Q4 2019 Earnings Call
This time, all participants are willing to listen only mode.
Later, we'll conduct a question answer session.
Please note that this conference is being recorded.
And I like to turn the call over to Nicole Newts, Yes, Investor Relations you.
You may begin.
Thank you operator, Hello, everyone and they need for joining today joining us today for harmonic fourth quarter full year 2019 earnings conference call with me today are Patrick Harshman, our CEO and Sanjay Colorado for CFO.
Before we begin I'd like to clean up and it doesn't stop audio portion of the webcast.
The revised like this webcast you can see by growing our webcast.
The IR website.
Now turning to slide two during this call it will provide projections and other forward looking statements regarding future events for future financial performance as a company.
Such statements are only current expectations the actual events or results may differ materially for you to documents that harmonic files and SCC, including her most recent thank you and take care of imports.
For the gives statements section of today's preliminary results press release.
These documents identify important risk factors, which could cause actual results could differ materially from those contained in our projections or forward looking statements.
Please note that unless otherwise indicated financial metrics. We provide you on this call for determine on a non-GAAP basis.
These items together with corresponding GAAP numbers in a reconciliation of GAAP are contained in today's press release.
Posted on your website provides an FCC form 8-K.
Also discuss historical financial and other statistical information regarding our business an operation and some of this information is included in the press release.
The remainder of information will be available on a recorded version of this call for on our website.
Now I'll turn the call overturned deals Crestor kirschman Patrick.
Thanks, Nicole and welcome everyone to our fourth quarter call.
Harmonic delivered another strong quarter capping a pivotal 29 team that was successful both financially and strategically.
Financial headlines revenue of $122.2 million upset another 5% year over year.
But the 2.3% gross margin of 12 cents non-GAAP here.
As both or cable access and video businesses contributed meaningfully to our operating profit.
I want to strategic headlines are equally compelling <unk>.
Over the course of the year or Virtualized cable west solution leapfrog the competition into the industry, leading position well live streaming video capabilities, so cheap significant new scale milestones.
That's a result, we're heading into 2020 with the transformed technology Foundation.
Positive business momentum and uniquely positioned at the intersection at the core market dynamics of gigabit broadband access and streaming video.
Taking a closer look or cable access segment, we had another strong quarter.
Revenue was $43 million up little over 78% year over year.
And operating margin was 8.5% that's one of our new tier one international customers began to contribute meaningfully.
Who your revenue was $124.9 million up 37% year over year.
Highlighting continuing strong market momentum during the quarter, we secured new design wins and received associated initial multimillion dollar purchase orders.
From two international tier one operators.
We expect to begin commercial deployments with these new operators in the first half of 2020.
To the end of the fourth quarter cable or west had been commercially deployed by 23 cable operators globally.
Associated number of actively sort of cable modems grew to over a million.
Approximately one quarter or these life cable modems for sure through distributed Axis architectures as D.A. has matured and now become the fastest growing architecture, we're deploying.
Most significantly beyond direct financial benefits.
Both our virtualize centralized and deployments are now starting to deliver compelling consumer benefits versus traditional see MTS is.
Measured by improved service reliability and customer satisfaction.
Compelling hard data that several of our customers are beginning to share with other operators.
Creating a growing positive word of mouth tailwind.
Looking ahead, it's important to understand that these early deployment so far cover only a small portion of our customers footprints.
Typically the 23 cable operators, who have commercially launched cable or less and part of their network collectively serve approximately 45 million cable modems today.
That's approximately 40 times, the one plus million modems, we currently serve for them.
So our growth opportunity is twofold.
First we're focused on ensuring this first wave of 23 deployed customers continued to be delighted and moving towards leveraging cable coalesce across the entire footprint to approximately 45 million modems.
And second we're working on securing new design wins with additional operators.
In order to address the remainder of the global market.
Well launching these early customers and securing new design wins has been our primary focus over the past here.
We've also continued to aggressively invest in R&D.
And extend our technology leadership position.
Our recently announced cable less expansion to support fiber to the home.
New cloud native orchestration and real time analytics capabilities.
And our new managed services excuse me.
Combined to both extend our lead relative to other players in the market and expand our addressable opportunity.
And the addressable market opportunity a big picture remains very favorable for harmonic.
The Delaware group continues to forecast and approximately 50% compounded growth rate towards an approximate.
$1.2 billion Virtualized cable edge and distributed access market My 2023.
This is a market category the harmonic largely invented.
There were leading today than there were well positioned to lead going forward.
And with the new fiber to the home and managed service opportunities I, just mentioned not get factored into these market size estimates.
Our growth opportunity is only going to get larger.
Summarizing our cable or less update we made great progress in 2019 with groundbreaking initial deployments.
Early customer operational success stories, new tier one design wins and solid financial execution.
We're well positioned for investing in both additional R&D and focused sales and service teams to go after the opportunity.
Determined to capitalize on renovation lead to market momentum to 2020 and beyond.
So turning now to our video segment here also our ongoing strategic transformation is showing real progress.
Our video business is steadily transforming from a market leading broadcast centric appliance business.
To a market leading over the top screaming business.
Well, we provide our technology is either software running on Cup servers.
For a software as a service running on public or private cloud.
Continuing the trend over the past several quarters Q4 was characterized by solid growth of over the top streaming deployments with both traditional and new customers.
Offsetting stagnant broadcast appliance sales.
Specifically video segment revenue was $79.2 million.
32% from third quarter.
Associated gross margin was 60% a new records that underlines our continued successful software and service transition.
Segment operating profit was 14%.
By ongoing investment in our streaming transformation.
Highlighting the strong fundamentals of our video business.
During the quarter, we added 12, new live streaming says and customers.
Bringing our total the 48, which is up 33% sequentially and 153% year over year.
Our strongest quarter, yet of new SaaS customer additions.
Associated annual recurring revenue grew just over $16 million up 70% year over year.
Solid foundation for continuing profitable expansion of our lunch streaming platform.
As with cable or less our drive to bring new customers onto our new streaming video platform is complemented by a compelling innovation pipeline.
We continue to be excited about our new live streaming delivery optimization solution.
Which is targeted at the significant unsolved industry problem of reliably personalizing and scaling live streaming video, particularly live sporting events with exceptional quality.
Adding this live streaming delivery optimization capability increases are just market.
And further differentiates our screening platform.
To provide a deeper glimpse into why we're seeing solid growth of streaming customers.
We want to share a couple of key differentiators.
First throughout 2019, we saw steady quarter over quarter growth the utilization of our platform.
Sitting one had abide per day of live streaming traffic delivered from our cloud platforms during the fourth quarter.
Highlighting the scalability and robustness of our solution.
Which as you know is critically important for our customers fast growing streaming services.
Second the ability to leverage multi cloud strategy is increasingly valuable to many of our customers.
And so our unique integration and deployment partnerships with Microsoft to shore, Google Cloud platform NWS are differentiating harmonic in the market.
Third over the course of 2019 and over multiple cloud platforms, we delivered over six lines of reliability, which to the best of our knowledge is market, leading performance and ensuring consumer quality of experience.
Which is again critically important to any streaming service providers bottom line.
So what we still have work to do in growing our cloud based live streaming platform to the business scale, we're targeting.
Our steady customer acquisition and grown reputation for operating excellence position us well to reignite the growth of our video business.
So in summary, considering both our cable access and video business segments 2019 was a breakout year a business transformation.
Leveraging powerful new cloud native technologies and services.
Several strategic design wins and deployments around the world.
Redefining the trajectory of our business and if the market we address.
We're looking forward to further market impact profitable growth and value creation in 2020 and beyond.
I'll now turn the call overdue subject for further discussion of our financial results outlook.
Thanks, Patrick.
Thank you all for joining our call this afternoon.
Before I shared with you all are quarterly results and outlook.
I would like to remind you that the financial results I'll be referring to are provided on a non-GAAP basis.
As you just heard from Patrick for the fourth quarter of 2019, we delivered strong financial results.
Revenue and EPS above the high end of our guidance range.
Revenue was 122.2 million and gross margin was 52.3%, resulting in GBS of 12 cents.
The improved a little working capital this quarter ending the gas at 93.1 million and book to Bill ratio of 1.15.
We are entering 20, Glenn EBITDA solid financial Foundation.
Turning to slide nine.
For revenue was 122.2 million compared to 115.7 million in Q3, 90 913.6 million in Q4 80.
Turning in 5.6% quarter over quarter girls.
And 7.5% year over year growth.
Gross margin was 52.3% in Q4 compared to 67% in Q3 and 54.5% in Q4 18.
Well the full year total revenue was 402.9 million.
Down 1.8 million compared to 20, but above the high end of older guidance range.
The work gave a revenue grew 37% and video revenue declined 11%.
We had three greater than 10% revenue customers during the quarter.
Well I guess contributed 20%.
Our direct contributed 14%.
And Vodafone contributed 13% of go to revenue [noise].
Looking more closely at all or cable access segment revenue was 43 million compared to 55.7 million in Q3, and 24.1 million in the yet to go period.
Gable access gross margins were 38.3% in Q4 compared to 77.1% in Q3 and 43.6% in Q4 redeem.
As the hardware shipments picked up.
As anticipated year over year growth was strong reflecting growing success of our cable Louis solution.
Revenue and gross margin declined sequentially only because during the third quarter. We recorded one time software revenue of 37.5 million.
Related to the 175 million cable Louis software license agreement flows that gone guests in July 2019.
In our video segment, we reported revenue of 79.2 million compared to 60 million in Q3, and 89.5 million that year, lumpier, resulting in 31.8% quarter over quarter drilled.
And their degrees of 11.6% year over year.
On the hadn't video segment gross margin was a record 60% in Q4 compared to 57.7% in Q3 and 57.5% in Q4 to <unk>.
Taken together. These are those point due to continued profitable video segment transition to software and SaaS.
Through expanded support services photo traditional appliance based solutions and to cloud based SaaS offerings.
Recurring revenue base continues to grow with expanding margins.
During the fourth quarter reckoning SaaS and services revenue was 29.7% of all the total revenue up from 28.2% in Q3, 19, and 26.8% in Q4 meeting.
Saddened services revenue was 36.3 million in Q4 compared to 22.6 million in Q3, and 30.4 million in Q4 18.
Sat in services gross margin so 63.7% in Q4 19, 60.6% in Q3, 19 and 64.5% in Q4 reading.
Continuing to drive recurring revenue growth and margin expansion is a key component to over long term value creation strategy.
Supporting this objective or video satisfied then continues to grow.
The total subscription airport other SaaS deals was 16.3 million at the end of Q4 19.
Compared to 9.6 million at end of Q4 18.
This 70% in reason annually or reflects boat.
And increasing fab customer base, which increased from 19 in Q4 18 to 36 in Q3, 19, and 48 customers in Q4, 19, growing 33% order look order and 153% year over year.
And increased usage of our SaaS offerings by or customer base.
As we look at the rest of our income statement on slide 10.
Steven Dan strong expense control during the quarter.
Q4, operating expenses were 49.2 million compared to 47.7 million and 49.3 million in Q3, 19, and Q4 deemed respectively.
The combination of strong cable revenue heavily video gross profit and solid expense control resulted in good profitability in the quarter.
Although Q4 operating income was 14.8 million comprised of 3.7 million from over cable access segment and 11.1 million from a video segment.
This Q4 operating income of 14.8 million compares to an operating profit of 29.9 million in Q3, and 12.7 million operating income in Q4 eating.
This income translated into solid Q 40 bps of 12 cents.
Compared to Q3 EPS of 25 cents.
Yes up 11 cents in Q4 eating.
Regarding the share count behind the CBS calculation.
We ended the year, but the diluted gone up 97.5 million.
Compared with 97.6 million Q3, and 89 million in Q4 I'd.
The module sequential reduction of 0.1 million shares is the net effect open increase of 1 million shares of employee related RSU grants and option exercises.
Half a million shares for Comcast volumes in the money as it is present in Greece in almost all price.
Offset by 1.6 million share reduction associated with dilution from or convertible debt.
A substantial portion of the proposed refinance during third quarter.
The annual increase of 8.5 million shares reflects the combined effect of 4.1 million shares for employee related RSU Grant.
Option exercises and employee stock purchase.
And 2.6 million shares for Comcast warrants.
And 1.8 million diluted share so old convertible debt.
Please note our diluted calculation considers all or every trading price of approximately seven into half dollars per share for Q4, Dollarssix 0.9 per share for Q3.
And on or 5.5 for Q4 Oftwenty 18.
And the use of Treasury stock method for convertible note and modern calculation.
During Q3, we refinanced approximately 65% of older convertible notes dealing twentytwenty with favorable terms for the company.
The new notes due in 2024, getting a coupon rate of 2% Wheeler conversion price of eight dollar in 66 cents compared to the original noticed that gets you a 4% coupon the conversion price a $5.75.
We plan to be off the remaining principal of the original north in cash in December 22, Eddie.
Using an if converted method as a result of September refinancing the immediately reduce the potential dilution by 5% and annual interest expense by 19%.
Was the remaining 45 million of the original notes are paid off in cash at end of Glenn Eattwenty, although he financings and effectively reduce the potential dilution by 40% and annual interest expense by 55%.
Q4 was the first full quarter of dilution savings benefit from our recent refinancing as we reduce 1.6 million shares in Q4 compared to Q3.
Q4 bookings were strong at 140.1 million compared to 126.5 million in Q3.
And 92.8 million in Q4 18.
The other thing in a book to Bill ratio of 1.15 in Q4.
Our full year bookings the 440.2 million an annual book to Bill ratio will also heavily at 1.1 underlying the positive market momentum be created in 2019.
Even though move drill a liquidity position and balance sheet on slide 11.
We ended Q4, the cash of 93.1 million. This compares to 66.7 million at end of Q3, and 66 million at end of Q4 18.
This cash in two years of 26.4 million is comprised of cash generated from operations of 30.2 million in Q4.
And 1.3 million cash generated from financing activities, primarily stock option exercises and DSP purchases.
Net cash used for capital budget activities of 5.4 million.
Primarily due to partially as a fixed assets.
Approximately $3 million off which is related to fixed asset additions for our new headquarters facility, which is under construction.
Our San Jose headquarters lease expires any epic Twentytwenty.
And we are currently in the process of making additions to fixed assets and leasehold improvements for the new headquarters facility the relocating to.
For the new facility for which we have signed a new 10 year leave we expect to end good a total capex off approximately $20 million all fixed dollar Threemillion Logan Guardian, 2019, and the remaining $17 billion going to be in getting to anybody.
Beginning in May the new lease facility will reduce our annual cash outflow for rent by approximately $5 million.
And animal feed appreciation opex by approximately 2 million.
Our days sales outstanding at the end of Q4 was 65 days compared to 78 days in Q3 and 65 the at end of Q4.
Our days inventory on hand was 45 days at the end of Q4 compared to 60 ended at end of Q3 and 45 days at end of Q4 18.
At the end of Q4 backlog and deferred revenue was 210.2 million. This compares to 192.5 million in Q3 and been maybe 6.4 million in Q4 rating.
Please note that not yet included in this backlog metric is over 200 million of contracted gave a little as demand associated with Threed Theater, one gave a louis customer contracts.
Which we have previously discussed.
Including our agreement with Comcast, which we have begun to recognize into backlog in revenue.
Regarding the Comcast software license agreement, let me provide the remainder of what we explained last quarter about the GAAP and non-GAAP accounting treatment.
For the 175 million gone gas Gabler software license agreement. The total license revenue to be recorded will be net of war investing charge of approximately $20 million.
Thank you in a net to GAAP and non-GAAP revenue of approximately 155 million over a period of four years.
Now, let's turn to slide 12 for Q1, Twentytwenty non-GAAP guidance.
For Q1 220, we expect revenue in the range of 80 to 90 million.
With video revenue in the range of 60 to 65 million and cable access revenue in the range of 20 to 25 million.
Gross margin in the range of 50% of 52%.
Operating expenses to range from 48 to 50 million.
Operating loss during from 9.5 million to 1.5 million.
As to range from a loss of 10 cents to a loss of three cents.
And effective tax rate of 10%.
The weighted average share count of 95.8 million shares.
And finally cash at end of Q1 is expected to range from $70 million to $80 million impacted by all the new lease as discussed earlier.
Moving to slide 13, we are providing corresponding full year twentytwenty non-GAAP guidance.
Specifically for the full year, we expect revenue in the range of 390 million to 430 million.
And video revenue in the range of 260 million to 280 million that cable access revenue in the range of 130 to 150 million.
Gross margin in the range of 50% to 55%.
Operating expenses to range from 190 to 202 million.
Operating income to range from 5 million to 34 million.
As to range from a profit of zero cents to 26 cents.
And effective tax rate of 10%.
The weighted average hotel to range between approximately 97.7 million shares 201.2 million shares.
Yeah, then cash to range from 50 million to $60 million.
After paying off the remaining principal level or or convertible debt with approximately 45 million in cash in December 22 already.
And a total leasehold improvement in addition of 17 million for their new headquarters.
We expect revenue to grow steadily on a sequential basis beyond the first quarter the growth trend through the second off of Twentytwenty similar to what we saw in 2019 and going to getting.
In summary, we delivered a strong dirty 19.
How did you have the companies working effectively in both segments and we remain very focus on continued execution.
With that thank you and back to you better.
Okay. Thanks, Sanjay on that a notice execution, we want to finish by highlighting our strategic priorities for 2020.
For cable access business will build on our success in 2019 by scaling our existing tier one customer deployments.
Securing new design wins with additional global operators.
And successfully launching a complementary new managed services and fiber to the home solutions.
For video segment, our objectives are to accelerate the growth of our live streaming business.
To expand or dressed market to include do not traditional streaming customers through our SaaS platform.
And the continued to deliver solid segment profitability.
Finally, before closing I want to recognize our employees for their passion innovation serve our customers.
Our customers for their collaboration and business.
And our stockholders for their support as we continue to transition or business.
Together, we've accomplished a lot and positioned ourselves for a compelling future.
Thank you all.
Well that would like to now open up the call for some questions.
Thank you.
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Hi.
I sure first question comes from John Machete from Stifel. Please proceed.
Thanks, very much Eric I was hoping you could spend a minute.
When I look at where we are from a projection perspective as I look out into 2020, using the midpoint of your range. We're looking at about 2% growth. You've obviously had some some new wins, both internationally and domestic Oh, there seems to be a lot going on here just curious how we think about all of this coming through and when we can maybe see.
A little bit faster growth rate materialize, just curious where we are in this cycle, maybe in and how you think this plays out not only in 20, but but as maybe we look a little bit more longer term.
Hey, John inside your thanks for the cushion.
I think it's relevant to look at both video and cable separately for this.
More in terms of cable if you look at the midpoint is growing at 12%, but you had this 37.5 million as a one time software license pick up on gas in Q3.
If we dig that beat out from last years numbers, we actually growing in cable segment at midpoint by approximately 60%.
It is very similar to what delauro in this market report projects as well. So I think we have do they started 7.5 million out to do the comparison as that's nonrecurring and is one time.
That said Oh for who we deal the you're at midpoint, it's a 3% decline versus at high point, It's a similar number of range. What the ended this year.
But in terms of video no that'd be a profitable and combined with other gross margins and increasing our our beyond the right track for profitability in long term value for video business.
Okay, and just to be clear Sanjay that the two international customers that we referenced in the remarks those are two additional customers or are those the ones that we mentioned last year and now they're actually contributing to results I'm just trying to make sure Oh I am not missing something here.
The do we announced today, our additional do what we said earlier so in total it five.
Five tier ones. So number one just to clarify number one most bomb gas, which we all know nvme discos earlier, we have announced do dealer loans.
We had more than 50 million in more than 55 million and due to the announced do more of course, not the names, but anecdotally a five.
And any sense relative to those the 50 55 number I mean.
Two new ones sort of in that same a ballpark in terms of revenue contribution overtime.
Why don't I take that one John it's Patrick.
The short answer is yes, both of them have the potential to to deliver comparable numbers. They went after it a little bit differently. You know the ones, we talked about previously for their own reasons.
One of the signed frame agreements with us. So those are broad contracts as we've discussed and not orders not sitting in the backlog is sanjit noted.
Latest too.
The different approach no big frame agreement with some big headline multiyear financial number but they are they after extensive qualification processes. They qualify this so let's get going and they place initial multimillion dollar orders with us that.
That in fact, our part of the backlog that that we reported today and.
So it's a different approach no big frame agreement, but both of them back to your original question have the potential to deliver.
Comparable results scale overtime.
Thank you.
Thank you.
Thank you I'm next question comes from Simon Leopold from Raymond James. Please go ahead.
Great. Thank you just a quick clarification upfront you mentioned three greater than 10% customers I got Vodafone at 13 charter at 14%, but I missed Comcast what was that one well I'm guessing that 20% for Q4.
Great. Thank you for that and so.
If we think about the disclosure you gave us on the modem penetration you talked about basically on cable awareness being at 1 million modems, but you're talking about operators that have 45 million modems. How can we think about the value of that I I just feel like if we multiply the current pay.
And the Spike 45 were overstating. It. So can you give us sort of some sense to think about what's the value of the opportunity.
Let's break it apart and or to have it's obviously, a comcast as part of that and nominally a 50% of that and as you know we've you know the value of the software license agreement there the additional opportunity as we've discussed is is hardware sales, which do scale with.
With penetration of the service and and services the to the we can deliver to Comcast. So so indeed, I think the Comcast piece skills and one way.
All of the others are priced let lift for for let's let's say more conventionally and that is some you know a price per gigabit delivered on both the software license as well as the the hardware assignment so for the rest of it.
Actually we think that the linear scalability is.
It is about right.
And and so we see we see substantial opportunity just adjust to converting the rest of their footprints now converting the footprint is not a foregone conclusion, our agreements with them don't require a them to do that but we see.
To the extent we are delivering.
The operational and financial value that we that we think we are in that they're starting to tell us that we are we we like our chances of converting.
The rest of these operators to overtime to being 100% or nearly 100% based on cable or Wes.
And maybe just pivoting to the video segment in terms of the way this business is trending.
It looks like you've got certainly the mix shift towards the recurring revenue.
Do you see it returning to year over year growth at some point during 2020 or is that more of a 2021 event is that is that a metric you can even think about today have a quarter, where you have year over year growth in video.
Yes. It is yes received from our annual guidance, so which.
Well, certainly strive to to exceed but.
We don't think that that happens in in 2020.
I think it is important to remember that there is two distinct things going on here one is a conversion to.
Some of the customers to SaaS, but even before we get there there's a notion that weve rendered the whole product line as software. So even if you're not going to SAS, even if you're still doing capital purchasing or perpetual license purchasing of our product.
Increasingly often you're not getting to the server or the enabling hardware from us you're buying it directly from HP Dell, let us say.
So Simon that creates a a clear headwind on the top line, but I think is quite different than the value that we deliver and and.
And hence our continued focus on gross profit and operating profit you know.
Very rough numbers, the traditional hardware sales the appliances themselves.
Can be up to 50% of the revenue that we were doing in delivering in the past at virtually no margin.
So.
I think the challenge.
And we're going to continue to work on new to try to you and everyone else do not think just in terms of video because as we as we turn over the hardware sales to HP, let us say.
That is going to be a top line headwind that I would argue really doesn't in any way negatively impact the value. We're delivering are creating in the market. We're still delivering the the same software. The fact that we delivered 60% record gross margin. This quarter. The fact that we still had 14% operating income on the business while the topline.
Was down I think goes to the fact that yeah on the topline we're kind of we're losing empty calories.
So I think we've still got to go through the rest of that process, a flushing out those empty calories. If you will then at some point, yes, I then I think that the topline will begin to reflect the or the fundamental growth of the business, but in the meantime, I, we believe that focusing on the gross profit.
And the and the operating profit of the business segment our.
Or actually more meaningful in terms of gauging the progress of this business and that makes a lot of sense to me is is it something where you'd feel comfortable at some point, maybe forecasting the gross profit dollars rather than focusing on gross revenue.
Yes, it's a bit candidate, it's something that we're thinking about quite actively.
The risk of sounding like we're kicking the can down the road. We're here announcing the fourth quarter of 2019. So we've got no deviation from us in terms of the historically historically, we've talked about the business, but as we go into 2020, we are thinking about alternative ways of of.
Of describing.
Current and results and future expectations, and we look forward to continuing that dialogue with you.
Great I think that'd be helpful. That's all from me. Thank you.
Thanks.
Thank you.
Next question comes from Rich Valera from Needham and company. Please go ahead.
Thank you want to try to understand what's baked into your 2020 cable guidance in terms of new wins or if that's primarily delivering against your existing portfolio wins.
I'll start and maybe you can chime in London.
Qualitatively, let's say, it's primarily our existing portfolio of wins.
We're quite excited about the the competitive market momentum in the new design wins at the same time one of the lessons of 2019 is that.
The time between design win qualification.
Initial bookings maybe even initial shipments in recognition of revenue is.
It can be lengthy and is.
As risk of variability to it so I would acknowledge I think we would acknowledge that we've taken a somewhat conservative uptake on how quickly will be able to convert new design wins into revenue during the year, So I'm highlighting that because we're quite.
Confident and aggressive about continuing to sign up new customers thing in that new design wins.
I'd say, we're somewhat more conservative about how quickly that waterfalls into revenue.
And they can make no mistake, whether waterfalls in revenue in 2020 or not we think 2020 is going to be a watershed year of additional design wins positioning us extremely well for multi year.
Gross delivery.
Yeah, that's helpful and then.
On Comcast they Sanjay you talked about how much you got in the third quarter from the E.L.A. can you say what you got for all of 2020 from the Comcast deal a I'm sure for 2019 for the Comcast.
Well you know we pulled all we did announce that for full year Comcast represents approximately 23% or total revenue. That's among both the segment, but in terms of yet. He gave you did get 37.5 in Q3, and then he said $4 million to $7 million will get every quarter. So to go.
Orders at the midpoint, if you take 6 million you know begot.
[noise] close to close to 50 million this year from yearly.
Okay.
Got it and one more if I could you just you a backup the I think the F.C.T. show you announced a new.
Pawn capability within the cable lowest platform can you is there been any traction with that have you gotten any should have initial design wins or or up to the bake offs with that at this point.
The progress is good no design wins, yet to but we're working we're active with a couple of lead.
I call them strategic customers.
The first choice.
We don't expect.
Revenue contribution in the first half of this year, we expected to be again based on.
Our experience around the initial Virtualizing MTS, we expect the first have to be characterized by.
Lab and field trial work.
Which we expect to to transition into revenue beginning in the second half.
Great, but the response of the response has been there has been quite positive and to be clear releasing that and the early innings here. We're focusing on cable operators, who are also doing fiber to the home and so the the story of the advantages of our unified access platform that is simultaneously.
Supporting provisioning the whole thing Botox is sand and fiber services and that that is definitely a message that is a has resonated and.
Strongly since since the announcement.
Got it okay. Thank you gentlemen.
Thank you.
Thank you.
Our next question comes from Steven Frankel from Dougherty. Please go ahead.
Good afternoon.
Patrick given that slow start to the year in.
Cable access could you give us some insight into what kind of visibility do you have entered these tier ones in their deployment plans in 2020.
It's a great question and it's mixed the more mature the engagements the better the visibility is getting so forum.
For early customers, we've we've where we've already recognized revenue.
Domestic and beginning in the fourth quarter of more significantly a a leader in the national customer, we've got pretty decent visibility and that really is to the earlier question that really does the backbone of the some of the 2020 forecast.
As the engagement.
These engagements that are little bit newer.
The visibility isn't quite there.
Well, what we've seen as you as you know.
Steve is that.
Theres a number of things that go into making these these deployments work, it's not just a simple switches, let's see MTS is a broader ecosystem.
And so.
As mentioned earlier, we're arguably a little bit conservative in our estimate of how how quickly all these other things will level come together. So the visited the visibility is less perfect size for the newer customers and then beyond those were engaged with our plan does call for additional design wins certainly during the year and there I would say were the most.
Most conservative in terms of how quickly those design wins will will turn into revenue. So there's there's certainly upside there, but we're not picking it in and we're cautious we'd be cautious about you baking it in a until we get a going a little bit faster I mean, the one last thing I would say, though is that as the whole thing becomes more.
More mature.
We expect these us sales and deployment and revenue cycles to decrease is just a little bit premature for us to kind of called any in the curve at that point, yet, but that's something that will be will be tracking on and reporting back to as we go through this year.
I I just like to that as a reminder, that you know as we ended up on ramping 22 any.
Maybe some variability along the way, we think waters due to the customer mix on product mix in the quarter of you didn't see that in 2019 as well, but I just want to give it in mind right. It could happen in 2020 as though.
Okay, So and again to go back through these these two large tier ones that were won in.
Q4, you have little to no revenue in the 2020 forecast at this point.
Relative to those customers.
Well I'd say, we have modest revenue principally in the second half of the year.
And then to go back to your comment in video about used to be 50%.
[noise] pestering hardware and awareness that exit Q4 in terms of Pat pass through hardware as a percentage of revenue in video.
You can see it on the and the gross margin of 60%, which is a blended number.
So in fact still over 50% of our video what Im sales are associated with some kind of pass through hardware, a a like that that phrase but.
But the but that percentage is declining and with that we're seeing the gross margin move up.
And how quickly do you expect that to.
Trend towards.
Let's call it 25% you know I had.
The truth is I don't know.
We're definitely seeing some acceleration there, but frankly, if you asked me year ago I would've thought to be further along Steve. So, we're we're watching it and and and and and that's part of our challenge in answering some of the questions that we get asked about.
About revenue.
Particularly the more traditionally some of them more traditional players in the broadcast space is still.
Like to get.
Box or an appliance and and so some of them haven't tipped as fast as we anticipated on the other hand.
Service provider crowd is increasingly.
I think converging their view of how they will deploy this technology with their broader cloud or or datacenter strategies.
Maybe just go added a different way if we look out a couple of years and.
Hardware.
Becomes a much smaller piece, what kind of gross margin does the SAS plus software business.
Just as fast as that a 70% plus gross margin business.
Yes, I think that let me say, that's reasonable index definitely the long term path marching towards.
Okay, and then just to.
Be clear on that cat yearend cash position, that's a function of the 17 million.
And improvements in what did you say 45 million of bond repurchases, that's where the cash is going.
The year.
Yeah.
So if any but away from that the businesses now on a mode, where you generate.
Hey, you're starting to generate consistent cash flow right from a dozen yes, yeah. Obviously generated 20 627 billion cash this year and the expectation that cash next year as well and definitely the two things you pointed out are the main reasons for fluctuations in cash and 22 any.
And Patrick should contributing back to cable Wes.
What kind of a level of interactions do you have today with the let's call them to Comcast syndication partners those.
Operators that typically follow Comcast lead.
Are they having discussions along cable less as well at this point or is it still early days.
I'd prefer not to mention any specific customer I mean, but we do know that there's a group of customers as you say Canadian operators, and Cox, principally who who have a so called the syndication relationship or on video with Comcast now we consider those.
Important North America cable operators so.
Like all important cable operators were absolutely engaged in conversations with them.
Whether they might work directly with us or whether they might engage with Comcast that I, just don't call syndication deal around.
No I don't want to speculate.
I think it's an opportunity to be able to work with those and other operators and more than one way you know any time choices created.
For delivering a technology I tend to think it's a good thing. So we we historically have relationships with all of those operators, we have historically, oh delivered product edge qualms and video to all those companies. So a good good relationships and of course, they've got a very special relationship with Comcast, So one way or another absolutely our aspiration is to see.
The Comcast Oh, excuse me to see cable less become part of the story, there and and that's we won't be a surprise anyone that Oh, that's part of our.
It's on our Hitlist for.
We're going forward.
Okay, great. Thank you.
Alright, thank you.
Thank you.
Last question comes from Tim Savageaux from Northland Capital markets. Please go ahead.
Hi, good afternoon.
Well focus back on the the cable access business and comment you made earlier about the well I guess, but the gross margin in the quarter.
Well a couple of things first given the upside on me I'm on the topline sundry before you talked about normalized kind of growth relative to your market forecasts and normalizing for.
For the Comcast software keys.
Is it reasonable or are some of the dynamic you saw in the quarter. Some should we add some element of pull into that.
Yeah, you have this dynamic previously maybe that was from a video side, but.
Is there an element of.
No unanticipated strengthened demand in cable access in the quarter and how I guess, how I links that that's maybe taken away from from 20 to some degree.
And in the Dot with.
Hardware oriented right you seem to have had a very strong quarter or just kind of parsing out the gross margin results on the remote fine note side, maybe even like two thirds or revenue in the quarter.
And I wonder if that if we can look at that is kind of multiple quarters of demand heading forward and there is some sort of dynamic about some of this Q4 strength, maybe a maybe taking away from from what you might have expected and 20.
Yeah. They also in Q4, we had a catch up off revenue for one off of where do you want international customers a big started ramping in Q4 actually that's valuable of Rev. Rec you know the had been delivering on this customer since mid of 2019, but I've ever that game in the close depended on access.
Up down scheme in Q4, as you can see vector except doesn't coupons. So it did have a piece of catch up mix, you see and hands the number was higher than expectations for Q4.
Now that said in terms of the node shipments.
No one shipments lead it last year and David also happening Twentytwenty their billion dollar guidance, but there will be variability among the quarters on how the north shipment would go in fact due to seasonality effect due to the nodes and the diamond get deployment or they become more active the you know in the second third quarters than the first quarter.
So that's the piece thats been a valuable but definitely north shipments and hardware shipments are they had been affluent area.
Recurring coming out again, I mean, there and also maybe looking at your Comcast concentration in the quarter as well I mean, assuming.
That that went down the software element it went down to that run rate level you described.
And even also within you know some video in there as well that's a pretty significant quarter of hardware shipments to Comcast and like I don't know whether the catch up from international Tier. One you described is also.
Hardware software in nature, and maybe we can review that's a good opportunity to talk about the cadence.
With which you know it seems like you saw some hardware shipments initially with Comcast and then obviously the big licensing catch up one of the software side as you look at your other for tier ones the to frame agreements and the ones, you've just announced what kind of dynamics do you expect there between kind of hardware and software suite.
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As we head through the year.
And.
You know is.
Well, we look at kind of our run rate.
No no businesses, what we saw in Q4 indicative of typical quarterly demand at Comcast she'll be looking at 15 20 million a quarter and node revenue there or is that.
Kind of you know how would you characterize that at least.
I don't think there's anything more we can say specifically about about to about Comcast him, but I think you do bring up a good points that to the we should we should further clarify.
A couple of points first not only.
Well beyond Comcast the other the other international operator, who started to contribute strongly in the fourth quarter revenue and the two new ones all of those tier ones, although not exclusively the.
The primary initial.
Architectures selected as da and so in fact, there will be strong hardware elements and as you alluded to and you recalled.
From from a year ago.
These deployments or or.
Our experience now is there characterized by hardware shipments up front.
Because in fact is a lot of logistics of provisioning installment et cetera versus the us the corresponding software can be delivered more just in time.
And.
And so yes, we're actually very much in that mode, now and with these tier ones focusing on.
On D.A. you can expect.
The initial.
The initial wave to be hardware.
Followed by software to delight that hardware up and then.
Our our anticipation is another re up on the hardware and that goes a little bit to what Sanjay was mentioning previously about perhaps some amount of cyclicality of quarter to quarter.
Now I think over time, and where you're getting too as we bring more customers into the fold and as these deployments all become more mature.
I think we're going to get to a more statistically averaged hardware and software per quarter.
But we're still not there yet so we're still kind of an early days and that's why it.
Doesnt facades too much to see a particular quarter.
Kind of up or down on revenue heavier on hardware heavier on software I think we're really just in that startup phase where the flywheel isn't quite moving as fast, but I think with this increasing number of D.A.
Design wins that we've now getting under our belt I think we can't anticipate.
During 2020 or perhaps by the end of 2020 to be to a more.
A place where we are seeing more repeatable statistics at quarter to quarter.
But you're right and highlighting that we're not there yet.
But I think it's all part of the startup phase with tier ones around da.
Got it and does that help is address.
You are trying to get or does it does appreciate that and I guess last question on the.
Our order bookings and increase in backlog.
I think that the 200 million kind of outside of that has that number crane.
I think that's the number you've been talking about pretty consistently in terms of that.
Kind of so I don't know if that's meant to represent the value of the spread frame agreements that you're talking about.
And so should we look at it is that number is kind of state there and the backlog increases really mostly the result of the new tier ones you've announced.
So did that number has through dealers since Q3, however is still over 200 million.
Okay.
Great. Thank you.
Alright, Thanks, Tim and thank you all for joining the call today.
We appreciate your continuing interest and participation and we look forward to continue and execute on these a compelling opportunities in front of us and to talking with you all again soon.
Good day, thank you.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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