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spk14: Greetings and welcome to the Calix second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the brief prepared remarks. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jim Finucchi of Darrow Associates. Sir, please go ahead.
spk05: thank you operator and good morning everyone thank you for joining our second quarter 2022 earnings call today on the call we have calix chairman and ceo carl russo chief financial officer corey cindylar and president and chief operating officer michael weenie as a reminder yesterday after the market closed calix distributed its letter to stockholders in a news release an ak filing and posted in the investor relations section of the calix web conference call will be available for webcast replay in the investor relations section of the Calix website. Before I turn the call over to Carl for his brief opening remarks, I want to remind you that on this call, we will refer to forward-looking statements, which include all statements the company will make about its future financial and operating performance, growth strategy, and market outlook, and actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause actual results and trends to differ materially are set forth in the second quarter 2022 letter to stockholders and in their annual and quarterly reports filed with the SEC. Dallas assumes no obligation to update any forward-looking statements which speak only as of their respective dates. Also in this conference call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in the second quarter 2022 letter to stockholders. Unless otherwise stated, all numbers referenced in this call will be non-GAAP measures. With that, I will now turn the call over to Carl.
spk15: Carl? Thank you, Jim. Robust demand continued in our second quarter, which resulted in a 9% sequential increase in revenue. More than 80% of our bookings came from our all-platform software associated systems and services. This is up from 70% just last quarter. This sequential growth was driven by BSPs that are providing broadband as a service rather than just a dump pipe, and we expect this trend to continue. A 77% year-over-year increase in revenue performance obligations was further evidence that our BSP customers are winning in their market and growing their subscriber share. Furthermore, we see evidence that our most aggressive BSP customers are using the recent economic slowdown as an opportunity to gain share by delivering an exceptional subscriber experience to those who have never received one. On the supply front, the CalEx team again outperformed which helped us achieve better than expected results in the quarter. Furthermore, it raises our visibility, allowing us to forecast year-over-year revenue growth of roughly 25% for the third quarter. While we expect the supply chain challenges to continue for the foreseeable future, our confidence is growing that we can exceed our revenue growth model shared at our 2022 Investor Day held in February. Our operational and financial performance in this uncertain market has been exceptional. We are profitable, our balance sheet is strong, we consistently generate cash, and we expect this trend to continue. Based on our expected performance, we are confident we will create significant shareholder value over the long term. However, in the near term, the market downturn has presented us with an opportunity to purchase our own shares. To that end, our board of directors has authorized a one-year repurchase plan, allowing us to invest up to $100 million in our common stock on an opportunistic basis. In closing, the enormous secular opportunity we are capitalizing on grows every day, and the Calix team is committed to executing with excellence to help our customers simplify their businesses
spk14: excite their subscribers and grow their value with that let's open the call for questions daryl thank you we will now be conducting a question and answer session if you would like to ask a question please press star 1 on your telephone keypad a confirmation tone will indicate your line is in the question queue you may press star 2 if you would like to remove your question from the queue For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first questions come from the line of George Nodder with Jefferies. Please proceed with your question.
spk01: Hi, guys. Thanks very much, and congratulations on all the traction in the business, both on the hardware side and the software side. I guess I wanted to ask about the progress with AXOS and EXOS. Obviously, those are attached to hardware sales, but lots and lots of growth here. I know you guys have been working to move EXOS from a perpetual software license model to a subscription model. I think that transition started about a year ago. Could you kind of walk us through where you are in that transition I'd love to know what the mix of new wins would look like in terms of subscription versus perpetual software license. I think on the AXOS side, you're also looking at making that transition. Can you talk about where you are in terms of progress there and then maybe tie in some of the revenue growth rates you're seeing on AXOS and EXOS? I think you said 129%. year-on-year on EXOS and 73% in AXOS. Kind of walk through that transition. Thanks a lot.
spk15: Thanks, George, for the question. The transition is pretty simple. With our revenue edge offerings, almost all of the EXOS today is in a subscription form. With our AXOS offerings, it is still a licensed operating system. So it's literally a 100% on one and 0% on the other to answer your question directly. As for progress, there's a number of examples. But let's just say that obviously AXOS is tied to network investment, which you're seeing more and more investments going into the network in Fiverr and XGS POM. And obviously on the Revenue Edge side, you know that we're focused on what's going on with our customers and their success. Michael, maybe you've got an example or two you want to share on the revenue edge side as an example.
spk02: Yeah, I'm actually going to tie the two together. Please do. Is that we've reached a tipping point where we're finding that broadband service providers who are looking at the different technologies are now looking to Calix for a complete end-to-end because of the fact that we tie the two together. We tie the network two to three. So, for example, BrightSpeed is looking to us to elevate and speed their business. by looking to Calix for an end-to-end solution which covers everything to do on the network to what they're doing on the prim and then tying it together with support cloud, operations cloud and everything we're doing for marketing cloud 22. So that's really the big pivot point for us and that's why you're seeing that growth because they're seeing the value like never before.
spk13: Got it. And then I guess I'd also ask about
spk01: progress on the cloud modules. You mentioned operations cloud and marketing cloud. I saw that RPOs jumped up about $25 million sequentially. It looks like really good progress in selling the cloud modules. Maybe it's coming from selling longer-term contracts, but can you just give us a sense for why that number seems to be inflecting in terms of sequential improvement? Michael, why don't you take that?
spk02: Again, this comes down to as we reach the tipping point where the promise of what we're doing in the cloud has always been that they're platforms. And those platforms allow us to integrate incremental solutions, which makes it even more attractive. You start by buying the cloud to do one function, for example, support or operations or marketing. And then when you look, the callous for is how do I expand my broadband business? through a wide range of ecosystem partners to ensure that I have the most robust operational and go-to-market solutions. This quarter, we added Bark. And if you haven't looked at Bark, Bark is a social media listening platform for parents, which has had an incredible impact on millions of children in North America with regards to cyberbullying and a bunch of other elements to protect them. And then the second one we added on Marketing Cloud was our fifth social platform, which is Constant Contact. It gives us a smaller medium service provider the ability to really integrate and engage with their customer on a day-to-day basis. So I'd say that's what's really driving the cloud is as we pivot to this next stage of ecosystem.
spk01: Great.
spk13: Okay.
spk01: Thank you guys very much.
spk14: Thanks, Jordan. Thank you. Our next question has come from the line of Ryan Kuntz with Needham & Company. Please proceed with your questions.
spk10: Good morning. Nice quarter and great to see the visibility driving the raise in the year, for Q3 anyway. Can you walk us through puts and takes on the gross margin front here? Are we mostly dealing with past price increases now? Are you seeing any relief on logistics and expedites and You know, can you comment on the kind of trend on decommits, which sounds like that's improving? Thanks a lot.
spk15: Brian, let me just shape it, and then we're going to hand it over to Corey. The shift in the model, you know, as we spoke, going from 70% to 80% bookings, which is obviously a leading indicator, the transformation of the business continues unrelentingly. Having said that, on the other side of it, the supply chain continues to be just a war every day. So, Corey, maybe you want to answer the puts and takes on the supply side. Thanks, Ryan.
spk04: Yeah, Ryan, I would characterize it when you're going through a lot of pain, just the relief from the pain makes you feel like things are better. So generally across the board, you have a general sense that things are getting better, but we're still in a troughing phase. You've got to remember, in order to avoid supply hiccups, everybody needs to perform your supply chain it only takes one so the good news in the last 90 days you know we haven't had any significant surprises so that's a plus but we are still seeing uh decommits we are obviously still have extended lead times those haven't contracted any um we're being notified of upcoming price increases at the first of the year so that's a trend that's continuing um On the logistics piece, we are seeing improvements both on air and ocean. So that's improved over the last 91 days. So that's a little bit of a bright spot. But all in all, we're still a long way from solving those large problems that were identified earlier in the year, where they relate to redesigns of some of our products. That takes a while for it to complete. So we're still working our way through it. albeit it feels better, there's still a lot of work to do.
spk15: So let me ask you just to give Ryan a little more color. First quarter to second quarter, numbers of decommits, did it change or?
spk04: They're fewer. Okay.
spk10: So it's improved from the decommits, but they are still decommitting. Helpful. Thanks so much. If I could just do a quick follow-up on the flow of subsidies. Sounds like we're seeing some nice ARPA allocations from the states. How do you see ARPA playing into some of the smaller rural operators versus the tier ones that are getting some of the headlines out there? Thanks a lot.
spk15: Yeah, as we've spoken about before, ARPA funds have started to flow through in the states. It's a state-by-state thing, and we're definitely seeing an impact from that. I don't know that I would say that it's material, but we're seeing it. Michael, any additional comments?
spk02: i would just say our message remains the same quarter on quarter for us that's all upside and that's um the government funding is slow to flow and we really see it in 23 versus right now so we're seeing bits and drops but that's yet to come helpful thanks a lot i'll pass it thank you our next question has come from the line of
spk14: Paul Silversy with Cameron. Please proceed with your questions.
spk12: Thanks.
spk14: Guys, can you hear me? We can.
spk07: A couple of questions. One, your response regarding ARPA just now, that also implied, Ardoff, that you're seeing some funds, but it's a trickle, and that should increase 2023.
spk08: And any visibility to the degree of increase?
spk15: Michael, you want to take that?
spk02: We don't have visibility into the degree of increase, but we have a significant direct sales organization that's very actively involved with all of our customers. So as it arrives, we're involved with them both from the submitting phase through planning for those funds when they show up. So not at this point. But as I stated before, the growth that you're currently seeing right now is organic growth. I'm taking market share and growing our business with 34 new BSPs that we had in this quarter, and that's all upside into 23.
spk08: And Corey, returning to your response regarding supply chain, what was the degree, the quantification, the impact on revenue and on gross margin?
spk04: So on revenue, Paul, I would say it's nil. Remember, we are supplying our customers to their subscriber demand. So we don't believe it has an impact on revenue per se. On the margin side, it's consistent with prior quarters. It's at the gross level somewhere between 400 and 700 basis points from pre-pandemic levels. But as we said before, it's important to realize that a lot of those price increases are not going to actually be reversed. So it's kind of a moot point. That's not going to be the new normal. We're not going to revert back to that old level. And so that gives you kind of just a sense of where it is relative to the aggregate headwinds.
spk08: Well, Corey, just to be clear, you think your gross margin, but for logistics, freight, semis, ICs, et cetera, would have been somewhere between 54% to 57%? Correct. And how much of that is freight and logistics that I assume you do expect to recover? Say that again, Paul? How much of the impact has been freight and logistics as opposed to increased costs on semis and ICs?
spk15: That varies from quarter to quarter. And so we don't, I mean, again, to Corey's point, we don't know what's going to stay baked in. And so we don't know what's going to get recovered. As this normalizes, I think it's best that we do it almost retrospectively, because I think you're going to see a lot of vendors in the supply chain attempt to hold on to price increases for as long as they can, and they're going to yield balance and do other things to do so.
spk08: Have your price increases started to impact yet, or that's still ahead?
spk04: Yeah, Paul, they've started. But remember, we said when we raised prices, it was on new orders. So consequently, well, it's just small. But you'll see more of it as we progress through time. So greater impact on foreign. Certainly, as we move into 2023. Now, mind you, part of that price increase was to ensure that we maintain that So we obviously have visibility into some of the PPVs that are coming, and it's also measured. So the price increase should not be thought as a margin recovery piece. The margin recovery piece in 2023 is really due to continued product mix as we continue to sell more software and more platforms. And that's where we'll get to the 100 to 200 basis points of the margin improvement next year.
spk15: And an assumption that the supply chain It's no longer getting materially worse.
spk08: Right. Corey, now on top of the supply chain impact that you and everybody else have been experiencing over the last year plus, you've now got, it sounds like inflation is starting to hit over and above supply chain. I'm hearing other companies cite a 10% type increase in labor costs on average. It varies depending on region. But is that what you're starting to see?
spk13: No, no, we're not seeing that level of wage inflation.
spk08: Are you seeing some degree of inflation in that, or is that already baked in?
spk15: Are you talking about on the margin line or on the OPEX line?
spk08: Well, I guess it would be larger on the OPEX line, but I suspect it would also be, to some extent, it also should appear in COGS.
spk15: Well, so on the COG side, I think the answer is it's minimal. As far as in the OpEx environment and how we're competing for talent, maybe, Michael, you want to spend a moment and give some color on that? Yeah.
spk02: The majority of the people that we're hiring, and we had another record quarter for hiring people across the company, it comes down to speaking to them about, first of all, what's the purpose of the company? They really, really want to hear that story. And so it's exciting for them. The second part of it is making sure that everything that we do as a culture is represented properly. And we're fortunate that in this quarter, we won several other awards. Fortune, for the first time, recognized us with Workplace Awards for Bay Area and for Best Place to Work for Millennials. And then we won four additional awards from Comparably, which we're super proud of. because of the fact that those were based upon the interviews and the feedback from our employees. And we won for career growth, which is incredibly important for someone as they're considering a change, diversity, women, and our leadership team. And so all of those come into play much more than compensation. Compensation is important, sure, but it's actually about am I going somewhere with a purpose? And that's something that our new employees are really gravitating towards.
spk08: So, Michael, did you just say that inflation is not meaningful yet for the company in terms of labor costs? It's not. One last question. I'll apologize to others in the queue, but one last quick question. I appreciate that it sounds like you've got your hands full with demand in the U.S. and you need to focus your investments on addressing that U.S. demand. I assume that you haven't yet poured meaningful investment into outside of the U.S. and U.K. and Europe, et cetera. But what's going on with respect to your non-U.S. revenue? I see that it dipped. I think you attributed it to two specific customers. But can you give us any more insight?
spk15: Your premise is correct. And so our focus is on North America. The team at International has been focused on our platform business going forward, but it is not an area where we are pouring resources into it. So it's still very opportunistic and it will move around accordingly quarter on quarter.
spk08: Carl, you don't have, given the level of demand in the US, you don't have a view yet as to when you will have the resources to invest more overseas.
spk15: Not at this time. Keep in mind that as we stated last quarter, We did take our first cloud offerings into the UK.
spk13: So that is the only news to report, same as 91 days ago.
spk08: And regarding City Fiber specifically, the announcement the other day that they've selected you and Nokia for a 10 gig XGS PON upgrade starting in April 2023, any incremental insight you could offer on that? Obviously, that's a big plan deployment.
spk15: Well, I mean, I think from their start, they've always wanted to be a dual vendor. They just for years never got around to it. And I think they're finally getting around to it. But Michael, if I got that right? Yes. There you go. That's the shortest answer I've gotten from Michael since we've worked together.
spk08: Thanks, guys. Appreciate it.
spk14: Thanks, Paul. Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next questions come from the line of Christian Schwab with Craig Hallam. Please proceed with your questions.
spk11: I'll also give my congrats on great execution. I just have one question that hasn't been asked. The two large customers that you highlighted that kind of drove the large customer base up, you know, I know from a percentage of revenue the same, but up 14%. Are those, you know, your historical large customers? And in the follow up on that, is there anything new or dynamic that's going on that's creating that demand? Or is that just the capex cycle of those companies?
spk15: Yeah, it's literally quarter to quarter noise. And I don't mean that in the deleterious sense. It's just simply in any given quarter, depending upon timing. As you look forward, Christian, Michael spoke earlier about bright speed. That will be something that will become a part of this as we look into 2023. But they have as yet not closed their spinoff.
spk13: Okay, great.
spk11: No other questions. Thanks, guys.
spk15: Thank you, Christian.
spk14: Thank you. Our next questions come from the line of Tim Savage with Northland Capital Markets. Please proceed with your questions.
spk06: Hi, good morning and congrats on the good results. And maybe that's where I'll start, Carl, if we can update a couple of topics that were discussed last quarter and get your current views and the results speak to this to some degree but I guess the overall topic is Calix's performance relative to a weakening macro environment doesn't really seem to be having an impact yet and I think you had some comments on that last quarter and secondly and I don't know that we're seeing this right now but the potential benefits from a supply and availability and maybe even pricing standpoint of weakening demand in places like consumer and auto tech in terms of its impact on a more favorable supply environment. In the communications technology world, does that demand remain strong? Are you starting to see anything along those lines? kind of seeing that out of Corning a little bit this morning, the display versus optical comm. But I'd be interested in your comments or updated comments on both topics. I have a follow-up.
spk15: Okay. First of all, Tim, I'm going to take them in reverse order. I'm going to ask Corey and Michael to add color. But before I do, I do want to offer a congratulations to our operator, Daryl, who I believe is a rare amongst the group in pronouncing your last name correctly this time. Okay.
spk06: That was impressive. That was impressive. But as a caveat, I did end up on the independent bank call to start here. First thing. I don't know if that happened to anybody else.
spk15: Well, listen, I just want to point out that it was pronounced correctly. All jocularity aside, your question about slackening of demand in the consumer side bleeding over into availability for components that we might see in networking silicon. This is something that we're continuing to look at. As you understand lead times, to the extent that that occurs, it will take a couple of quarters. My comment on this is I think in my chats with folks that I know in the industry that we are seeing the early signs that will happen in the future. It is not affecting us Yes. So let me just stop there, Corey. Anything you want to add to that? I think that's about right. We're seeing some evidence, not a lot at this point. So I think that's right. But I do think, I would almost encourage you to ask the same question in 91 days and see if we have more visibility into that. I do believe there is an opportunity for that to occur if consumer demand continues to slacken. It just takes a while for that freeing up of wafers to be redirected to silicon that we might use. Hopefully that makes sense to you. On the weakening macro side with our service providers, our BSPs, as you heard in my prepared comments, from our perspective, this is their opportunity to take advantage. As you know, the BSPs that support our platforms are the hallmark is an outstanding subscriber experience with no churn. That sets them up to take share. And I'll say no more. Michael, maybe you have an example or two of that going on that you might want to relate from our customers.
spk02: We're seeing incredible growth from across the board from our broadband service providers. When we press release this quarter, OTTC had 25% year-on-year growth by deploying end-to-end with the revenue edge. We announced that Sheridan Valley and Allo have gone all in on the revenue edge. protect IQ and experience IQ to strengthen their offerings, and that's having a huge impact on NPS. Allo right now has an NPS of 71. An NPS of 71 is cultish in the love of it. That's significantly higher than Apple even. And what's that doing is it's driving significant growth. So across the board, we're seeing our customers who deploy our platforms and winning.
spk15: So their take rates in their footprint go up, and they also have cash flow to go overbuild other areas. So we're continuing to see this, and in a downturn, as you know, winners separate from losers, and our BSDs are winners. And so we're very happy to be in the boat and help them win.
spk06: All right, and that's a good setup for my follow-up as well, which has to do with, well, I guess end market growth versus... Calix growth. So you've seen, you know, in terms of what you're guiding to pretty nice acceleration and growth throughout the year, I think at a high level, kind of 15, 20, 25%. Um, you know, I guess how much of that is kind of, you know, specific to the, you know, quarter to quarter variations in your business or to what extent can you point to accelerating and market growth? Um, I mean, I know you're taking share, but maybe you can kind of discern between those two factors and whether you expect that to continue in terms of accelerating growth or if you can maybe take a stab at an overall market growth rate right now and where you expect that to go.
spk15: Yeah, I don't think in terms of market growth rate, we're focused on subscribers and helping our BSTs succeed. let me just take the two dimensions the way i think about your question i'm going to ask michael to add some color ours is a land and expand model as you've heard michael speak to the to the platform model you saw in the quarter that we added 34 new customers on top of last quarter adding 33 new customers so the land part is a relentless focus of what we're doing we always want to be landing new customers that being said our growth is always going to be dominated by the expansion of our existing customers and working with them to succeed. Michael, maybe you've got some examples to talk to around expansion and customer success. It's all yours.
spk02: Sure. If I go back to where we were six years ago, we were an access company and we were dominating in the network component. But now with everything that we're doing on the prem side, we have the ability to, again, back to my point on ecosystems, work with these BSPs not only in their ability to acquire new customers, which they're using Marketing Cloud and all of our behavioral insights to do at a highly effective level, but then also add incremental services on top of it that allow them to grow their revenue per subscriber. So not only, as Carl stated, are we expanding by all these new broadband service providers selecting us end to end because we give them the lowest operating costs and the highest opportunity for success with subscribers, but once we're in that account, we're expanding radically. And this won't stop. It is our goal on a quarterly basis to release a new service that they can monetize over and over again to constantly expand our addressable market inside the customers.
spk13: So I would say it doesn't stop. Got it. Thanks very much. Thank you.
spk14: Thank you. Our next questions come from the line of Fahad Najam with Loop Capital. Please proceed with your questions.
spk09: Good morning. Thank you for taking my question. It seems like most of my questions have already been answered. So let me ask you a big picture question, Carl. Telecom has historically been a very cyclical business. Your largest customers tend to invest in CapEx. And then after the investment phase, they go through a prolonged period of... And maybe a winter where they're trying to maximize their return on their CapEx investments. So historically, your peers have said that that's true, but all their customers are upgrading at different times. So it gives them a relatively smoother revenue trajectory. But COVID-19 seems to have disrupted everything. Everybody is now forced to upgrade at the same time. Seamless funds, which everybody's chasing, is forcing everybody to upgrade essentially at the same time. So we kind of have this super cycle and then maybe followed by a deep nuclear winter. So how are you thinking about your competitive position? I know you said about land and expand and you seem to be investing a lot in the land portion of it, but how long do you sustain that land investment cycle, assuming that there is a potential prolonged nuclear winter following this massive investment phase?
spk15: Yeah, so what you just highlighted, is the correct statement for 60 years of the service provider space. And the reason it's the way to think about the service provider space is because you're focusing on the service provider space being a pipe infrastructure business. And what we are doing is two things. Obviously, we build networks. But the services that we are so focused on and our customers' success When you hear us say simplify your businesses, excite your subscribers, the excite your subscribers is all about the services layer, which is an unrelenting go-forward business model that we're focused on. From time to time, there'll be stimulus money, there'll be capex. Those are things that, in essence, are investments in period. But we're focused on the ongoing success of our customers with their subscribers, and so The CapEx investment, and you've heard me speak to this for many years now, is nice, but it's where we begin, not where our revenue ends. In period, CapEx is sort of the ante to the game. We're focused on the subscriber experience, our customer success, growing their revenues. So actually, our whole business model, as you heard Michael earlier say organically, is about the ongoing, everyday revenue, success, cost reduction of our customers. Underneath that, there are CapEx investments that go on. So if it was Calix 1.0, then your question would be 100% correct.
spk13: But in what we are doing today, it's almost irrelevance.
spk09: Carl, my question was really about your investment cycle. So you're investing in sales and marketing and R&D as you're trying to land new customers. What I'm trying to get from you is if it is not entirely focused on landing new customers, then how should we be thinking about your intensity of effects?
spk15: Our investment cycle is all tied to the services. And therefore, you see our OpEx model is giving you those parameters based upon our revenue. So when we say 17% to 19% of revenue, we're going to continue to invest in that because we're constantly focused on expanding with our customers and expanding not only new customers, but expanding with our existing customers. So our OpEx intensity will remain as per model, and we are in that model today. Dave, we're a little low.
spk13: on GNA and just tick low on R&D?
spk12: I appreciate the answer. Thank you. That was very helpful.
spk13: Yeah.
spk14: Thank you. Our next questions come from the line of Chris Howe with Barrington. Please proceed with your questions.
spk03: Good morning, Carl. Good morning, Michael, and good morning, Corey. Most of my questions here have been taken, but I'll perhaps kind of move through the questions that have been asked and ask it a different way. Just to affirm this statement, it seems like you're at a place or a phase, given the increasing percentage of APP as a percentage of bookings, the continuation of that trend, you're at 80%. We also have an environment, a challenged environment, which is hopefully at a trough and will improve to some extent as we move through the duration of this year into 23, although it will still remain. But it seems like with the different puts and takes in the business that you're at a point beyond fiscal 22 at which you can sustain the 100 to 200 basis points of gross margin improvement and anything else That would indicate an improving environment could lead to moving towards the higher end of this range, or we can revisit that discussion later. But is that a fair statement?
spk15: That is phrased precisely correctly and a fair statement. In 2023, that is what we see.
spk03: Okay. And as we think about the 50% for the duration of this year, um different given the different buckets within the supply chain challenges some of which may be improving some of which may not be improving is there any early indication that the first half of 23 could be a little bit better than what we expect maybe show some sequential improvement in gross margin or should we still think of that as perhaps being more back half weighted in nature
spk04: Yeah, so for the balance of 22, again, we'll reiterate that we'll be close to 50, right? And so I think that's our jumping off point for next year. I think that throughout 2023, that 100 to 200 basis point improvement for the year will start to show slightly. So I don't think it's going to be completely back and loaded. I think there'll be a slight ramp. It'll slightly improve throughout the year. So each quarter? Each quarter there should be improvement. Okay.
spk03: Okay, perfect. All right, thank you. That's all I have for right now. Thanks for answering the questions.
spk14: Chris, thank you. Thank you. Our next questions come from the line of Michael Genovese with Rosenblatt Securities. Please proceed with your questions.
spk16: Wow, first to last. I must have offended you somehow, Carl. But nevertheless, I will also say that, you know, in this series of fireside chats here that most of the questions have been asked, so I'm just going to stick to one topic. Do you want to quantify the new guide at all? I mean, you're saying above 10 to 15, but does that mean 15 to 20, or it just means above 10 to 15?
spk15: Yeah, so first of all, Mike, let me point out that cleanup hitter is a position of honor. When the bases are loaded, we're bringing up the big wood. Now, let's go from there. Directly to your question, I think as we sit here today, Corey would tell you that Q4 is going to look, we think, something like Q3. If you do the math, it puts us basically right at 20% year over year growth. You'll notice that inventories are down quarter over quarter. We feel good about what's in the pipeline, but they are down quarter over quarter. So the supply work continues every hour of every day. But I am quite happy that we've arrived at a place where we can start to see 20% growth year over year on the back of two years of 25% growth. You know, keep in mind that it's the end of July and we're finally here. But it is the way, it's just the nature of the supply chain. So 20% year over year, I think is what Corey would say, not to put words in his mouth. That's what I would say, Carl. That's what Corey would say.
spk16: Makes sense. Well, so that leads right to my next question, which is, as you said, two years at about 25% But you're at 20. Your guidance on the tape going forward is 10 to 15. And we have more RDOF, more ARPA, and we have bead coming. So is 10 to 15 correct for beyond this year? I mean, how do you think about that?
spk15: We have not changed our model. And we won't change our model until we have a reason to change it. And the reason to not change it today is in spite of what Corey said, which is, you know, if you get your head banged against the wall long enough and somebody stops, it feels like everything's funny. The supply chain is in a relief from discomfort mode right now. It is not in a high-performance mode. And we need a lot more visibility on the supply chain and a lot more stability to change that model today. And if you watch what's happened during the year as the visibility improves, we will let you know. But right now, to look out over six quarters and change that, I'm happy that we can stand on 10 to 15 as we sit here today.
spk16: Okay. And then maybe just one other topic then. So now, have you thought about, I'm trying to think of numbers that you may be able to give us that maybe wouldn't give away too much to your competition, but would be helpful? And I'm thinking of things like ARR or, you know, SAS bookings, SAS growth rates. I mean, I think the revenue performance obligations are supposed to approximate that, but I'm thinking of something more directly. So have you thought about things like ARR as metrics to give us?
spk15: Have we thought about it? Sure. Will we do it? No. RBOs will remain... The best proxy for what we're doing, to your point, and as Corey has said, it is an incomplete metric. But as you've also heard us say directionally, it gives you the best sense for what's going on. And so I would leave you with this. Our sequential growth rate on revenue was 9%. In the quarter, our sequential growth rate on RPOs was double that. And so as you simply look at the business, you get a sense for the rate of evolution. But beyond that, we will not go at this time.
spk16: Okay. Do you have any metrics that you can share? I think Michael kind of touched on this a little bit, but just about anything about total number of cloud customers or numbers of customers who take one cloud versus numbers of customers who take more than one cloud product at this point. Is there any color you can give us there?
spk15: I can. We have, in conferences, been asked that question, and we've said that the number of customers that are deploying one cloud or more is over 800.
spk16: But no breakout between one cloud and multiple clouds?
spk15: No. But that data, you know, obviously is available in the company, and you are welcome to apply for any number of jobs that we have open, Mike. All right.
spk16: Well, let's leave it on that note then. Thanks a lot. Congratulations. Keep up the good work. Thanks for putting me, I guess, ninth in the order. But with such a strong rally, it's like the new clean-off hitter. I agree. Thank you.
spk14: Thanks, Mike. Thanks, Mike. Thank you. We have reached the end of our question-and-answer session, and I would now like to turn the call back over to Mr. Farnucchi for closing comments.
spk05: Thank you, Darrell. College leadership will participate third quarter. Information about these events, including dates and times for public webcasts and management presentations, will be posted in the events and presentations page of the investor relations section of the Calix website. Once again, thank you to everyone on this call and on the webcast for your interest in Calix and for joining us today.
spk13: This concludes our conference call, and have a great day. Thank you. That does conclude today's conference call. You may disconnect your lines at this time.
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