M)

Source: VMware

11


The Opportunity

12

Content

Applications

Device-enabled

Subscriber

-

100

200

300

400

500

600

700

2006 2011 2016 2021 2026 2031

0

10

20

30

40

50

60

2015 2016 2017 2018 2019 2020

IT Workloads Total Devices

Source: VMware Source: Cisco VNI and Business Intelligence


The End State: a Global LAN with Flexible Operating Systems and Robust Analytics

13

Content

Applications

SimpleAlways OnFast Secure

ElevateSimplifyDiscover


Global

SDN/NFV

Ecosystem Policy Device & Service ActivationAnalytics

AP

I PLANNING OPERATIONS SUPPORT MARKETING SUBSCRIBER

Virtual

Applications

Data

Center

G.fast

NG-PON2

GigaCenter

GPON

rEvolution – Software Defined Access

14


E7-2

E7-20 E3-16FE5-16F

GigaFamily

E3-2

E9-2

E5-308

E5-520

rEvolution – Systems

Data Center Outside Plant Premises

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60% of TCO related

to Network Operations

SimpleAlways On

$10B of Access

downtime

Management REST SNMP NETCONF / YANG CLI OpenFlow

Infrastructure

Hardware Abstraction Layer

Service Abstraction Layer

Control & Data

Multi-Service Protocols

Layer 3 Protocols OAM Host Services 3rd Party

Topology & Discovery Protocols

Layer 2 Protocols Multicast Protocols Traffic Management

Performance Monitoring

QoS ManagerPlatform Configuration

and UpgradeDiagnostics Syslog

Timing

rEvolution – AXOS

35

Fast

2 years to certify

and activate a service

16


Next generation cloud services that reveal

actionable insights for key business functions

and their strategic needs

▪ Discover the path to revenue growth and business efficiency through analytics

▪ Simplify decision making and accelerate time to act through data correlation

▪ Elevate key business functions to be agile and subscriber driven through actionable insights

Note: Calix Cloud subscription services introduced in October 2016. Marketing Cloud released in

April 2017. Support Cloud released in June 2017. Other cloud services still to be released.

rEvolution – Calix Cloud

17


Before:

Traditional Network Architecture

• Master headend and Central office

• Maximum reach of 20km from each office

• Branch network serving up to seven hubs

• Many offices, staffed and powered

After:

With AXOS E3-2 Intelligent Node

• Distributed Access/Service Management Collapse

• Extend the reach of data centers by up to 140 km

• Integrated routing and subscriber management

• Up to 80% TCO savings realized after shuttering offices(1)

140 km

rEvolution – Disruptive Economics of the AXOS E3-2

E3-2

18

(1) Calix estimates


rEvolution – Disruptive Economics of the AXOS E9-2

Defining the Access Edge

▪ Subscriber facing functions

▪ Agnostic deployments (DC,CO,HE)

▪ Ride the VNF wave

Unbounded Performance

▪ Non-blocking

▪ Lowest power

▪ Snaps into Data Center fabrics

▪ Fewer to provision and manage

▪ Less rack space, HVAC, power

Aggregation

Subscriber

Management

OLT

Aggregation

switchOLT

Core

Router

Edge

Router

Open

White Box

Switching

Compute

Store

Current

Future

19

The Rising Tide

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“…The key to winning in the communications marketplace is differentiation from our competitors…we will continue to focus on that differentiation through the customer experience and the use of disruptive technology…we are focused on bringing faster broadband speeds to more customers as quickly as possible…There is a tectonic shift occurring in communications today as more applications move to the cloud. New access methods emerge and customers adopt software-defined networking services to improve network resiliency and prioritize the flow of data.”

August 3, 2017

" The shift in the wireline revenue trend towards fiber is growing. Organically, fiber-based products grew more than 3%, which supports our plans to further invest in fiber…Fiber is a critical element in transforming both wireless and wireline networks to reduce cost and expand future capabilities. To enhance this strategy, our recent announcements to secure fiber demonstrates our commitment to increase our multiuse fiber footprint and build fiber deeper into the network.”

July 27, 2017

“We continue to see higher levels of penetration and growth. We have 40 megabits of higher speeds available. We ended the second quarter with nearly 9.4 million 40 megabits and higher addressable locations, with more than 3.8 million 100 megabits in higher addressable locations, representing an increase of 240,000 and 350,000 addressable locations, respectively, during the quarter… we continue to build on infrastructure and increase the availability of speeds. Where we have 40 megabits or more speed, we're seeing good penetration in the marketplace.”

August 2, 2017

Access is Key for Communication Service Providers

Q2 Earnings Comments – A Rising Tide

21

Source: Transcript of Q2 2017 earnings calls for respective companies


Broadband Demand Growth Unrelenting (exponential)

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Nielsen’s Law

(50% annualized

growth for high-

end connections)

has proven to be

accurate for 35+

years

Source: Nielsen Norman Group

Bits p

er

se

co

nd


COPPERFIBERWIRELESSCABLE

Unified Access

Bandwidth on

demand

Transparent

quality of

experience

VDSL2

Unlicensed Spectrum

Wi-Fi 4x4

5G /

Wi-Fi

GPONEPON

XGPON-1

NG-PON2

DOCSIS 3.0

CCAP

G.fast A2Unmatched

subscriber

experienceG.hn

XGS-PON

Community

Wi-Fi

G.fast A1HotSpot 2.0Remote OLT

DOCSIS 3.1

FTTH

Gigabit

experience

New Technologies Meet the Demand

10G-EPON

23


With the shift toward higher data speeds…

DOCSIS 3.0

24 BondedGigabit GPON

DOCSIS 3.1

(initial)

10000

Gigabit FTTH

10G PON

XGS/NG-PON2

…

10G XGS/NG-PON2

24

Source: Calix, Inc., Cable Labs, ITU, FSAN and Broadband Forum


Lower Operating Costs

With the shift toward higher data speeds…

Source: RVA LLC: North American FTTH Accelerates, (Q4 2014), RVA LLC North America FTTH Progress and Impact 2015 (June 2015), Google Fiber Kansas City, Bernstein Proprietary Census. Survey conducted by Haynes and

Company (May 2014)

Estimated Operating Expense Savings

High Customer Take Rates

25

83%

62%

81%

72%

27%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

Wornall Homestead Countryside Roanoke Central Hyde Park Community College

Median HH Income Take Rate


…leading to higher revenue and penetration rates…

26

Source: Cincinnati Bell (September 2014)


0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

100% Aerial/0% MDU

100% Aerial/20% MDU

50% Aerial/0% MDU

50% Aerial/50% MDU

Non-Electronics/Sub Electronics/Sub

…while infrastructure builds lead electronics

Source: Suburban FTTP Network Scenarios, Telecom & Networking Equipment, The FTTP Renaissance, Implications for Vendors – Jefferies Group LLC (May 6, 2015)

Electronics represent ~15-25% of the total capex cost per unit served in a fiber deployment after initial build

costs

27


Connect America Fund

Repurposed Universal Services Fund

▪ Nearly $4B annually now completely focused on universal broadband

▪ Multi-year investment (5-year for price cap and 10-year for rate of return)

Terms

▪ Minimum 10/1 Mbps for all carriers and minimum 25/3 Mbps for many smaller carriers

▪ Targeted by state and census block at all “uncompetitive” areas

▪ Milestone-driven buildout requirements with first price cap milestone in 2017 and first rate of return milestone in 2020

Calix Strength

▪ Market leader among eligible U.S. carriers

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Source: FCC

Financials

29


Target Financial Model (1)

($ in millions, except percentage and per share amounts) 2016 Long-Term Target

Revenues $458.8 $600.0

Non-GAAP gross margin 44.9% >50%

Non-GAAP operating expenses (%) 46.6% 38-42%

Non-GAAP operating margin (1.7%) >10%

Non-GAAP EPS ($0.14) >$1.25

30

Please refer to the reconciliations of GAAP to Non-GAAP financial measures in the supplemental information and on the Investor Relations section of calix.com

(1) Financial guidance included in this presentation speak only as of the date of our last quarterly earnings press release issued on August 8, 2017. We are not providing any financial guidance

update in this presentation.


Bridging the long-term financial model (1)

2016 Base

Target

RevenueBase business

growth driven by

existing customer

access network

investments

Increased market

penetration with

new customers and

new market

opportunities

Innovation driven

disruption driven by

customer

investments in next

generation networks

31




Q2 2017 Highlights

Record second quarter revenue with growth of +17% y/y

Product revenue growth of +7% y/y and service revenue growth of +158% y/y

Higher than anticipated cost to complete previously-awarded projects impacted service margin

Key Calix innovations launched led by enhancements to AXOS and Calix Cloud with initial deployments to customers throughout the remainder of 2017

32


Q2 2017 Financial Results vs. Guidance

33

Please refer to the reconciliations of GAAP to non-GAAP financial measures in the supplemental information and on the Investor Relations section of calix.com.

($ in millions, except percentages

and per share amounts)

Actual Non-

GAAP

Guidance Non-GAAP Actual GAAP Reconciliation of

Guidance to GAAP

Revenue $126.1M $122 - $126M $126.1M $122 - $126M

Gross margin 34.5% 40.5 – 43.5% 34.3% 40.5 – 43.5%

Operating expenses $58.5M(1) $59 - $61M $62.0M $63.8 - $65.8M

Net loss per share ($0.30)(1) ($0.19) – ($0.12) ($0.38) ($0.28) – ($0.21)

Operating cash flow $2.0M Positive

(1) Excludes the impact from non-GAAP items including stock-based compensation and restructuring charges.


Q3 2017 Operating Performance Guidance(1)

34

($ in millions, except percentages and per share

amounts)

Guidance Non-GAAP

Reconciliation of

Guidance to GAAP

Revenue $126 - $130M $126 - $130M

Gross margin 36.0 – 39.0% 35.9 – 38.9%

Operating expenses $59.0 - $61.0M(2) $63.2 - $65.2M

Net loss per share ($0.27) – ($0.21)(2) ($0.35) – ($0.29)

Operating cash flow Negative




(2) Excludes the impact from non-GAAP items including stock based compensation and up to $1.5 million in estimated restructuring charges for Q3 2017.


2017 Full Year Operating Performance Guidance(1)

At least 10% year over year revenue growth

Higher non-GAAP net loss than reported in 2016(2)

35




(2) Excludes the impact from non-GAAP items including stock based compensation and up to $1.5 million in estimated restructuring charges for Q3 2017.

Q&A

36


Additional Information

Additional information available at http://investor-relations.calix.com/

• Stock Information

• News & Financial Information

• Events & Presentations

• Leadership & Governance

• Investor Resources

37

http://investor-relations.calix.com/

Supplemental Information

38


GAAP to Non-GAAP Reconciliation

39

(Unaudited) Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017

Revenue $112,297 $104,999 $98,375 $107,425 $121,187 $131,800 $117,518 $126,123

GAAP cost of revenue $59,184 $58,462 $52,893 $57,419 $67,643 $79,614 $83,141 $82,800

Stock-based compensation (163) (160) (127) (183) (174) (188) (172) (171)

Amortization of intangibles (2,088) (2,089) (1,663) (814) (813) (814) (813) 0

Non-GAAP cost of revenue $56,933 $56,213 $51,103 $56,422 $66,656 $78,612 $82,156 $82,629

GAAP gross profit $53,113 $46,537 $45,482 $50,006 $53,544 $52,186 $34,377 $43,323

GAAP gross margin 47.3% 44.3% 46.2% 46.5% 44.2% 39.6% 29.3% 34.3%

Stock-based compensation 163 160 127 183 174 188 172 171

Amortization of intangibles 2,088 2,089 1,663 814 813 814 813 0

Non-GAAP gross profit $55,364 $48,786 $47,272 $51,003 $54,531 $53,188 $35,362 $43,494

Non-GAAP gross margin 49.3% 46.5% 48.1% 47.5% 45.0% 40.4% 30.1% 34.5%

Q3 2015 – Q2 2017 Cost of Revenue and Gross Margin

($ in thousands, except percentages and per share amounts)



40

(Unaudited) Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017

GAAP operating expenses $52,236 $56,272 $56,220 $55,887 $52,809 $64,421 $67,193 $62,037

Stock-based compensation (2,427) (3,052) (2,594) (2,785) (4,503) (3.731) (3,368) (2,778)

Restructuring charges 0 0 0 0 0 0 (699) (957)

Amortization of intangibles (2,552) (2,552) (1,701) 0 0 0 0 0

Acquisition-related costs (106) (24) (275) (76) 0 0 0 0

Non-GAAP operating expenses $47,151 $50,644 $51,650 $53,026 $48,306 $60,690 $63,126 $58,473

GAAP net income (loss) $922 ($9,546) ($10,729) ($5,826) $636 ($11,483) ($33,325) ($18,988)

Stock-based compensation 2,590 3,212 2,721 2,968 4,677 3,919 3,540 2,778

Restructuring charges 0 0 0 0 0 0 699 957

Amortization of intangibles 4,640 4,641 3,364 814 813 814 813 0

Acquisition-related expenses 106 24 275 76 0 0 0 0

Non-GAAP net income (loss) $8,258 ($1,669) ($4,369) ($1,968) $6,126 ($6,750) ($28,273) ($15,253)

Basic shares 51, 756 50,578 48,591 48,371 48,773 49,146 49,525 50,019

Diluted shares 52,016 50,578 48,591 48,371 49,309 49,146 49,525 50,019

GAAP net income (loss) per diluted share $0.02 ($0.19) ($0.22) ($0.12) $0.01 ($0.23) ($0.67) ($0.38)

Stock-based compensation 0.05 0.07 0.05 0.06 0.09 0.07 0.07 0.06

Restructuring charges 0.00 0.00 0.00 0.00 0.00 0.00 0.01 0.02

Amortization of intangibles 0.09 0.09 0.07 0.02 0.02 0.02 0.02 0.00

Acquisition-related expenses 0.00 0.00 0.01 0.00 0.00 0.00 0.00 0.00

Non-GAAP net income (loss) per diluted share $0.16 ($0.03) ($0.09) ($0.04) $0.12 ($0.14) ($0.57) ($0.30)

Q3 2015 – Q2 2017 Operating Expenses, Net Income (Loss) and Net Income (Loss) per Diluted Share



Unaudited Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017

GAAP gross margin – product 47.5% 44.8% 48.0% 48.6% 46.8% 43.7% 37.4% 45.7%

Stock-based compensation 0.1% 0.1% 0.1% 0.7% 0.1% 0.1% 0.1% 0.1%

Amortization of intangibles 1.9% 2.1% 1.8% 0.8% 0.7% 0.7% 0.9% 0.0%

Non-GAAP gross margin - product 49.6% 47.1% 49.9% 49.5% 47.6% 44.4% 38.4% 45.8%

GAAP gross margin – service 40.6% 34.5% 22.3% 18.7% 2.5% -15.7% 0.6% -30.5%

Stock-based compensation 0.7% 0.6% 0.6% 0.8% 0.8% 0.7% 0.2% 0.4%

Non-GAAP gross margin – service 41.3% 35.1% 22.9% 19.5% 3.2% -15.0% 0.8% -30.1%


41

Q3 2015 – Q2 2017 Product and Service Gross Margin


Outlook Q3 2017

GAAP gross margin 35.9% - 38.9%

Stock-based compensation 0.14%

Non-GAAP gross margin 36.0% – 39.0%

GAAP operating expenses $ 63,200 - $ 65,200

Stock-based compensation (2,700)

Restructuring charges (1,500)

Non-GAAP operating expenses $59,000 - $61,000

GAAP net loss per diluted share ($0.35) – ($0.29)

Stock-based compensation 0.05

Restructuring charges 0.03

Non-GAAP net loss per basic & diluted share (1) ($0.27) – ($0.21)


42

Q3 2017 Operating Performance Outlook

(1) Based on 50.3 million basic & diluted shares



Outlook

Twelve Months

Ending

December 31, 2017

Estimated impact per common share for:

Stock-based compensation $0.24

Amortization of intangibles 0.02

Restructuring charges 0.14

Total GAAP to non-GAAP net loss per basic & diluted share adjustment (1) $0.40


43

2017 Net Loss Outlook

(1) Based on 50.4 million basic & diluted shares