Greetings, and welcome to the Calix First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. It is now my pleasure to introduce Tom Dinges, Director of Investor Relations. Thank you. You may begin.

Thank you, Operator, and good morning, everyone. Thank you for joining our first quarter 2021 earnings call. Today on the call, we have CEO, Carl Russo; Chief Financial Officer, Cory Sindelar; and President and Chief Operating Officer, Michael Weening. As a reminder, yesterday, after the close of market, we released our letter to stockholders in an 8-K filing, as well as on the Investor Relations section of the Calix website. This conference call will be available for audio 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 in this call, we refer to forward-looking statements, which include all statements we make about our 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 our first quarter 2021 letter to stockholders, and in our annual and quarterly reports filed with the SEC. Calix assumes no obligation to update any forward-looking statements, which speak only as of their respective dates. Also, on this conference call, we will discuss both GAAP and non-GAAP financial measures. Reconciliation of GAAP to non-GAAP measures is included in our letter to stockholders. Unless otherwise stated on this call, we will reference non-GAAP measures. With that, let me turn the call over to Carl. Carl?

Thanks, Tom. One year ago, we saw our business begin to accelerate, and we questioned how much of the growth was due to the work from home shift driven by the pandemic, and how much from investments in our new platform offerings. As the year progressed, we became more comfortable that the majority was due to an uplift in our all-platform offerings. While there is much work to be done, we can now see a path to ending the pandemic. And with the pandemic swelling across most of the regions we serve, our bookings remain strong and were robust this quarter. It is clear, Calix platforms have been the substantial driver of our growth for the last four quarters. In a quarter where we again had no 10% customers, we grew revenue by 60% year-over-year, we saw strength across the business, and our visibility continues to improve, while supply limitations remain our largest challenge. We, again, outperformed in the quarter, enabling us to exceed our guidance and build inventory to support the success of our customers. However, with silicon lead times stretched out to 50 weeks, from 30 weeks in some cases, we expect supply to be a challenge throughout the remainder of this year, and well into next year. As we continue to invest in growing our team, we also remain focused on keeping our culture tight. This keeps us well positioned to continue to capitalize on the opportunity ahead. We have the financial strength and the process maturity to execute on our mission, to help our customers simplify their businesses, excite their subscribers, and grow their value. With that, let us open the call for questions. Daryl?

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] thank you. Our first questions comes from the line of George Notter with Jefferies. Please proceed with your question.

Hi, guys. Thanks very much, and congratulations on the great results and guidance. I guess, I would like to start by seeing if you guys have any new commentary or updated commentary on the component lead time situation, supply chain dynamics. I guess, I'd love to just double click on what's changed over the last three months in your mind.

So, George, as I said in my prepared comments, this remains the biggest risk on the downside to our business. It is a struggle every day, and we expect it to be a challenge in the second half. As you remember, back some - four months ago, lead times went from 30 to 52 weeks, which sort of created a divot out in the second half. But what I'd actually like to do is ask Michael to add some color on the work that goes on, and what he's seeing from his perch as the President And Chief Operating Officer. And then furthermore, ask Cory to come on afterwards and add some color as well. Michael?

Thanks, Carl. As he mentioned, we outperformed in Q1. And as we look at the future quarters, the focus that we used to have, which was just on the big chips that would pop up and be an area where our supply team would focus on, is now shifting beyond that to all components, because we're seeing some probations in the market that are a bit of a surprise, in that it could be a $0.10 chip, it can be $1,000 chip. And so, as we go forward and we look at the supply chain, that's where all the data and analytics and focuses on process, will pay dividends. We expect that we'll have to focus on that, and that is no longer just a one-off multiple quarter scenario. It's an industry-wide challenge that we've invested in to be successful over the long-term. I will say that one of the hires we're really happy about in Q1 is, we added Jerry Cederlund, who has run multi-billion dollar supply chains. He comes from CommScope and ARRIS. And along with the other folks who have joined the team in Q1 and Q4 last year from Dell and other large companies, we've really bulked out our supply chain teams, so we’re able to meet the challenges it had, but we see it as something that will happen every quarter over the long-term, and we're ready to face it.

Cory?

Thanks, Michael. George, last quarter we mentioned that some significant silicon pushed out from 32 weeks to 50 weeks. Just kind of highlight that even though we performed better here in the near term and took up our second quarter guidance, it still creates a kind of a divot or a hole back in the half - back half of this year, because ultimately we just kind of skipped right over the fourth quarter. We continue to work that problem. So, we still think next - the second half will be a harder supply chain challenge than the first half. And we also think we see this broadening as Michael said, a greater set of components. So, we're seeing new challenges every day. We have to get up and continue to work the problem. Got it. And then just to follow up on that, can you talk about supply chain impacts on the Q1 results? And is there anything you can say in terms of how much revenue you weren't able to ship in the quarter, or also impacts on gross margins in the quarter?

Carl, are you on mute? I don't know. We can't hear Carl.

Carl, are you self-muted? Okay. Everyone, please stand by while we get Carl back on the line. Operator, Carl is dialing back in. Okay. He’s now back online.

Okay. Can you hear me now?

Yes, we can.

Okay. Not sure what happened there. My apology. I apologize. So, George, when you look at the work that went on, our focus is on the success of our customers, and in actuality with all the work that we do in the quarter. We do a very good job of actually sort of staying with our customers demand. So there really wasn't any pushes or pulls in the quarter. And what you've seen in Q2 with the guidance, is a result of the work that the team has been doing throughout Q1 and into Q2. We feel like we can supply more demand. So, to your point, what the supply has made it difficult to do, is to forecast out. I mean, we have strong demand, but our expectation setting is actually bound by the supply chain and the challenges that we have. And so, in the quarter, it's a good question, there's really no significant pushes or pulls. And we hope to do the same obviously in Q2. On the margin side, it also makes things more difficult to predict as well. And in this quarter, it sort of caught us a little bit. So, Cory, maybe you want to cover that one, please?

Yes, sure. Inside the quarter, we clearly over-performed on the gross margin line, and there were really two drivers for that. First one was really around product mix. We had some lower margin systems that did not ship in the quarter due to some component shortages for it, and more significantly, didn't reach their port of destination by the end of the quarter, due to logistics delays. None of these products will ship or be received in the second quarter. The result in Q1 is that we shipped higher margin system products than we were originally anticipating inside of Q1. The second and probably has now larger impact on the first quarter margins, really had to do around carry freight. With the partnership that we've established with our customers throughout the pandemic, and as well as the outperformance by our supply chains team, we were able to ship more of our inbound shipments away from costly air freight, towards ocean-based transit, resulting in lower than projected freight costs. We expect that we'll continue to be able to move away from air freight in the second quarter, but I would also kind of point out that we have higher transportation rates from all shipping options, and that they remain elevated, and will continue to have an impact on gross margin. With the broadening of chips with longer lead times, what we're seeing is, we're going to have to move to the spot market or paying premiums. So, we still have to struggle with PPVs to meet our supply objectives and satisfy our customer. So, George, Q2 guidance reflects our best estimate at this time of all these items on our gross margin.

Great. Thank you very much.

Thanks, George.

Thank you. Our next questions come from the line of Paul Silverstein with Cowen. Please proceed with your questions.

Not to give you all a hard time in such a good quarter, but I am confused by a number of the responses to the previous question. No doubt, that's my shortcoming, not yours, but with that big one, let me ask. So, you're saying gross margin and revenue growth were not at all impacted. They would not have been better, let alone much better, but for the supply constraints. But I could swear I just heard Cory say that you could not ship some products. They happen to be lower gross margin, which helped your margins, but I assume you didn't ship higher margin, more full function products with a little bit lower margin products. And I assume your customers didn't pay you more for those higher margin products. So if that was in fact the case, I understand the benefits of gross margin, but I think commonly, wouldn't that have adversely impacted your revenues? Would you say your revenue would have been that much better, but for your inability to ship those lower margin products for which you didn't have components?

Yes. Let me see if I can simplify it, Paul. And I understand actually the conflation because of the way the sentence was juxtaposed. So, there's two big words for the morning. The key that Cory said that I would direct your attention back to was, one of the things that actually got in the way was the freight challenges, where we actually shipped items to a customer. The customer in essence is happy with them, but they did not reach their destination in time to be recorded as revenue. And so, we did everything we could do. The customer is happy, but it sort of got stuck in the freight across the placard. That was one of the mixed issues that Cory is referring to. And I will tell you, that particular mix issue was a lower margin product. So, let me just intersect those two and see if that helps you get through the confusion.

So, if it had got there - if it had arrived on time, your revenue would have been higher, or your margin would have been lower?

Correct.

Okay. Let me move on.

And welcome to the Suez Canal.

So if I try to reconcile your ability to ship against demand, but the challenges presented by the 50-week lead times and the broadening some more than just your high incentives, you're just doing a better job managing inventory, and that's - and let me ask you in a little bit way, what accounts for your ability to ship against demand the comments about your - as I interpreted in your buildup of inventory stocks? And I also want to ask you, Carl, you, last quarter had observed the silver lining from the supply constraints. Was that an already significant portion in a growing number of customers who are giving you long-term insight into their plans, which is not typically the case, which in turn, I assume, translates to much improved visibility over at least a quarter or two, if not three. Has that continued in terms of increasing number of customers providing you that visibility and giving you more confidence? And also the question about the inventory buildup relative to the extended lead times.

So if you actually track the breadcrumbs in your question, you sort of, believe it or not, answered part of your question in your question. And so, let me see if I can tie that out for you. As we've discussed, as we are increasingly success-based, as the stickiness of our software platforms increases and delivers those outcomes for our customers, 20 years of building relationships with these customers, we're getting a better and better view into their businesses. So, envision us sort of working with them. It may or may not be orders. In most cases, it's not. It's more planning, but we now have a better understanding of what we're trying to run after with supply. Then comes the second challenge, which is now trying to figure out how to fulfill that supply. So, you could sort of - it's sort of counterintuitive. In an old world box ship business, you wouldn't build inventories. You’d just be shipping everything you brought in. but what we're able to do, because of the visibility is, as we are in essence chasing components in the supply chain to help our OEM players, et cetera, we're actually building inventories, while we're also laying out the demand for the future, and raising predictability. All those things combined, component supplier is still going to be our number one issue from a predictability standpoint. So, let me stop there and see if that answers your question. And I may ask in a moment here for Michael and Cory to chime in, but I just want to see if that explains it for you.

Yes, it's good enough for now. I'll revisit offline.

Okay.

Thanks, Paul.

[Operator instructions]. Our next questions come from the line of Michael Genovese with WestPark Capital. Please proceed with your questions.

Great. Thanks very much. Good to be on the conference call. So, 1Q there was out-performance you guys did, and you're saying the supply chain was about as expected. So, clearly to me, that means you sold more licenses and sold more services to customers that already have hardware in place. And so, what I'm wondering is, do we have a metric? I mean, it sounds like land and (indiscernible) are about hardware. And to me, that's the least interesting part about the story. So, what should we be following to track land and expand?

Yes. So, welcome to the call, first of all, Mike. Thanks for coming on board. And now what you're about to hear is what everyone else on this call has probably already heard many times. It is a land and expand story you would look for in the traditional side story. So, the way we - the best thing we can do is to tell you that the mix - as the mix shifts, you're going to see the gross margins expand. And at this point, literally for competitive purposes, we don't break it out. There may be a point in the future where we do that, but there's nothing else I can point you to. I don't know, Cory, if you have any comments you'd like to add to that.

Yes. I think the only comment I would add is, we also provide you breadcrumbs every quarter on some of the bullet points in terms of where you're seeing some of the growth rates around customers that we've added. So that it kind of gives you an indication of the landing part of that land and expand equation, and some of the metrics around our platforms.

Okay. Great. So, on this first margin, have you guys ever thought about - is there an upper bound you want to put on this, I mean, 100 to 200 basis points into the year, well into the future until we get to 70%? Or I mean, do we not want to talk about an upper bound?

So we've been asked if the business can be 60% or above and we've answered yes. We’ve also been asked, is there an upper bound? And the problem is, we don't know. We've - obviously we've modeled things until the cows come home, but the different revenue streams in the business, as you'll learn as we dig in more, are so different, and the margins can get quite high, that it's really very sensitive to the mix of the future business, and we simply don't have enough run time on the bottom line. Right. And then last question from me is just, on the last call, you talked about 10% revenue growth for the year, and you talked to about still hoping to deliver the 100 to 200 basis points, but that it was going to be a fight in the trenches. Any updates to those comments after this quarter?

Yes. So, I'll just give you a quick piece on the revenue growth, and then I'm going to ask Cory to comment on the gross margin. On the revenue growth piece, obviously, if you look at Q1 performance and Q2 guidance, and if you simply keep the numbers where the Street had the numbers today, which by the way, given what we're seeing from the component standpoint, I'll make no comment on, other than we've got a lot of work to do in the second half of this year on components, it would signal that we will grow this year 15%. And I would nearly put that into, over the last few quarters, we got comfortable that we could grow - we could sort of at least run at this level of demand. Then we said, we could grow with the bottom end of our range at 5%. Last quarter we said, we thought we could get to 10%. And now we're saying 15%. So you're seeing this progression as we get increasingly comfortable with demand, but it's tempered by the global supply chains. So right now, we look at it as a 15% for this year. We're not going to go change the model from the Analyst Day from a year ago until we're ready to change the model. So, we'll stand pat on the 5% to 10% growth. On the 100 to 200 points in the gross margin, Cory, why don't you take that one on, please?

Yes. Last quarter, you might recall that we said we would - we think it’d be challenging to get to the 100 to 200 basis of improvement for our target financial model. But in line with our first quarter over-performance on gross bargain and the guidance we provided for the second, we were getting more comfortable that we will achieve our target financial model for gross margin increase this year.

Okay. Thanks so much for answering the questions and congrats on how exciting the story is.

Mike, welcome aboard. We appreciate it.

Thank you. Our next question comes from the line of Ryan Koontz with Rosenblatt Securities. Please proceed with your questions.

All right. So, they need to update their systems a bit, but need them up obviously now. So, question on the guide and the typical seasonality. Obviously, there's more software content here and less hardware and dependence on weather restrictions, but obviously your customers still deal with weather and installation of fiber and that sort of thing. So, how should we view - is there - question, is there a new seasonality in your business with the higher software content, number one? And number two, are you seeing a faster release of budget this year, or is it purely a mix and a change in customer behavior as it relates to software applications, not outside plant, more CPE? Can you kind of share some thoughts, if not quantitative, qualitative thoughts on seasonality? It would be great. Thank you.

Yes, I'm going to - I'll address the seasonality piece, but I'm going to ask Michael to chime in and talk about our focus on our customer success because that's really in the future, what drives us. So, Ryan, as you come on board at Needham, you're going to hear us talk about the land and expand and working with our customers to succeed. We have said in the past that we expect our business to slowly but surely lose the traditional telecom seasonality. Obviously, last year was an unusual year because of the pandemic and went exactly the opposite to that. But we think this year is going to be much more representative than subsequent years, of the future of this business, which is decreasingly connected to any of those things, whether it's the “budget flush” or the seasonality of fiber, because we are so very focused on, not our market share, but our customers’ market share and their business outcomes. And since we have a moment, Michael, if you wouldn't mind relating a little bit to help Ryan get a sense for how powerful that is?

Sure. The evolution that we've seen in the Calix business model, is one where we moved from in the past and what our heritage was, where we started out as a fiber company, and we helped them do what you mentioned, build out great fiber networks. And where, as we've invested significantly over that the last 11 years ago, build out our software and cloud platforms, once you become a business partner, and the customer success organization is working really closely with our customers to identify, how do they actually use the insights and the data that's in their network to understand their subscribers, and then convert that into a reduction in churn, growth in ARPU, and the acquisition of new customers? And the way that we do that is really around three things. The first is, we give them the simplest operating models that exist in the marketplace. So, on the fiber side, that means our platforms sit on top of it. We collapse the CO and you can run it at an 80% savings in OpEx, while at the same time, driving an incredible go-to-market with regards to the premises, which is very complex, not unlike trying to work your way through a jungle. We make out a very simple OpEx model because we help them. We do all the integration and then they just get up and running and they run the same thing, 80% reduction in OpEx. And that converts itself through things like reductions of truck rolls. The second thing that we do is, we help them excite their subscribers. And that's very focused on, how do you actually beat the consumer direct to market companies like a Google and an Amazon, who are trying to win the home? And we think that the broadband…

So, Ryan - thanks, Michael. And Ryan, so let me just point out one item. The enthusiasm you hear in Michael's voice, is the enthusiasm that courses through the veins of every Calix employee, because the mission is now helping our customers succeed. It's a very, very different energy that goes through the company. It's quite exciting.

That's helpful. Really inspiring. Thanks so much.

Thank you. Our next questions come from the Tim Savageaux with Northland Capital Markets. Please proceed with your questions.

Sorry. Good morning. Thanks. First question is on the gross margin guidance, and I think you answered it in part earlier on, but I just want to follow up a little bit. So, you're looking at margins, I don't know, coming down to the neighborhood of 200 basis points on a similar revenue level. To what extent is that mix with regard to these lower margin systems creeping into Q2 versus any impact say on pricing on chips or other type of input cost increases? Can you try and assess the relative impact of both of those or any other items on the gross margin?

Yes. Cory, why don't you take that one?

Sure. So, Tim, the significant portion of Q2 guidance being down relative to Q1, is the push out of those lower gross margin systems. There is a little bit higher PPVs. obviously when you're out and buying those components, you’ve got to go build those components and all of the inventory in terms of revenue. So PPV is up a little bit more than it was in the first quarter. But the largest component of our margins guidance relative to Q1 in terms of decline, is the lower margins product mix, where we differ from Q1 to Q2.

Got it. Thanks. And with regard to kind of the outlook for the second half of the year, you're obviously taking - well, you've been taking a fairly conservative stance toward things and doing much better. But in terms of the second half, you're obviously forecasting a moderation in revenue from the first. I wonder what kind of expectations you might have in terms of OpEx in that regard. You’re guiding to a pretty significant uptick in Q2. Parenthetically, I'd be interested if there's a particular focus on that spend, and whether you expect that to continue to creep up through the second half despite at least an operating plan of revenues moderating.

So, let me address first the conservative nature, Tim. I'd like to tell you we're being conservative. Actually, we're simply trying to grapple with the significant variability that's in the supply chain. As that variability narrows, you're going to see us try and narrow, in essence, the range that we're thinking through. The range in Q2, if you will, from our perspective, looking out, is indicative of us having more confidence in the supply that we have laid in for Q2. So, I think what - in retrospect, they appear conservative, but what it really is, is I think prudent given the variability that we've been chasing in the supply chain. So, let's see what - how it looks at the end of Q2. To that end, as we plan OpEx, as you know, we have a model that we laid in on the Analyst Day. And if you do the math, we're not investing fulsomely in that model. And we intend to hack our way up that model, because the opportunity is in front of us and it is large. It's getting larger. I mean, we haven't spoken about RDOF, and that's fine. But I mean, if you go to simply look at the summation of all the plans that are being talked about in North America, it's like there's $350 billion of discussion around different broadband funding plans. This this opportunity in front of us is not going to stop, and every new network is an opportunity for us to help the customer deploy a new business model that Michael spoke of earlier. So we are going to fight hard to invest fully. And so, you just simply have to look at our model that we laid out, and then look at the revenue expectations and know that that's where we're going to drive. So, that's the best way I can answer your question.

Great. If I can maybe sneak one more in. obviously, international was a strong point in the quarter. I wonder if you have any more color on what's driving that growth through your expectations going forward. And we didn't mention it, but I was wondering if that's any kind of factor from a mix perspective driving margins as well.

International typically will affect margins, as it is somewhat lower margin, but the major issue in international, as you've heard us speak throughout, is the refocusing of international that Michael did, frankly, when he joined, to get it focused on aligning customers and being a profitable business. And that business is, frankly, just benefiting from, I think, what we've seen around the world, increased demand. I think Michael would be the first to tell you, and I'm going to ask Michael to speak a little bit about international and North America and the sequencing, because the opportunity in North America is large. And then maybe I'll ask Cory to add some color as well. Michael, do you want to just give a few words on international, and then, Cory, can you follow up, please? Michael, can't hear you.

Sorry. I was trying to talk louder while I was on mute. The international markets for us are what Carl mentioned, and it's very focused on aligned customers. So, if there's a customer who understands that we helped them build a business and we'll grow with them, and if they're just looking to buy what I call the dumb box, dumb Wi-Fi, dumb fiber, we're not that partner. We're a company who builds simple networks that have the lowest OpEx, excites subscribers, and then grow. And that's the focus for us. So, whether they're international and North America, we'll be with aligned customers.

Cory?

Yes. You might also see in our 10-Q, we did a breakdown of the revenue by geography. And year-over-year, we saw good growth across all of the geographies. In particular, in Q1, the Middle East was up. We told you that each quarter it’s lumpy. It bounces around. And so, in the first quarter, even saw some particular strength in the Middle East. Obviously, Europe would have been stronger had the ship made to its destination in time. So, we're seeing some good progress, but I'll just stress that it bounces around from quarter to quarter.

Thanks, Cory.

Thanks very much. Thanks, Tim.

[Operator instructions]. Our next questions come from the line of Paul Silverstein with Cowen. Please proceed with your question.

Carl, I apologize if I misunderstood, but in response - in a previous response to the question about calendar year growth outlook, I've heard you say you're looking at 15%, but saw - I heard you in the very next press say you're moving at 5% to 10%. Did I mishear what you said?

You did. You may have misheard or I misspoke, but what I - let me just reiterate what I think I said, which is, given our Q1 performance and our Q2 guidance, just leaving expectations as they are for Q3 and Q4, and again, with the supply challenges we have, obviously we don't guide for the year, but we're making it very clear. We got a big challenge out there. If you just look at that, it basically takes us to 15% this year over last year.

Okay. That's really …

Does that makes sense?

Yes. No, absolutely. And then with respect to gross margin, positive (indiscernible), but you guys now are saying that you think you will deliver the 100 to 200 basis point improvement margin that your last quarter we’re saying would prove to be a challenge, or that's not …

That’s correct. No, that's exactly what Cory said. You heard that, right.

Okay. I'll take the rest offline. Thanks so much.

Thanks, Paul.

Thank you. Our next questions comes from the line of Ryan Koontz with Needham & Company. Please proceed with your question.

Ryan, could you check if you’re self-muted?

I was. Thank you. With regard to the model and thinking about OpEx and the lifting of the pandemic also kind of convoluting all this going on, how should we think about where OpEx is depressed today because of less travel and other expenses, and what would you - how many 100 basis points are we looking at on OpEx impact from pandemic as we snap back, looking out a few quarters?

Yes. I'm going to ask Michael to speak to the travel piece, but I want to dissuade you from overthinking this for the following reason. I would call your attention back to the model that we laid out back in the Analyst Day, just before we all closed the company down in March, because that is what guides our investments going forward. So, parsing the travel piece, I'll let Michael speak to, but Ryan, I want to caution you. We are going to pursue our OpEx model in a fulsome manner. Michael?

Got it.

Yes. As Carl mentioned, we're in growth mode with regards to travel. Look, the pandemic has brought about permanent changes. The way that we actually do business is not going back to the way it was before. While there may be some managers who wish that everybody would come back to the office, and it was exactly the way it was two years ago, that isn't happening. There was - multiple studies have been put out that says employees are going to be forced back into full-time offices. There's almost 40% of them say they'd rather quit than go back to the way it used to be two years ago. At the same time, the productivity gains that people are seeing by allowing a work from anywhere culture, which we've had in place for five years. So, the pandemic had no impact on us. We were already doing it, but they're all seeing the benefit of it. And at the same time, people have migrated out of the big cities because they want to have a better life. And thanks to the broadband providers that we support, you can actually go live in these small towns, get a beautiful house, have a view of the mountains with cherry trees behind you, and have fiber to your house, and work as if you live in downtown San Jose. So, this is a great experience for these people and they're not going back. So we see that the growth momentum will continue. And then at the same time, our customers have changed the way they do business. In the past, we would always do face-to-face, but they're doing the same thing. A lot of our customers are saying, hey, I'm no longer going to be in the office all the time. Therefore,…

Got it. Real clear. Thanks.

Thanks, Michael.

[Operator instructions]. Our next question comes from the line of Michael Genovese with WestPark Capital. Please proceed with your questions.

All right. Everybody else is doing it, so I thought I'd come back too. So, small customers have been strong for a while. When I look at the numbers for the quarter, it looks like sequentially there was a nice change, better than seasonal change certainly for medium customers. So, two questions. One, what's going on with medium customers? And then two, when are large customers going to get strong again, do you think?

So, let me frame this in what's going on, which is, we are riding in essence, a wave of disruption. And anytime you're creating a new market, it's almost always true that small customers are the ones that first see it and move to it. They have less inertia. They also have less ability to resist those forces. And so, it sort of works its way from small to large. Medium customers in large part are the ones that are being restructured and recapitalized right now. So, we think the medium customers represent an exciting opportunity to start to move into the success mode. Large customers will simply take longer, and in our space, it could be years or a decade. So we expect it to continue to grow robustly bottom up, if you will, from smallest to largest. And I'm sorry, I can't give you any more specificity on it, but that is the way it works right now.

Okay. That's fair. Last question for me just on the taxes, should we model in any meaningful taxes going forward?

So, Cory, do you want to take that please? Thanks, Mike.

Thank you.

Yes, that's a good question. It's one that we are evaluating every quarter now. Obviously, we've had a couple of good quarters, increased profitability. At this point in time, not for this year, but I think if you start looking to next year, you'll probably have to put in an effective rate, and I would guide you to somewhere between 25% and 27%.

Thank you.

Thanks, Mike.

Thank you. There are no further questions at this time. I would like to turn the call back over to Tom Dinges for any closing remarks.

Thank you, Operator. Calix leadership will participate in a number of investor conferences and meetings during the second quarter of 2021, including our annual meeting of stockholders on May 13th. Information about these events, including dates and times for public webcasts of management interviews, is posted on the Events and Presentations page of the Investor Relations section of calix.com. Once again, thank you to everyone on this call and on the webcast for your interest in Calix. Thank you for joining us today. This concludes our conference call. Goodbye for now.

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.