CALIX INC

Results of Operations

Comparison of the Three and Six Months Ended June 29, 2024 and July 1, 2023

Revenue

The following table sets forth our revenue by customer size (dollars in thousands):

Our revenue decreased by $62.9 million and $86.6 million for the three and six months ended June 29, 2024, respectively, as compared to the corresponding periods in 2023. The decrease in revenue was primarily due to what we believe were delayed purchasing decisions of our appliances as our customers evaluate and prepare for various government stimulus programs, customers adjusting their purchases due to our shortened lead times and a small set of significant customers that slowed purchases while we believe they reevaluate their investment priorities. In the second quarter of 2024, we also had one small customer grow its subscriber base such that it is now a medium-sized customer.

For the three and six months ended June 29, 2024, United States revenue was $182.7 million and $392.8 million, or 92% and 93% of our revenue, compared to $232.4 million and $460.4 million, or 89% and 90% of our revenue for the same periods in 2023. International revenue was $15.4 million and $31.7 million, or 8% and 7% of our revenue, for the three and six months ended June 29, 2024, as compared to $28.6 million and $50.7 million, or 11% and 10% of our revenue, for the same periods in 2023. The decrease in international revenue for the three and six months ended June 29, 2024, as compared to the same periods in 2023, was mainly due to lower shipments to Europe and to a lesser extent the Americas outside the United States.

No customer accounted for more than 10% of the Company’s revenue for the three and six months ended June 29, 2024 and July 1, 2023.

Gross Profit and Gross Margin

The following table sets forth our gross profit and gross margin (dollars in thousands):

Gross profit decreased to $107.6 million and $230.2 million for the three and six months ended June 29, 2024, from $136.5 million and $264.5 million during the corresponding periods in 2023. These decreases were mainly due to the corresponding decreases in revenue. The increase in gross margin of 200 and 240 basis points for the three and six months ended June 29, 2024, respectively, compared to the corresponding periods in 2023, was mainly due to the continued growth in our platform, cloud and managed services as well as being a greater percentage of our total revenue.

Operating Expenses

Sales and Marketing Expenses

The following table sets forth our sales and marketing expenses (dollars in thousands):

Sales and marketing expenses for the three months ended June 29, 2024 decreased by $2.4 million compared with the corresponding period in 2023 primarily due to decreases in personnel expenses of $2.0 million and stock-based compensation of $0.9 million. These decreases were partially offset by an increase in marketing expenses of $0.9 million.

Sales and marketing expenses for the six months ended June 29, 2024 decreased by $0.3 million compared with the corresponding period in 2023 primarily due to decreases in personnel expenses of $0.9 million, stock-based compensation of $0.4 million and outside services of $0.4 million. These decreases were partially offset by increases of marketing expenses of $1.2 million and $0.4 million in allocated common costs.

For the three and six months ended June 29, 2024, sales and marketing expenses as a percentage of revenue increased to 26% from 21% and 25% from 21%, respectively, due to lower revenue compared to the same periods in 2023. We expect our investments in sales and marketing will be relatively flat in absolute dollars in the short-term as we look 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):

Research and development expenses for the three months ended June 29, 2024 decreased by $1.2 million as compared with the corresponding period in 2023 mainly due to decreases in prototypes and test equipment expenses of $1.0 million, outside services of $0.9 million and stock-based compensation of $0.5 million. These decreases were partially offset by increases in allocated common costs of $0.5 million and depreciation and amortization of $0.5 million.

Research and development expenses for the six months ended June 29, 2024 remained relatively unchanged compared with the corresponding period in 2023. Increases in personnel expenses of $1.7 million, allocated common costs of $1.2 million and depreciation and amortization of $1.2 million were offset by decreases in prototypes and test equipment expenses of $2.4 million and outside services of $1.4 million.

For the three and six months ended June 29, 2024, research and development expenses as a percentage of revenue increased to 41% from 33% and 38% from 33%, respectively, due to lower revenue compared to the same periods in 2023. We expect our investments in research and development to remain relatively flat in absolute dollars in the short term as we seek to expand the 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):

General and administrative expenses for the three months ended June 29, 2024 decreased by $2.1 million as compared with the corresponding period in 2023 mainly due to decreases in professional services expenses of $1.6 million, stock-based compensation of $1.0 million and allocated common costs of $0.7 million. These decreases were partially offset by increases in depreciation and amortization of $0.6 million and personnel expenses of $0.3 million.

General and administrative expenses for the six months ended June 29, 2024 increased by $1.1 million as compared with the corresponding period in 2023 mainly due to increases in personnel expenses of $2.1 million, depreciation and amortization of $1.3 million and equipment expense of $0.5 million. These increases were partially offset by decreases in allocated common costs of $1.9 million, professional services expenses of $0.8 million and stock-based compensation of $0.8 million.

For the three and six months ended June 29, 2024, general and administrative expenses as a percentage of revenue increased to 11% from 9% and 12% from 9%, respectively, due to lower revenue compared to the same periods in 2023. We expect our general and administrative investments to be fairly constant in absolute dollars in the near term and potentially decline as a percentage of revenue over time in relation to anticipated longer-term increased revenue.

Interest and Other Expense, net

The following table sets forth our interest and other expense, net (dollars in thousands):

Interest and other expense, net increased by $0.3 million and $1.3 million as compared with the corresponding periods in 2023 mainly due to a higher rate of interest earned on our cash, cash equivalents and marketable securities.

Income Taxes

The following table sets forth our income taxes (dollars in thousands):

For the three and six months ended June 29, 2024, our income tax benefit was $0.7 million and $0.4 million for an effective tax rate of 8.3% and 4.4%, respectively, which differed from the statutory rate of 21% primarily due to state taxes and the effect of non-deductible stock-based compensation for executive officers offset by the favorable impact of U.S. federal research tax credits, excess tax benefits from stock-based compensation and the U.S. tax impact of foreign operations. The effective tax rates for the three and six months ended June 29, 2024 are lower than the similar periods in 2023 primarily as a result of negative pre-tax earnings with a relatively consistent level of non-deductible expenses offset by lower excess tax benefits from stock-based compensation.

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.