Calix’s Russo: Cloud, software adoption is driving uptick in consulting services

As Calix transforms itself into a software platform company that is helping service provider customers virtualize more pieces of their networks, the vendor is finding that the nature of its services mix is evolving from simple deployment to consulting and engineering.

Carl Russo, CEO of Calix, told investors during the company's third-quarter earnings call that the adoption of its AXOS and EXOS software-based products is behind the change in how it will address services going forward.

Russo Calix
Carl Russo

“There are two things going on here with services going forward,” Russo said during the earnings call, according to an earnings transcript. “One is that we are increasing our mix of higher value services as you go into more cloud and AXOS and EXOS. They are more on the order of consulting services and we expect a decreasing percentage of services going forward to be deployment services.”

While Calix is not turning its back on traditional deployment services, the vendor is leaning more toward working with partners that have expertise in this area.

“We have said all along that deployment services are something that we want to make sure we can do for our customers, but we are also very happy to have an ecosystem of partners that do it as well, and we actually have a mix today,” Russo said. “I expect that mix to continue into the future and perhaps maybe even tilt a little bit more towards third-parties than us doing the deployment services.”

What’s driving the pivot in Calix’s service mix is the growth of its EXOS and AXOS platforms. The vendor reported customer adoption of its mesh-enhanced Wi-Fi solution, with nearly 200 customers placing orders prior to general availability.

“Based on this initial strong demand, we expect great things in the immediate future and we have now delivered AXOS into all our E series systems,” Russo said. “The E9 E7 E5 E3 all have a AXOS available, to speed our customers' transformation to an always-on DevOps environment.”

Here’s a breakdown of Calix’s key metrics:

Services: Service revenue was $22.4 million, representing 17% of total revenue. Calix noted that overall services revenues rose 200% from the year-ago period as the company completed many previously awarded CAF II sites.

Domestic, international revenue: Domestic revenue was 91% of Calix’s third-quarter revenue and increased 5% year over year. International revenue was 9% of the company’s third-quarter revenue and increased 20% year over year. The vendor said it had one customer that was greater than 10% in the quarter.

Financials: Calix reported $128.8 million in third-quarter revenue, reflecting results above the midpoint of its guidance range.

Cory Sindelar, interim CFO for Calix, said the results “mark the seventh consecutive quarter of year-over-year revenue growth.”

For the fourth quarter of 2017, Calix has forecasted revenue to be in the range of $140 million to $145 million, representing growth of 6% to 10% year over year. This reflects continued investments in broadband access from its customers as well as the initial shipments of the AXOS E9-2.