Calix Inc (CALX) 2016 Q2 法說會逐字稿

Greetings and welcome to Calix Q2 2016 Earnings Conference Call. At this time all participants are in a listen-only mode. A question and answer session will follow the formal presentation. 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 turn the call over to your host, Mr. Tom Dinges. Thank you, you may begin.

Thank you, operator, and good afternoon, everyone. Today on the call we have President and CEO, Carl Russo, as well as Executive Vice President and Chief Financial Officer, William Atkins.

This conference call will last approximately 60 minutes and will be available for audio replay in the Investor Relations section of the Calix website.

Before we begin, I want to remind you that in this call we refer to forward-looking statements 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 today's earnings press release 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. A reconciliation of GAAP to non-GAAP measures is included in our earnings press release available on our website. Unless otherwise noted, all numbers referenced in today's conference call are non-GAAP.

As a reminder, our earnings press release, supplemental financial data and an accompanying earnings release presentation are available in the Investor Relations section of the Calix website.

For the quarter ended June 25th, 2016, Calix reported revenues of $107.4 million and a non-GAAP loss of $0.04 per share. In just a moment William will take you through the quarter in greater detail and Carl will conclude with his thoughts on Calix strategy and market outlook. This will be followed by questions from analysts.

With that, I would now like to turn the call over to Calix Executive Vice President and Chief Financial Officer, William Atkins. William?

Thank you, Tom. We last provided you with guidance regarding Q2 on May 3rd and in that guidance we called for revenue of between $104 million and $108 million, a gross margin of between 46% and 47% and operating expenses in a range of $52 million to $53 million including approximately $2.4 million of Occam litigation expenses, thus resulting in a net loss per share of between $0.09 and $0.05 or $0.04 to breakeven if Occam litigation expenses had been excluded.

Relative to that guidance, our actual revenue for the quarter was $107.4 million and EPS was a loss of $0.04 per share including litigation expense for a profit of $0.02 excluding litigation expense. With revenues at the upper end of guidance and the loss per share above the top end of guidance gross margin was 47.5% and operating expenses came in at $53 million, which includes $2.8 million in litigation related expenses.

At the gross margin level the largest drivers were favorable product and customer mix, partially offset by costs associated with the continued ramp of our previously announced turnkey network improvement project. Operating expenses included higher than expected legal expenses and investments in R&D to support anticipated growth but nevertheless came in line with our guidance. A continuing focus on collections and working capital management resulted in positive operating cash flows of $0.1 million. Our aggregate balance of cash and marketable securities was flat sequentially at $64.2 million from $64.3 million in the prior quarter primarily due to annual employee share purchase plan activity and better than expected operating cash flow offset by capital expenditures of $1.6 million.

Getting into a bit more of the detail, our $107.4 million in revenue for the quarter showed an increase of $8.3 million or 8.4% from last year's second quarter level of $99.1 million. This is the second consecutive quarter when we have shown greater than 8% year-over-year growth, the first time in three years that we have demonstrated top-line growth at these levels.

At 7.7% of our Q2 revenues international revenue was $8.3 million, up just under $1 million in absolute dollars from its $7.5 million or 7.5% level in Q2 of last year. We had two 10% or greater customers this quarter. This marks the second consecutive quarter when we recorded more than one 10% or greater customer and it is the result of our focus on the increasing penetration of larger accounts. As I noted earlier, at 47.5% Q2 gross margin was above the upper end of our guidance range. This gross margin in Q2 2016 was nevertheless down from Q2 2015's 51% level. With this decrease driven in part by less favorable product and customer mix as well as the cost associated with the previously mentioned turnkey network improvement project.

Q2 operating expenses at $53 million were up $5.7 million from the same quarter a year ago with this year-over-year increase primarily due to additions in headcount, particularly in research and development and by litigation costs. We continue to invest in R&D to support our systems and software platforms to capitalize on the significant growth opportunities we are starting to see in 2016 and beyond. As we mentioned last quarter in 2015, we launched the largest number of new systems and platforms in the Company's history. So far in 2016 we are seeing solid momentum from these launches.

Expenses related to the Occam litigation amounted to $2.8 million or $0.06 per share in Q2 2016 compared to $150,000, essentially zero cents per share, in Q2 2015. This was higher than our guidance for $2.4 million as we incurred higher than estimated litigation expenses for trial and completion of the settlement agreement, which we submitted to the court for approval at the end of May. As previously disclosed, under the terms of the settlement neither Calix nor any of its Directors or Officers contributes any payment to the settlement. Indeed Calix will receive $4.5 million in cash as partial recovery of costs incurred equivalent to $0.09 per share. This cost recovery partially offsets the $9.5 million in out-of-pocket Occam litigation expenses incurred to date. We expect to recognize this $4.5 million reimbursement to Calix in Q3 based on our expectation of court approval of the settlement agreement in Q3.

At this stage of the year it's worth pausing to review how Calix performed over the first half of 2016 relative to the same period last year. First half 2016 revenues increased by $15.6 million to $205.8 million or up 8.2% from last year's $190.2 million level. This has been our strongest first-half growth since 2013.

Gross margins came in 47.8% for the first half versus 2015's first-half number of 50.1%. Operating expenses increased by $9.2 million to $104.7 million versus 2015's first-half level of $95.5 million. After deducting Occam litigation expenses of $6.2 million in 2016 and $1.9 million in 2015, the first half operating expense figure would have increased by $4.9 million to $98.5 million from last year's $93.6 million level.

First half 2016 earnings per share were a loss of $0.13 versus last year's first half EPS of breakeven or zero cents per share. Excluding Occam litigation expenses first half 2016 earnings per share were breakeven or zero cents per share versus last year's first half EPS of $0.03 per share.

Turning now to the balance sheet, as noted earlier, we ended the quarter with total cash and marketable securities of $64.2 million, flat from Q1 and a decrease of $35.3 million from last year's Q2 level. The primary driver in the year-over-year decrease in cash was our $40 million share repurchase program, which was completed during Q1 2016.

Receivables DSOs were a healthy 36 days, down two days compared to the previous quarter and down one day from the 37 days in Q2 2015. The overall quality of our receivables and our collections performance remains strong. Inventory levels decreased to $40.8 million in Q2, down from Q1's $41.1 million level and essentially flat from $40.7 million in Q2 2015. With revenues rising at a strong pace both year-on-year and sequentially, we are pleased by our team's performance in managing working capital.

Inventory turns increased to 4.5 times in Q2 from 3.9 times in Q1 and also increased from Q2 2015's four times.

Now let me turn to guidance for the third quarter of 2016. We expect revenues to be in a range of between $115 million and $119 million with a midpoint of $117 million, up 4% from the quarterly record $112 million level of Q3 2015. At the midpoint of guidance nine-month 2016 revenues would increase by 6.7% year-over-year. This will be the first year since 2013 that our first nine-month revenues are expected to grow at this strong a pace relative to the prior year period.

We are guiding gross margin to a 45.5% to 46.5% range from Q3, down from last year's Q3 level of 49.3% with this decline relative to Q3 2015 largely driven by the continued ramp of turnkey network improvement projects as well as by our expectation of slightly less favorable product and customer mix relative to Q3 2015. As we've mentioned on previous calls, these key projects are strategic for both the Company and for our customers and we are accelerating activity in Q3 and Q4. This will put some near-term pressure on our gross margins as these activities accelerate.

In terms of operating expenses, we expect to recognize the recovery in the settlement in the Occam litigation, which remains subject to court approval in Q3. Based on the accounting treatment, the settlement will be reflected as an offset to operating expenses as it is a partial recovery of non-reimbursed litigation expenses incurred through Q2. This entry will be reflected in both our GAAP and non-GAAP results in the amount of $4.5 million or $0.09 on a per shared basis. Therefore, we expect operating expenses, including the Occam litigation settlement, to be in the range of $48.5 million to $49.5 million. Excluding the settlement proceeds, we expect operating expenses to be in the range of $53 million to $54 million, up from last year's Q3 level of $46.6 million with the increase reflecting incremental hiring costs to support our growth initiatives.

Based on 49.1 million diluted shares, the expectations that I've just finished taking you through result in a guidance range for Q3 of a net profit of $0.08 to $0.12 on a per shared basis or a loss of $0.01 to a positive profit of $0.03 per share excluding litigation settlement proceeds. We also anticipate negative operating cash flow in Q3.

At this point let me hand the call over to Carl. Carl?

Thank you, William. While there is a lot of exciting news to discuss, I would like to begin with our goal, predictable, profitable growth. Q2 was another strong quarter as we backed up last quarter's 8% year-over-year growth with another 8% growth quarter. Keep in mind the words predictable and profitable are modifiers of the most important word and that is growth. Our number one focus is to increase our rate of growth and we have been clear throughout that from time to time it may be necessary to push on the OpEx levers to achieve our goals. Our guidance for Q3 is indicative of such.

Over the last few years we have made deliberate investments in research and development to achieve strategic effect and you can now get a glimpse of what we have been pursuing. Our Compass Cloud continues to allow our customers to target their infrastructure investments for maximum return all while reducing the operating expense of delivering winning services. When combined with our GigaCenter family of Premises products, Compass Cloud is enabling our customers to deliver an unparalleled subscriber experience, thereby decreasing churn and increasing the ability to market new services.

Our AXOS platform continues to make strong progress. Last quarter I reported that it had been deployed in over 20 service providers. I am pleased to report that our growth in AXOS is accelerating and our AXOS platform is now deployed in over 50 service providers. The core attributes of AXOS, fast, always on and simple, are clearly differentiable and are proving to be critical to our customers with success. For competitive reasons, I will no longer report on the actual number of deployments going forward.

However, as you've read in recent announcements, the trend is clear. AXOS is a winner and others are taking note. As an example, AXOS was recently named a winner of Light Reading's Best SDN Product Strategy Award and the excitement continues. Just two weeks ago Verizon announced that our AXOS NG-PON2 solution will be going into lab trials. The revolutionary AXOS platform combined with a revolutionary technology, NG-PON2 allows our customers to build the ultimate unified access infrastructure, one network carrying all forms of traffic, be it large enterprise, residential, small business and even 5G wireless. Communication service providers face the conundrum of rapidly increasing traffic while trying to lower operating costs and squeeze every last return out of their CapEx investments, thus, the allure of one network where formerly three existed with the capacity of 32 times existing G-PON infrastructure. All told, the potential exists for a nearly 100-fold improvement in performance.

While there are many details about the Verizon opportunity we will not disclose at this time, there is one key aspect I will share. We have been preparing ourselves for dramatic expansion and this represents another example of the exciting future for Calix and as revolutionary as AXOS is, it was also architected to be evolutionary. As you read in our release last week, Windstream is deploying AXOS G.fast in Lincoln, Nebraska. This demonstrates that AXOS can just as easily snap into an existing infrastructure as it can be deployed in an all-new one. Stated simply, our Compass Cloud combined with our AXOS platform enables our customers to win.

And to help us capitalize on all this opportunity, at the end of June we announced that Michael Weening has joined Calix as our Executive Vice President of Global Sales. Michael has a long history of success in the technology space and most recently was the Senior Vice President Global Customer Success and Services for Commercial Business at SalesForce.com. We expect Michael will accelerate our growth while building on the best sales team in the industry. As I said at the outset, our focus will remain on driving predictable, profitable growth and I trust it is now becoming clear the future potential in which we have been investing and that future is happening now.

With that, I will open the call for questions. Rob?

(Operator Instructions). Our first question comes from Paul Silverstein with Cowen and Company.

Two questions, if I might, and so guys I apologize. I know your focus is on growth but the basic question would be at what point can you at this point in time can you anticipate when we should expect gross margins to return to the higher 40s and to return to a forward trajectory on a consistent basis? And then I've got a follow up.

Okay, Paul. I'll take this and then Carl will talk a little bit more about what's going to be happening in the longer term. As we've noted, we are seeing a mild downward pressure on gross margins as a result of these turnkey network improvement projects that we've discussed. Obviously there's the typical noise we get in any quarter in terms of product and customer mix but that, if you look under the hood, year-over-year is the major driver. As we look forward, we see that on these specific projects we're going to move out of sort of the initial deployment sort of getting up the learning curve, invested cost saves, if you will, and that we see therefore profitability starting to get enhanced as we move into the latter stages of the projects.

So within these specific projects themselves we see some improvements in margins but then looking forward as we continue to execute right through to the end of the year, you're going to continue to see that pressure on gross margins. I don't know, Carl, if you want to talk a little bit sort of deeper about the underlying trends that are going on here?

Well, so just from a watching the industry for a long-time, Paul, and thinking about growth rates, there's a pretty simple rule. As our growth rate accelerates, it's actually going to put a downward pressure on gross margins. As the growth rate starts to normalize at some new level, then I think you'll start to see gross margins start to drift up but to William's point, if I look out into our future and I think about what we might be able to achieve, there are going to be new things coming into the business next year and the year after that that will have a concomitant downward effect on margins while the margins from the rest of the business are going up. So I think over the next couple of years you'll see it normalize and start to slowly drift back up. We don't -- we're not changing our long-term model one bit but we are looking forward right now to in fact driving that growth rate.

Carl, I hedge for words in your mouth and I know it's hard enough to guide for 90 days and you're loathe to guide beyond that but I think you clearly just said that you were expecting accelerating growth next year which will put downward pressure on margins, that or you're telling us that not only will margins be weak but growth is going to be weak as well.

So did you say you hated to put words in my mouth?

(inaudible).

So look the answer is I would change the word expected from we are clearly focused on taking what we've invested in for the past few years and we've been messaging you around AXOS, the platform Compass etcetera, being forward looking R&D investment and saying very clearly we believe that as those platforms start to hit the market they're going to put us in a position to grow at a more rapid rate than we have in the past. The 8% year-over-year quarter or the 8% year-over-year half I think are early indicators of that but I wouldn't use the word expect. I would simply say that our intent is to drive this growth rate so if you want to change expect to drive, then maybe I'll let you put those words in my mouth.

All right, one last question and my apologies to others on the call, on AXOS of the 30 new wins and the 50 total wins , how many of those are new customers to Calix and how many of those would be consider to be tier ones or twos?

Obviously I would be very careful about sharing any of those pieces but let's go down to your ones or tier twos. Obviously in this quarter you had two announcements, one from each of those relating to AXOS. There is a percentage of new customers and a percentage of existing customers. I wouldn't -- I would say that those percentages mimic roughly what we do every quarter in new customers and existing customers as well.

So it's still early days. What's exciting is something that is as comprehensively revolutionary as AXOS is seeing the uptick that it's seeing.

All right I appreciate; I'll pass it along. Thanks, guys.

George Notter, Jefferies.

Hey, thanks a lot, guys. I guess I wanted to go back to the gross margin question, so if memory serves you guys were thinking that the turnkey professional services work was going to wind down I think as the year progresses and it sounds like now that's not the case. I guess I am just wondering what's changed there? And then I also wanted to ask about your year-on-year growth rate. If I look at year-on-year growth ex that turnkey professional services work I am wondering what that would look like maybe on a quarter-over-quarter basis or maybe year-to-date basis. Any (inaudible) to that would be great. Thanks, guys.

Well, I'll take the first part of that question. In terms of the timing of the turnkey professional services projects, I think one of the things that happened is that we saw a lack of recognition of some of the underlying costs and revenues associated with those projects relative to anticipation in Q2 but our goal to complete projects on schedule remains and we're confident that we will do so so inherently you've got a little bit of compression of margin going into the second half of the year to reflect that bunching of activity into the second half. That's how I would classify that part of your question.

I don't know, Carl, if you want to talk about it.

Well, let me take a long-term piece.

Yes.

I -- if we miscommunicated my apologies, George. The professional services business is growing and will be a continuous part of our business. I think we've made clear that those professional services will be aligned professional services meaning they will be around our systems and services -- systems and software -- but nonetheless we see an increasing desire on the part of our customers to in fact outsource their deployments in turnkey so the organization that we're building we expect to be every bit as busy as it is today going forward into 2017 and 2018 beyond. So that's not going away for sure. We believe we will get better at it as we have in every other aspect of the business that we've taken on, and that goes back to William's notion of the costs and things of that nature. So expect the margins of how we do that business will go up over time but we're not getting out of the professional services business. Did I misunderstand your question?

Yes I think maybe you talked about in the past in terms of that turnkey work just maturing and I guess now in hindsight what you meant was just that again the idea that you get better at it, the costs kind of moderate, got it.

Okay and then how about on the year-on-year growth rates, ex the turnkey professional services work, I am just curious what those might look like?

Yes we're not going to give you precise numbers. What I would say is in terms of what's going on directionally under the hood is that there is a meaningful overlap between the turnkey projects and what would be sort of business as usual purchases. That's the first point that I would make so I don't think it's appropriate to strip turnkey out. Secondly, we do see though as a results of the turnkey projects, some spend by these operators increasing over the prior rate and that is because the operators that we're selling to are experiencing increased competitive pressures and have an increased desire to spend on broadband access and so they are bringing forward some of those CapEx plans and we don't see that underlying trend starting to modulate.

Got it. I'm sorry, just so I am clear on the growth rate, is it fair to say that your equipment and I guess this is a little bit tricky, but if you back up the turnkey work I guess I am just wondering if you'd see growth there? And I understand there's overlap between the two business as usual versus turnkey but I guess I thought kind of going in here that the turnkey work would give you guys some competitive advantage in the marketplace and kind of help ingratiate yourselves even more with the customers set and drive additional equipment revenue so I guess I am just wondering if that's indeed playing out?

So when we think turnkey, George, so I think I understand the parsing issue here, when we think turnkey projects we're not thinking professional services. We're thinking the whole project so the whole project includes professional services, potentially consulting services, equipment and other things so when we look at turnkey projects we think about the whole thing. Now, I think the way you're asking the question is more along the lines of the professional services component of that.

Correct.

Am I getting you right?

Yes.

The professional services component of that is not big. This is not a major revenue driver for the business but turnkey projects as a percentage of the total amount of revenue that we're doing are going to go up but when we think turnkey projects that means the whole thing together, professional services, the equipment etcetera. Does that help?

Got it, sure. Thank you very much.

Sorry about that.

Meta Marshall, Morgan Stanley.

Yes a couple of questions, first is just if you could address CAF and now that some of the conversion of the USF to CAF is kind of, those rules are complete, whether you're seeing spending happening kind of how you would like? And then just to hit on the turnkey piece a little bit more, is it something where you think that this will appeal to kind of 10% of your customers or is there like a level of engagement with customers where you think you could eventually serve 50% of your customers with these kind of arrangements or just how do you think about sizing that opportunity? Thanks.

Thanks, Meta. So let's go back to the CAF fees first. So the CAF for the price cap carriers has been out, as you know, for quite a while and distributed and flowing and people are off doing that work and I think we've been communicating that now for a couple of two or three quarters that we're seeing that business. If your question is more around the rate of return folks as we messaged last quarter, we would come back this quarter and potentially be able to give you a little more insight. They are still going back around the feedback loop etcetera and so it is not finalized yet so stay tuned on that part of it. So did I answer your first part?

Yes I guess the first part had just been to address the idea that coming out of last year you guys said that because of the metrics of where they had to meet kind of 40% of buildouts in the first two years that you thought there would be more steady kind of demand from those customers having to do those buildouts and I just wanted to get a sense of is that something you're seeing or are you starting -- are you seeing the continuation of lumpier spending patterns around those projects?

So on the rate of return, on the price cap carriers you're seeing that begin to flow commensurate with the rates that you're talking about from an ordering standpoint.

Okay.

On the rate of return carriers we're still in the process of getting to a finalized program. The competitive challenge is just underway so stay tuned.

Thank you.

Now on the turnkey piece to your question, so the professional services business, which is to help our customers transform their network with new deployments, it's something that we've had for quite a few years in the business but it has started to grow more dramatically in recent times driven by two factors. One is CAF but the other is a different piece that we see with our customers, which is they're continuing to figure out how to take OpEx out of their business and they're no longer staffed to take on peak workloads so actually they're staffing for troughs and looking for us to take on those things that represent discontinuous things like a buildout. So if you think that one through, it could be that the turnkey services are available and are actually taken up by the vast majority of our customers, big and small, over time but that's over a many-year trend of what you think the service provider business model looks like going forward. Does that make sense?

Got it. Yes. No that's helpful. I just wanted to get a sense of whether you thought it was an opportunity addressable by most customers and it sounds like eventually perhaps.

We do. We do and that's what we're preparing ourselves for but again, in an aligned fashion. I want to keep emphasizing that point. As long as it's with Calix equipment or Calix software or Calix systems or Calix platforms, we're all ears to go help our customers.

Great, thanks.

Simon Leopold, Raymond James.

Carl, I did hear your warning on the Verizon issue in your prepared remarks but I am going to ask a question anyway. So a couple things on the Verizon opportunity so getting in the lab is obviously the first step; two things I wanted to understand is one, you've had experience integrating into operations sports systems with your Century Link work. Just trying to understand if that's a hurdle or part of what needs to be accomplished in addition to validating your product performance in order to be able to move ahead with Verizon if there's some OSS work that needs to occur?

So the answer is yes and, as you might imagine, every customer that we work with, big or small, have OSS's that we have to integrate with. As you might also imagine, many of them may have a package that we've already integrated at some other customer with so it makes it easy. Verizon has their own systems that you would do that with so the answer is yes but we don't see anything untoward actually in our ability to do that.

Okay and Verizon has talked quite a bit about the launch of service in Boston as a relatively new initiative building out FiOS in that city. I am presuming that your trial activity would not be finished in time to align with that particular opportunity. Is that a fair assessment?

No comment.

No comment. At least you answered one of the two on Verizon so I won't push my luck. On -- I want --

Can we go for one for three?

I wanted to shift to the CAF2.

Go ahead.

Frontier made an interesting comment on its report last night in saying that the requirements under the program, the Federal programs, are for 10 mg but that that was not necessarily always going to be the case, that would be a minimum that at times they would, based on the business opportunity build something superior to that in order to sell a faster product. So I am trying to understand what you see as the mix and I am not specifically talking about Frontier but just using that as an example of what kind of speeds do you expect to deliver on the CAF2 projects you're involved in today? Are they mostly fiber to the node type architectures meeting the bare minimum 10 mg or is there opportunity to do a richer offering in higher speeds? Any kind of quantification would be helpful. Thanks.

Well, I don't think I can give you quantification but I can give you qualification so I think Frontier's answer to that question was actually [APT], which is where they see opportunities that they think they'll have higher demand from subscribers they'll go build at that on top of in essence the funds that they take from CAF.

Having said that, the other piece that you just said, which is for the most part fiber to the node, that is the wildly dominant architecture but, as you also are aware depending upon where you place those nodes, drives what the speeds are and the other piece is given the different service providers they may be selling services over top of their infrastructure that demand even higher speeds, so a number of these folks have video services and other offerings that they will do that might cause them to say you know what, we're going to go build out CAF but we're going to use those monies and then we'll throw in additional monies of our own to get to an even higher speed. Does that make sense?

It does but I want to clarify that is that CAF will basically fund that bare minimum and if the operator wants to get to 100 mgs they've got to throw in value for the incremental effort. Is that the way to understand it?

So the answer is sure. I mean CAF is built to fund to the limits that CAF has set up, the minimums. And if it costs more then it's up to the service provider to do so.

And just to wrap up on the rate of return folks, what's your best estimate for when we should get an update in progress?

By the way, I will as inaptly as I did last quarter say come back in 91 days. We'll talk about it on the call again and see what we have. I think we'll have more information next quarter. I don't think you should anticipate more information next quarter meaning the program will have been solidified but I think we'll have that much more insight.

Great. Thank you for taking my questions.

Greg Mesniaeff, Drexel Hamilton.

Looking at your SDN product portfolio currently, what would you say is the percentage of your customer base that is taking those products now and where do you see that going in some definable time frame?

So when you say SDN product portfolio, I am not sure we really have an SDN product portfolio. We refer to it as software defined access and the Compass Cloud. Are you asking me about the Compass Cloud or about AXOS specifically, Greg, so I can answer your question correctly?

AXOS specifically.

Well, so as we spoke, the growth rate is accelerating just in the last quarter. I see every reason for every single customer that we address deploying AXOS over some period of time. That is certainly our intent. Now, if your question is how many of them will be able to fully utilize all of the functionality that's built into AXOS, that's a different question. (inaudible).

Okay well, it does, it does. If you focus on the latter part, when -- if assuming they would take advantage of the full SDN capability of the platform, when do you see that?

I think that's a general network transformation discussion and I think there are some customers out there that are further down the path than others. I think there are some out there that are talking like they're further down the path but not to be blunt. So I think it's all over the map and it think it's early days yet but I think you're going to start to see deployment decisions made and this is why we focus on deployments as a Company and not trials because I mean we never talk about -- frankly, we don't ever talk about deployments much. To the extent that we talk about anything, we talk about deployments.

Obviously in the Verizon case we spoke about a trial because they came out and spoke about the trial so we felt we needed to make sure that we spoke to it. But deployments are what matters in this environment because once they start to operationalize around a framework and they get used to it, that's the framework. So I think you're dealing with years, not decades but years, and certainly not months.

Got you. Just a quick housekeeping question, in giving us the guidance data for the third quarter, what was -- did you give OpEx, an OpEx range?

Yes we did. We gave guidance for OpEx of $48.5 million to $49.5 million. That's taking into account the $4.5 million of settlement proceeds that we'll receive from the Occam litigation. If you were to extract those proceeds and look at it on a more normalized basis, that equates to $53 million to $54 million.

Got it, okay great. Thank you.

(Operator Instructions). There are no further questions at this time. I'd like to turn the call back to Tom Dingus for closing comments.

Thank you, operator. Calix will be reporting third quarter fiscal year 2016 results on November 1st after market close. In addition, management will be participating in a number of investor meetings and conferences during the third quarter. Information about these future events is posted on the Events and Presentations page of the Investor Relations section of calix.com.

Once again, thank you for your interest in Calix and thank you for joining us today. Goodbye for now.

This concludes today's teleconference. Thank you for you participation. You may disconnect your lines at this time.