Investor Presentation August 2017 1 Safe Harbor This presentation - - PowerPoint PPT Presentation

Investor Presentation

August 2017

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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

• ur 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.

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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

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1. 2. 3. 4.

Calix at a Glance The Coming Wave – Access rEvolution The Rising Tide – Infrastructure Investment Financials

4. 5.

Supplemental Information

Agenda

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Calix at a Glance

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Calix strategic focus: The access network

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Con Conte tent nt App Appli lica cation tions

Dev Device ice-en enab abled led Sub Subsc scribe riber

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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.

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$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

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Our Place

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Con Conte tent nt App Appli lica cation tions

Dev Device ice-en enab abled led Sub Subsc scribe riber

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Global Device Growth 10 20 30 40 50 60 2015 2016 2017 2018 2019 2020 Estimated Device units

IoT Tablets PCs TVs Non-Smartphones Smartphones Other

50B 16B (B)

Source: Cisco VNI and Business Intelligence 10

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Cloud Growth

• 100

200 300 400 500 600 700 2006 2011 2016 2021 2026 2031

Public Private Traditional IT Total Workloads (M)

Source: VMware 11

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The Opportunity

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Con Conte tent nt App Appli lica cation tions

Dev Device ice-en enab abled led Sub Subsc scribe riber

• 100

200 300 400 500 600 700 2006 2011 2016 2021 2026 2031 10 20 30 40 50 60 2015 2016 2017 2018 2019 2020

IT Workloads Total Devices

Source: VMware Source: Cisco VNI and Business Intelligence

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

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Con Conte tent nt App Appli lica cation tions Simple Always On Fast Secure Elevate Simplify Discover

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Global SDN/NFV Ecosystem

Policy Device & Service Activation Analytics

API

PLANNING OPERATIONS SUPPORT MARKETING SUBSCRIBER

Virtual Applications Data Center

G.fast NG-PON2 GigaCenter GPON

rEvolution – Software Defined Access

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E7-2

E7-20 E3-16F E5-16F 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

Simple Always 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 Manager Platform Configuration and Upgrade Diagnostics Syslog Timing

rEvolution – AXOS

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Fast

2 years to certify and activate a service

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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

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Proprietary and Confidential

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

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(1) Calix estimates

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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 switch OLT Core Router Edge Router Open White Box Switching Compute Store

Current Future

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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

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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 per second

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COPPER FIBER WIRELESS CABLE

Unified Access Bandwidth on demand Transparent quality of experience VDSL2 Unlicensed Spectrum Wi-Fi 4x4 5G / Wi-Fi GPON EPON XGPON-1 NG-PON2 DOCSIS 3.0 CCAP G.fast A2 Unmatched subscriber experience G.hn XGS-PON Community Wi-Fi G.fast A1 HotSpot 2.0 Remote OLT DOCSIS 3.1 FTTH Gigabit experience

New Technologies Meet the Demand

10G-EPON

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With the shift toward higher data speeds…

DOCSIS 3.0 24 Bonded Gigabit 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

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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

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…leading to higher revenue and penetration rates…

26 Source: Cincinnati Bell (September 2014)

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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

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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

28 Source: FCC

Financials

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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

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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.

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Bridging the long-term financial model (1)

2016 Base Target Revenue

Base business growth driven by existing customer access network investments Increased market penetration with new customers and new market

• pportunities

Innovation driven disruption driven by customer investments in next generation networks

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(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.

Proprietary and Confidential

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

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Q2 2017 Financial Results vs. Guidance

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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.

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Q3 2017 Operating Performance Guidance(1)

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($ 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

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. (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.

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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)

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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. (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

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

• Stock Information
• News & Financial Information
• Events & Presentations
• Leadership & Governance
• Investor Resources

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Supplemental Information

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Proprietary and Confidential

GAAP to Non-GAAP Reconciliation

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(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) 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 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)

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GAAP to Non-GAAP Reconciliation

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(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 (699) (957) Amortization of intangibles (2,552) (2,552) (1,701) Acquisition-related costs (106) (24) (275) (76) 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 699 957 Amortization of intangibles 4,640 4,641 3,364 814 813 814 813 Acquisition-related expenses 106 24 275 76 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

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

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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%

GAAP to Non-GAAP Reconciliation

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Q3 2015 – Q2 2017 Product and Service Gross Margin

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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)

GAAP to Non-GAAP Reconciliation

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Q3 2017 Operating Performance Outlook

(1) Based on 50.3 million basic & diluted shares

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

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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

GAAP to Non-GAAP Reconciliation

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2017 Net Loss Outlook

(1) Based on 50.4 million basic & diluted shares