Calix : Quarterly Report for Quarter Ending March 28, 2026 (Form 10-Q)

About this update from Calix, Inc

Management's Discussion and Analysis of Financial Condition and Results of Operations This report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts are "forward-looking statements" for purposes of these provisions, including any projections of earnings, revenue or other financial items, any statement of or concerning the following: the plans and objectives of management for future operations, proposed new products or licensing, product development, anticipated customer demand or capital expenditures, anticipated growth and trends in our business and industry, future economic and/or market conditions or performance and assumptions underlying any of the above. In some cases, forward-looking statements can be identified by the use of terminology such as "could," "may," "will," "would," "expects," "believes," "intends," "plans," "anticipates," "estimates," "projects," "predicts," "potential" or "continue" or the negative thereof or other comparable terminology. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including those identified in the Risk Factors discussed in Part II, Item 1A, of this Quarterly Report on Form 10-Q, as well as in other sections of this report and in our Annual Report on Form 10-K for the year ended December 31, 2025. All forward-looking statements and reasons why results may differ included in this Quarterly Report on Form 10-Q are made as of the date hereof, and we assume no obligation to update these forward-looking statements or reasons why actual results might differ. Overview We develop, market and sell platform, cloud and managed services, which are powered by agentic AI, that enable communication service providers ("CSPs") providers of all types and sizes to innovate and transform their businesses to focus on delivering outstanding subscriber experiences and become communication experience providers' ("CXPs"). The platform combines the Calix Agent Workforce™ with intelligent appliances, software, cloud and fully integrated SmartLife™ managed services to enable simplified business models that acquire, retain and grow subscribers and revenue. Calix Customer Success guides service providers through every stage of their transformation journey with expertise across technology, business and market insights. Our partner community extends innovation so customers can grow their businesses across markets at scale. With deep broadband expertise and an end-to-end approach from the datacenters' access edge to every residential, business and municipal subscriber location, Calix enables any service provider to simplify operations, engagement and service; innovate for their subscribers; and grow value for members, investors and the communities they serve. This focus on subscriber experience allows CXPs to expand their brand through increased subscriber acquisition, loyalty and revenue while reducing their operating costs. We market our platform, cloud and managed services to CSPs globally through our direct sales force as well as select resellers. Our customers range from smaller, regional service providers to some of the world's largest service providers. We have approximately 1,600 active customers that have deployed passive optical, Active Ethernet or point-to-point Ethernet fiber access networks or our subscriber premise appliances. Our revenue and potential revenue growth will depend on, among other things, our ability to develop, market and sell our platform and managed services to strategically aligned customers of all types such as managed service providers ("MSPs"), local and competitive exchange carriers, cable multiple system operators ("MSOs"), wireless internet service providers ("WISPs"), fiber overbuilders such as municipalities, electric cooperatives, tribal communities, multiple dwelling units ("MDUs") and hospitality providers in the U.S. and internationally. Our growth is also highly dependent on the speed and willingness of customers to adopt our platform and managed services. Revenue fluctuations result from many factors, including, but not limited to: increases or decreases in customer orders for our products and services, global economic and geopolitical events and conditions, including tariffs, trade controls, inflation, economic downturns and market, financial or other factors such as government stimulus or shutdowns that may delay or materially impact customer purchasing decisions, non-availability of products due to supply chain challenges, including component and labor shortages and increasing lead times as well as disruptions as a result of pandemics or natural disasters, contractual terms with customers that result in delayed revenue recognition and varying budget cycles and seasonal buying patterns of our customers. More specifically, our customers have in the past spent less in the first quarter as they are finalizing their annual budgets, and in certain regions, customers are challenged by winter weather conditions that inhibit fiber deployment in outside infrastructure. Our revenue is also dependent upon our customers' success in growing their subscribers, timing of purchases, capital expenditure plans and decisions to upgrade their networks or adopt new technologies, including adoption of our software and cloud platform solutions, as well as our ability to grow our customer base. Table of Contents Cost of revenue is strongly correlated to revenue and tends to fluctuate due to all the above factors that may cause revenue fluctuations. Factors that have impacted our cost of revenue, or that we expect may impact cost of revenue in future periods, also include: changes in the mix of products delivered, customer location and regional mix, changes in the cost of our inventory, investments to support expansion of cloud and customer support offerings as well as our customer success organization, changes in product warranty, incurrence of retrofit costs, amortization of intangibles, allowances for obligations to our suppliers and inventory write-downs. Factors that we expect may impact our cost of revenue in future periods include the same factors in the prior quarter, changes in trade policies and increased memory component prices due to shortages caused by the large scale build out of AI infrastructure. Regarding trade policies, in February 2026, The U.S. Supreme Court ruled that the broad tariffs implemented under International Emergency Economic Powers Act ("IEEPA") exceeded the administration's authority and eliminated those tariffs. The impact of the ruling did not have a significant financial impact because the majority of our finished goods are exempt from tariffs. For imported components for domestic manufacturing and certain finished goods, the original tariff increased our cost of revenue but have since abated. We continue to evaluate the actions we may be able to take to mitigate such costs as we monitor and navigate this challenging and dynamic operating environment. In addition, we periodically ship by air versus by ocean to meet delivery commitments to our customers, which is more costly. Cost of revenue also includes fixed expenses related to our internal operations, which could increase our cost of revenue as a percentage of revenue if our revenue declines. Our gross profit and gross margin fluctuate based on timing of factors such as changes in customer mix and changes in the mix of products demanded and sold (and any related write-downs of existing inventory or accrual for supplier commitments) and have in the past been and may be negatively impacted by increases in mix of revenue from channel sales rather than direct sales or other unfavorable customer or product mix, shipment volumes and any related volume discounts, changes in our product and services costs, pricing decreases or discounts, new product introductions or upgrades to existing products, customer rebates and incentive programs due to competitive pressure or materials shortages, supply constraints, investments to support expansion of cloud and customer support offerings, tariffs or unfavorable changes in trade policies. Our operating expenses fluctuate based on the following factors among others: changes in headcount and personnel costs, which comprise a significant portion of our operating expenses; variable compensation due to fluctuations in shipment volumes or level of achievement against performance targets; timing of research and development expenses, including investments in innovative solutions and new customer segments, prototype builds and outsourced development resources; investments in marketing programs; asset write-offs; investments in our business and information technology infrastructure; and fluctuations in stock-based compensation expenses due to timing of equity grants or other factors affecting vesting. Further, as a result of factors contributing to the fluctuations described above among other factors, many of which are outside our control, our quarterly operating results fluctuate from period to period. Comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Critical Accounting Policies and Estimates Our financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Management bases its estimates, assumptions and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. To the extent there are material differences between these estimates and actual results, our financial statements may be affected. Our management evaluates its estimates, assumptions and judgments on an ongoing basis. Our critical accounting policies and estimates, which are revenue recognition and inventory valuation and supplier purchase commitments, are described under "Critical Accounting Policies and Estimates" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year ended December 31, 2025. For the three months ended March 28, 2026, there have been no significant changes in our critical accounting policies and estimates. Recent Accounting Pronouncements There have been no additional accounting pronouncements or changes in accounting pronouncements during the three months ended March 28, 2026 as compared with the recent accounting pronouncements described in our Annual Report on Form 10-K for the year ended December 31, 2025 that are significant or expected to be significant to us. Table of Contents Results of Operations Comparison of the Three Months Ended March 28, 2026 and March 29, 2025 Revenue The following table sets forth our revenue by customer size (dollars in thousands): Three Months Ended March 28, 2026 March 29, 2025 Variance in Dollars Variance in Percent Revenue: Appliance $ 232,843 $ 179,743 $ 53,100 30 % Software and service 47,141 40,499 6,642 16 % $ 279,984 $ 220,242 $ 59,742 27 % Our revenue increased by $59.7 million during the three months ended March 28, 2026 compared to the corresponding period in 2025. The increase in appliance revenue was due to the adoption of our platform, cloud and managed services by new customers as we continue to take footprint from legacy box vendors and the continued robust expansion of our appliances within our existing customer base. The increase in software and service revenue is due to our CXP customers adding new subscribers. Our software is sold on a per-subscriber basis. CXPs use our platform, cloud and managed services to deliver better subscriber experiences as evidenced by best-in-class Net Promoter Scores SM , thereby allowing them to take market share. For the three months ended March 28, 2026, United States revenue was $265.3 million, or 95% of our revenue, compared to $211.2 million, or 96% of our revenue, for the same period in 2025. International revenue was $14.6 million, or 5% of our revenue, as compared to $9.1 million, or 4% of our revenue, for the same period in 2025. Our primary focus has been, and in the near term will continue to be, the U.S. and Canada given our large, direct sales and marketing presence and the amount of government stimulus being invested into underserved and not-served areas of these countries. With the introduction of our third-generation platform, we will increase our attention on international markets. No customer accounted for more than 10% of our revenue for the three months ended March 28, 2026 or March 29, 2025. Gross Profit and Gross Margin The following table sets forth our gross profit and gross margin (dollars in thousands): Three Months Ended March 28, 2026 March 29, 2025 Variance in Dollars Variance in Percent Gross profit: Appliance $ 133,707 $ 96,998 $ 36,709 38 % Software and service 25,589 25,710 (121) 0 % $ 159,296 $ 122,708 $ 36,588 30 % Gross margin: Appliance 57.4 % 54.0 % 340 bps Software and service 54.3 % 63.5 % (920) bps 56.9 % 55.7 % 120 bps Gross profit increased to $159.3 million for the three months ended March 28, 2026 from $122.7 million from the corresponding period in 2025. This increase was mainly due to the corresponding increase in revenue. Our gross margin increased by 120 basis points for the three months ended March 28, 2026, compared to the corresponding period in 2025, primarily related to the continued growth in our appliance offerings. Our software and service gross margin declined by 920 basis points, which related to the transition from our second-generation platform to our third-generation platform during which time we operated in a dual cloud environment to successfully support customer migrations. Operating Expenses Sales and Marketing Expenses The following table sets forth our sales and marketing expenses (dollars in thousands): Table of Contents Three Months Ended March 28, 2026 March 29, 2025 Variance in Dollars Variance in Percent Sales and marketing expenses $ 63,486 $ 58,059 $ 5,427 9 % Percent of revenue 23 % 26 % Sales and marketing expenses for the three months ended March 28, 2026 increased by $5.4 million compared with the corresponding period in 2025 primarily due to increases in personnel expenses of $4.7 million, mostly related to incentive compensation and increased headcount, outside services of $0.5 million and software expenses of $0.3 million. For the three months ended March 28, 2026, sales and marketing expenses as a percentage of revenue declined compared to the year ago period due to increased revenue. We expect our investments in sales and marketing will increase in absolute dollars on a year-over-year basis, but decline as a percentage of revenue as we continue to land new customers and expand our platform, cloud and managed services. Research and Development Expenses The following table sets forth our research and development expenses (dollars in thousands): Three Months Ended March 28, 2026 March 29, 2025 Variance in Dollars Variance in Percent Research and development expenses $ 54,646 $ 43,980 $ 10,666 24 % Percent of revenue 20 % 20 % Percentage of gross profit 34 % 36 % Research and development expenses for the three months ended March 28, 2026 increased by $10.7 million as compared with the corresponding period in 2025 mainly due to increases in personnel expenses of $5.1 million, outside services of $3.7 million, stock-based compensation expense of $0.8 million, depreciation and amortization of $0.8 million and allocated shared services expenses of $0.5 million. For the three months ended March 28, 2026, research and development expenses as a percentage of gross profit decreased to 34% from 36% due to the increase in revenue and gross margin and we expect our investments in research and development to increase in absolute dollars and as a percentage of gross profit in the short term as we accelerate the development of artificial intelligence ("AI") functionality and capabilities of our platform, cloud and managed services. General and Administrative Expenses The following table sets forth our general and administrative expenses (dollars in thousands): Three Months Ended March 28, 2026 March 29, 2025 Variance in Dollars Variance in Percent General and administrative expenses $ 28,448 $ 26,750 $ 1,698 6 % Percent of revenue 10 % 12 % General and administrative expenses for the three months ended March 28, 2026 increased by $1.7 million as compared with the corresponding period in 2025 mainly due to increases in personnel expenses of $1.0 million, mostly related to incentive compensation and increased headcount. For the three months ended March 28, 2026, general and administrative expenses as a percentage of revenue decreased to 10% from 12% due to the increase in revenue. We expect our general and administrative investments to increase in absolute dollars but decline as a percentage of revenue. Table of Contents Interest and Other Expense, net The following table sets forth our interest and other expense, net (dollars in thousands): Three Months Ended March 28, 2026 March 29, 2025 Variance in Dollars Variance in Percent Interest and other expense, net $ 2,516 $ 3,091 $ (575) (19) % Percent of revenue 1 % 1 % For the three months ended March 28, 2026, interest and other expense, net was down compared with the corresponding period in 2025 due to a lower balance of marketable securities. We repurchased 3.3 million shares of common stock for $170.9 million during the first quarter of 2026. Income Taxes The following table sets forth our income taxes (dollars in thousands): Three Months Ended March 28, 2026 March 29, 2025 Variance in Dollars Variance in Percent Income taxes $ 4,022 $ 1,797 $ 2,225 124 % Effective tax rate 26.4 % (60.1) % For the three months ended March 28, 2026, our income tax expense was $4.0 million for an effective tax rate of 26.4%, which differed from the statutory rate of 21% primarily due to state taxes, the effect of non-deductible stock-based compensation for executive officers offset by the favorable impact of U.S. federal research tax credits and excess tax benefits from stock-based compensation. The effective tax rate for the three months ended March 28, 2026 is higher than the corresponding period in 2025 primarily due to higher pre-tax earnings with a relatively lower level of non-deductible expenses. Our income taxes may be subject to fluctuation during the year and in future years as new information is obtained. This may affect the assumptions used to estimate the interim income tax provision, including factors such as actual results differing from our estimates of pre-tax earnings in the various jurisdictions in which we operate, which could impact the recognition of our deferred tax assets, further benefits from stock option exercises, investments in our foreign operations, the recognition or de-recognition of tax benefits related to uncertain tax positions and changes in or the interpretation of tax laws in jurisdictions where we conduct business. Liquidity and Capital Resources We fund our operations and investing activities from cash flow generated from our operations as well as the issuance of common stock under our equity incentive plans. As of March 28, 2026, we had cash, cash equivalents and marketable securities of $243.3 million, which consisted of deposits held at banks and major financial institutions and highly liquid marketable securities such as U.S. government and its agency securities, corporate debt securities and commercial paper. Operating Activities Net cash provided by operating activities was $14.6 million for the three months ended March 28, 2026 and consisted of net income of $11.2 million and non-cash charges of $25.8 million partially offset by cash flow decreases of $22.4 million reflected in the net change in assets and liabilities. Non-cash charges primarily consisted of stock-based compensation of $20.6 million, depreciation and amortization of $4.4 million and deferred income taxes of $1.3 million partially offset by the net accretion of available-for-sale securities of $0.4 million. Cash flow decreases resulting from the net change in assets and liabilities primarily consisted of an increase in inventory of $20.9 million to support increased revenue, an increase in accounts receivable of $17.4 million due to higher revenue and decrease in accrued liabilities of $11.4 million relating to various factors including a decrease in incentive compensation related accruals. This was partially offset by an increase in accounts payable of $26.2 million due to increased inventory purchases and a decrease in prepaid expenses and other assets of $0.8 million. Net cash provided by operating activities was $17.2 million for the three months ended March 29, 2025 and consisted of a net loss of $4.8 million offset by non-cash charges of $21.4 million and cash flow increases of $0.6 million reflected in the net change in assets and liabilities. Non-cash charges primarily consisted of stock-based compensation of $19.7 million and depreciation and amortization of $4.3 million partially offset by deferred income taxes of $1.5 million and the net accretion of available-for-sale securities of $1.1 million. Cash flow increases resulting from the net change in assets and liabilities primarily Table of Contents consisted of a decrease in accounts receivable of $3.8 million due to the timing of customer payments, an increase in deferred revenue of $3.2 million driven by support contract renewals, a decrease in prepaid expenses and other assets of $2.8 million mainly due to a reduction in our inventory deposits and an increase in accounts payable of $3.5 million due to the timing of inventory receipts. This was partially offset by a decrease in accrued liabilities of $14.6 million relating to various factors including a decrease in incentive compensation related accruals. Investing Activity For the three months ended March 28, 2026, cash provided by investing activities consisted of net maturities and sales of marketable securities of $56.0 million partially offset by capital expenditures of $8.1 million, consisting primarily of purchases of test equipment. For the three months ended March 29, 2025, cash provided by investing activities of $11.0 million consisted of net purchases of marketable securities of $15.3 million and partially offset by capital expenditures of $4.3 million, consisting primarily of purchases of test and computer equipment. Financing Activities Net cash used in financing activities of $150.9 million for the three months ended March 28, 2026 primarily consisted repurchases of our common stock of $170.9 million partially offset by proceeds from the issuance of common stock related to our equity plans of $20.0 million. Net cash used in financing activities of $29.1 million for the three months ended March 29, 2025 primarily consisted repurchases of our common stock of $40.0 million partially offset by proceeds from the issuance of common stock related to our equity plans of $10.8 million. Working Capital and Capital Expenditure Needs Our material cash commitments include non-cancelable firm purchase commitments, normal recurring trade payables, compensation-related and expense accruals and operating leases. We believe that our outsourced approach to manufacturing provides us significant flexibility in both managing inventory levels and financing our inventory. Furthermore, we have a common stock repurchase program, which had $63.4 million available as of March 28, 2026. Our stock repurchase program does not require us to purchase a specific number of shares and may be modified, suspended or terminated at any time. In April 2026, our Board of Directors authorized a $100.0 million increase to our common stock repurchase program. We believe, based on our current operating plan and expected operating cash flows, that our existing cash, cash equivalents and marketable securities will be sufficient to meet our anticipated cash needs for at least the next twelve months. If we are unable to generate sufficient cash flows or obtain other sources of liquidity, we will be forced to limit or terminate our stock repurchase program, limit our development activities, reduce our investment in growth initiatives and/or institute cost-cutting measures, all of which may adversely impact our business and potential growth. Contractual Obligations and Commitments Our principal commitments as of March 28, 2026 consisted of contractual obligations under non-cancelable outstanding purchase obligations and operating lease obligations for office space. The following table summarizes our contractual obligations as of March 28, 2026 (in thousands): Payments Due by Period Total Less Than 1 Year 1-3 Years 3-5 Years More Than 5 Years Non-cancelable purchase commitments (1) $ 311,503 $ 223,716 $ 80,704 $ 7,083 $ - Operating lease obligations (2) 17,330 3,623 5,982 4,723 3,002 $ 328,833 $ 227,339 $ 86,686 $ 11,806 $ 3,002 (1) Represents outstanding purchase commitments to be delivered by our third-party manufacturers or other vendors. See Note 6, " Commitments and Contingencies " of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion regarding our outstanding purchase commitments related to our third-party manufacturers. (2) Future minimum operating lease obligations in the table above primarily include payments for our office locations, which expire at various dates through 2033. See Note 6 " Commitments and Contingencies " of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion regarding our operating leases. Table of Contents

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