Q2 2020 Harmonic Inc Earnings Call
Welcome to the Q2 2020 harmonic earnings Conference call. My name is she may not will be your operator for today's call. At this time all participants are in listen only mode. Like it we will conduct a question and answer session. Please note that this conference is being recorded.
During the call over to Mike Smiley Investor Relations, Michael you may begin.
Thank you Jimmy Hello, everyone. Thank you for joining us today for harmonic second quarter 2020 financial results Conference call with me today are Patrick Harshman, President and Chief Executive Officer, and Sanjay cholera Chief Financial Officer before we begin I'd like to point out that it. In addition to our audio portion of the webcast. We've also provided slides to this okay.
Asked which you may see going to our webcast on our Investor Relations website.
Now turning to slide two during this call will provide projections and other forward looking statements regarding future events, where future financial performance of the company such statements are only current expectations and actual events or results may differ materially. We refer you to documents harmonic filed with the FCC, including our most recent 10-Q.
10-K reports and the forward looking statements section of today's preliminary results press release.
These documents identify important risk factors, which can cause actual results could differ materially from those contained in our projections or forward looking statements and please note that unless otherwise indicated the financial metrics. We provide you on this call are determined on a non-GAAP basis. These metrics together with corresponding GAAP numbers.
A reconciliation to GAAP are contained in today's press release, which we posted on our website and filed FCC.
Form 8-K, we will also discuss historical financial and other statistical information regarding our business in operation and some of this information is included in the press release the remainder of the information will be available on are recorded version of this call or on our website and now I'll turn the call over to our CEO Patrick Harshman Patrick.
Well, thanks, Michael and welcome everyone to our second quarterly calls.
I want it delivered better than expected results from the second quarter.
Okay watches business continued to grow our video business picked up more new SaaS customers.
That said the cobot nitrate pandemic created headwinds around the globe, particularly challenging in Asia Pacific.
Traditional TV broadcasters.
<unk> revenue was $74 million down 13% year over year any P.S. was negative six cents.
Encouragingly cash performance was positive book to Bill was greater than one.
Good signs of market recovery in June that have continued into July.
As highlighted on our call last quarter, our customers are fundamentally healthy no technology positions more powerful and unique and that's what we see playing out resilient cable access and video sales momentum into new Fiveg related opportunity for video business that'll discussion a few moments position us for return to profitability in the second half of the year interest.
<unk> future growth.
Taking a closer look now or cable access segment.
I had another solid quarter revenue was 26, and a half million dollars up 100% year over year.
We're not commercially deployed 29 cable operators worldwide to from the first quarter of 81% year over year.
Kilowatts is actively serving 1.7 million cable or.
116% year over year, 27% sequentially good results in any market condition.
Looking ahead, we expect this momentum to continue.
We recently announced the Vodafone, Germany and Millicom, that's two additional market leaders previously referred to as anonymous design wins.
Now successfully deploying cable or west subscale.
Well the former is the largest cable operator, and you're passing over 25 million homes in Germany alone.
And a global industry leader across all access communication platforms.
Millicom is also an industry leader.
The across nine countries in Latin America.
It's one of the largest cable operators and the leading wireless service provider.
And notably a pioneer in cloud native Fiveg.
The fact is the largest cable operator, North America, the largest cable operator in Europe.
Cloud Native leader in Latin America, all selected cable or less speaks for itself.
Validation fundamentally different and powerful cable or west is from compared with legacy solutions.
The patient feel deployments, we saw during the second quarter and away some of our customers began leveraging the advance telemetry and operational efficiencies that come with a truly virtualize platform.
Like the disruptive advantages on cable less architecture and services.
Well the cobot situation somewhat slowed our progress on boarding additional new customers during the quarter. We nonetheless added two new Kid blockers actively deploying cable less and we secured several additional new design wins with deployments scheduled to commence the second happen here.
Among these was our first significant cable west purchase order in Asia Pacific.
Well around the world to trend towards our solutions on the state couple and word of mouth is spreading them on cable operators.
Pipeline of serious new accounts engagements with tier one and smaller operators stronger finish up with that.
We now expect at least one additional top five North America cable operator can be purchasing cable less by the end of the here.
In addition to continuing to gain cable market share a key goal is to expand our dress market by moving into the fibrosis space.
Global market, that's larger than the cable that just space we addressed today.
To be clear. This move is based on our Shane Virtualized shuffle core that isn't the heart of cable or Wes.
Well containerized DOCSIS husband, our first application.
Leveraging the content architecture to seamlessly out additional access applications in this case spoke SGS intentionally.
Initially focusing on cable customers, who operate both data over cable and fiber to the premises networks.
Unified core access platform will be a photo game changer for our customers in terms of operational efficiency and service flexibility.
We've made good progress on this program and are now preparing to commence initial field trials well keep you updated on this important incremental growth initiatives.
Summarizing this cable exercise, we delivered a solid second quarter.
Got it further evidence for the industry, leading cable operators around the world are moving to Kid Lewis.
Our pipeline of serious engagements with both additional tier one and smaller operators is strong and growing <unk>.
We continue to aggressively push our technology for expanding our competitively and addressable market.
And our Mitchell on long term growth outlook remains positive.
Turning now to watch video segment.
As anticipated cobot 19 impacts a disruptor corner, so that we finished somewhat better than originally forecast.
<unk> revenue was 47, and a half million dollars down 34% year over year on premises activity as many media companies, particularly in Asia Pacific was locked down.
We remain close towards global media customers and I'm confident that business originally anticipated for this year has simply been delayed and not canceled for lost.
Since mid June we've been seeing a growing number of used to lay the planes projects, we starting in Asia and elsewhere and we now expect a corresponding revenue rebound in the fourth quarter.
And the other hand, the recurring revenue component of our video business remains solid throughout the quarter.
And we're carrying a strong opportunity pipeline into the second half.
Particular, we saw an acceleration of demand for streaming sounds offerings Atlanta public clouds during the quarter, we added nine new screening tests customers, bringing our total video SAS customer base to 66 up 16% sequentially and 136% year over year.
Another key video segment development to the quarter was to cultivation of a new business opportunities related to Fiveg.
Yes, you see mandated reclamation of C band satellite spectrum for side. It seems that many media companies, who you see band for video distribution.
We need to reengineer their video delivery systems.
Compression and in many cases moving to hybrid satellite and IP delivery networks.
An opportunity that fits squarely into the sweet spot harmonics expertise.
Second relationships.
We estimate this to the new several hundred million dollar global opportunity.
Will play out over the next couple of years.
We recently announced a partnership with satellite leader actually yes to begin this work.
Expect associated revenue to commence in the fourth quarter of this year.
Contributing materially to the strong video rather than rebound in or second half guidance.
The near term revenue boost associated with this fiveg opportunity. He was a good complements tormo gradually growing recurring revenue SaaS model.
As I mentioned, a few moments ago, we don't have 66 as customers can we expect this number to continue to grow as we work to convert what is now our strongest ever since pipeline assess prospects.
Regarding existing sounds accounts, we currently recognize revenues in the range of less than $10000 to over a million dollars per quarter.
It's important to understand that this quarterly sales revenue scales video traffic and personalization processing volume such as personalized digital ad insertion.
Fundamentally different business model, but not over traditional video planned sales for example, we have steps customers who initially.
Delivered nominal revenue to us as they were getting the streaming service is off the ground, but now as a service just would become more successful delivery deliver quarterly revenue to us and is growing by multiples.
So.
That's growth opportunity has two dimensions first the number of service providers or platform and second.
Streaming and personalization volume per service provider.
Big picture, what exactly it a brother and growth remains challenging the forecast in part because it's tied to a customer success in growing their businesses.
Overall streaming volume is undoubtedly launch from Brooklyn.
We consider the customers were signing them now to be acorn's, but each have the potential to grow into large oaktrees.
So some rate for a video segment to coming back to the second half of the year, we're encouraged that our backlog and deferred revenue grew during the second quarter, but many global media companies are now reopening the labs and data centers.
I'm live sports of returning that ourselves customer acquisition momentum has remained strong.
For the third quarter will likely remain sluggish is on premises international media projects ramp back up.
We anticipate to the totaling global market.
The new fiveg related opportunity and or growing says customer base with their growing streaming volumes will all combined to enable both solid second half, we brown and sustainable long term value creation.
I don't I don't so I'll turn the call overdue sungy for more detailed discussion about financial results and outlook.
Thanks, Patrick and thank you all was running on their call yourself no.
Before I shared the deal or go to lead a built in outlook.
I would like to remind you that the financial results I'll be referring to I provided on a non-GAAP basis.
For the second Goldrock money bloody.
We delivered solid results considering the challenging pandemic environment.
Good morning revenue of 74 million, who was the high end to hold guidance.
Gross margins than 51.6%.
270 basis points improvement over the prior quarter.
And be avoided a six cents you'd be as long.
That doesn't know what guidance.
Book to Bill was 1.0 floor.
And consequently, the other exiting the quarter, but a stronger backlog and deferred revenue of 210.2 million.
Further we maintained a solid balance sheet gosh at 77.7 million.
As we generated 11.9 million cash from operations.
Well this thing it's bill for the second half as Glen good.
Turning to slide seven.
Nothing gets moved to look at dollar Q2 revenue and gross margin.
Revenue was 74 million compared to 78.4 million in Q1, 20, and 34.9 million in Q2 90.
We continued to make good progress it overcame Alexa segment.
Revenue was 26.5 million compared with 24 million in Q1, two Eddie and 13.3 million in the year ago period, reflecting the continued market success or people to us.
You know where video segment beautiful, we're going to be Neal 47.5 million compared to 54.4 million in Q1.
And 71.6 million <unk> in the yet to go period.
Sequentially, we do under the new held steady across all the regions except eat back.
We have you saw very softlines demand.
You do go live to live did customer shutdowns in the region.
Entering the third quarter, you're starting to see encouraging resumption of video blinds activity and demand Bud light.
We had one greater than 10% revenue customer during the quarter as the longest contributed 19% of children revenue.
Gross margin improved quarter over quarter, 51.6% in Q2, bloody compared to 48.9% in Q1, blending and 53.6% into 290.
Gave all that just gross margin came in at 45.7% in Q2 compared to 43.3% in Q1 to Wendy.
30 point get present in the Utopia yet.
Reflecting both.
Improved mix of software and improving hardware margins.
Video segment gross margin was 54 point did present in Q2 compared to 51.3% in Q1.
And could be 7.9% in the years ago period.
We do largest improved as the caught up on support contract renewals this quarter.
You know what are your degrees, but due to product mix.
Typically delayed brought got sort about appliance sales because to ought to go the Getty high margins.
Saddened service revenue was 31.8 million in Q2 compared to 30.7 million in Q1, Bloody and 30.4 million in Q2 90.
Sad and service gross margins like 58.3% and you do.
51.3% in Q1, and 62.6% in Q2 90.
The sequential increase was driven by freezing video support revenues as you caught up on the news from the first quarter.
The margin no year over year decline is due to increasing mix of people that to support services.
There'd be a damping expenses in anticipation of continuing significant girls.
We made substantial progress in expanding our media south customer base in the quarter, there's been seed for the drilled a hole or Vectoring W. Baird.
That's customers increased to 66 up from 57 in Q1 and up from where do you get customers into the 19th.
Turning to 13% Gorder look water and 136% year over year.
As you look at the best of all encompassing bundles lighting.
Even been good expense control during the quarter.
You do 20 operating expenses, that's what do you see point Threemillion compared to 47.9 million in Q1, two already and 48.3 million in beauty 19.
The sequential decrease is due to reduced travel entertainment and Tradeshow expenses.
Overall beautiful expose management.
We reported an overall operating loss in the quarter or do you do operating loss was 5.1 billion comprised of zero <unk> point 9 million from our cable access segment.
And 4.2 million from Orbio segments.
The company's skewed to all breeding law, so 5.1 million cumbia when operating loss of 9.5 million in Q1 bloody.
And 2.8 million operating loss in Q2 90.
This translates to better than expected Q E. B S O six cents loss per share compared to Q1 EPS of 10 cents loss.
Andy BSL four cents loss in Q2 90.
We ended the quarter with video Devilishly, I don't have 96.7 million compared to 95.6 million in Q1.
88.9 million in Q2 90.
The sequential increase reflects the video effect of stock issued to employees.
You know what do you didn't green is due to the issuance of 3.2 million shares to go and guess what excites the boards.
And 4.6 million shares for would employ software teams led and performance based compensation during the year.
Q2 bookings was 77 million compared to 76.3 million in Q1, bloody and 92.6 million into the 19th.
And then thinking a book to Bill ratio of 1.0 for.
It was encouraging to see sequential bookings girls so despite the pandemic.
And of course to 16.8% year over year decline was the result of call. It 90.
The biggest demand impact sound on our video of lunches.
And in the back and EMEA begins.
We expect to agree in both regions during the second have a blended rate.
Need allow moved a little liquidity position and balance sheet on slide nine.
The ended you do with gash of 77.7 million.
This compares to 71.7 million at the end of Q1 hundred 58.1 million at the end up you do 90.
This guy can do use of 6 million is comprised of 11.9 million generated from operations.
And as Glen 9.5 million useful cabinet, where she was primarily though where she has a fixed assets.
Thank you, maybe 7 million a big relates to over Neal Silicon Valley headquarters because under construction.
Net of 3.2 million gas your latest from financing activities, primarily short term golden release loans, approximately 6.1 million.
By all are frown consultants entities.
Well, our good unsettled headquarters lease.
I have to terminate them hip and 22 Eddie.
However, we pushed out determination big through a month to month arrangement, because moving 1970 believes orders caused delays in the completion of the fixed asset additions and leasehold improvements work for over new headquarters facility.
As previously disclosed the new leads will reduce our annual cash outflow for rent by $5 million, an annual pre depreciation opex by approximately $2 million.
So our headquarters relocation continues to be strongly agree to move for us.
We expect the move to date lives during Q3 and to start realizing these savings beginning in Q4.
Although our days sales outstanding at the end of Q2 was 91 days compared 207 days in Q1 and 75 be that end of Q2 90.
The sequential improvement India's sort of flex collections getting back on track after the colder driven disruptions in March.
We expect to further improve over the years levels in Q3.
Over days inventory on hand vulgarity. One do you have then took you do compared to seven do you do that end of Q1 and 63 days at the end up your <unk>.
At the end up you do all the order backlog and deferred revenue was 210.2 million.
Compared to the Blundering 7.9 million at the end of Q1 body and 194.7 million at the end of Q2 19.
That being a strong at present and greed year over year.
Historically, approximately 90% the whole or backlog and deferred revenue gets converted into revenue, but then there's only one year period.
Please note that over deferred revenue represents 26%, though total backlog and deferred revenue at the end of Q2 compared to 21% at the end of Q4 90.
And going down 7% at the end of Q2 90.
Indicating that the revenue conversion in happening as expected me.
I would like to remind you that not yet included in this backlog metric is approximately 187 million of evil Louis business associated with Threed. The other one people lose customers under contract.
Just to clarify.
These contracts with them owns a leading part she is orders before they get reported him do over backlog and deferred revenue.
Hence if you look at the complete picture, including backlog deferred revenue and these gable Louis contracts.
In aggregate, we have future contracted revenues of approximately 397.2 million in hand.
A strong position that gives us confidence you know what okay.
[music].
During the second daughter, you're seeing 37.7 million outdoor 45.8 million up over 4% convertible debt due in December 2024, new 4.375% convertible debt.
You in December 2022.
We believe these exchange was a prudent measure to ensure the strengthening of our balance sheet in the current uncertain macroeconomic environment.
The company plans to be off the ANEXIO balance up $8.1 million due in December 2020 in cash.
Thereby eliminating potential dilution of 1.4 million shares.
Now, let me turn to over non-GAAP guidance for the second half of Twentytwenty almost like Dan.
While macroeconomic uncertainty still exists.
We are seeing a significant degrees im guessing what activity and biplane worldwide, including from the New C band Fiveg opportunities. This is Patrick mentioned.
There's a thorough analysis of this pipeline activity and the whole or backlog and deferred revenue.
I expect a strong second half rebound.
Specifically for Q3, the avoiding the falling item.
Revenue in the range of 75 to 87 million it'd be the revenue and that means a 40 to 47 million and gave an access revenue in the range of 35 to 40 million.
Gross margins in the range of 50.5% to 52%.
Operating expenses to range from 45 to 47 million.
Operating income to range from a 9 million loss to breakeven.
Adjusted EBITDA range from a negative 6 million to a positive 3 million.
You'd be able to range from a loss of nine cents to a loss of content.
The effective tax rate of 10%.
We did I Miss you don't have 97.6 million.
And finally gosh at the end of Q3 is expected to range from 80 to 90 million.
We also want to provide you with all of our non-GAAP guidance for Q4.
There will be expect.
Revenue in the range of buttons that when do you don't really into 142 million.
The video revenue in the range of 87 million to 97 million and cable access revenue in the range of 35 to 45 million.
This expected Q4 strength is due to seasonality.
Got you up on the lead these and other pent up demand.
And the initial revenue associated with E band five new opportunity.
Gross margin in the range of 50% to 50%.
Operating expenses in the range of 45 million to 49.5 million.
Operating income to range from 16 million dual income of 26 million.
Adjusted EBITDA range from 19 million to 29 million.
Yes to range from 13 cents, there's going to do sense.
And in fact, if that's it up 10%.
And the video that brings value gives you a gallon of 98.5 million.
Finally, catching up end up viewpoint is also expected to range between 80 to 90 million.
To summarize.
Despite the colder challenges the strategic momentum be attending and activity be announcing make us confident in a significant rebound in the second half of the year, both business segments, delivering the profit and never combined company generating gosh.
Did that thank you and back to your Patrick.
Okay. Thanks, Sanjay we want to conclude by emphasizing that despite coated related challenges our core growth drivers human attach strategic priorities for the year are unchanged.
For cable access business remained very focused on scaling or to what tier one customer deployments across their entire footprints.
Growing range of products and services.
Securing new design wins with additional global operators, particularly additional tier ones.
And launching new solution to expand or just market.
Sure video segment, our objectives continue to be accelerating the growth of our live streaming deployments.
Expanding our dress market to include both non traditional streaming customers to our SaaS platform.
Fiveg bandwidth reclamation projects.
And from a profitable as we drive these growth initiatives.
Finally, I want to recognize the extraordinary efforts of our employees.
Answer thank our customers and shareholders should continue to play Chicago, but it's an harmonic during these unusual times.
We're looking for to a solid second half of the year in the building value for all our stakeholders.
Let's now open up the call for questions.
Thank you we will now begin the question and answer session. If you have a question. Please press Star then one on your Touchtone phone if you wish to be removed from the Q. Please press the pound sign or the hash key if you're using a speaker phone you may need to pick up a handset first before pressing the numbers once again.
Do you have a question. Please press Star then one on your Touchtone phone.
Our first question comes from John March idea with Stifel. Your line is now open.
Great. Thank you very much a good afternoon I was wondering if you could just start real quick on the cable or west side and I wanted to go back Patrick I've looked at where we were at sort of the beginning of year. You gave the guidance a 130 to 150, you're now giving guidance really for the remainder of the here.
With that 15 or 20 million that that is sort of shifted out has that been a a function of either revenue that you had expected to close that is being pushed out because cobot is causing those delays is it existing customers that are maybe rolling out a little bit more slowly just trying to get a sense of some of the underlying pace of whats.
Going on with some of the existing capable of west customers versus some of the newer supper or some of the customers that maybe you were hoping decide and it goes got pushed out a little bit.
Yeah, John Thank you for the question, it's primarily the former is primarily or.
Delayed revenue expectations around new customers and indeed, the the completion of trials or the launch has been has been somewhat delayed and no cases do we actually think we felt los Angeles opportunities, but the curves simply has slid which are the right. So I think for understandable reasons.
So there was a more modest impact, but I would call at modest around to the existing customers in general our existing customers after kind of an initial hiccup or when you know shelter in place all this stuff started.
They they they largely got back to business. So I think we lost a little bit of time, primarily around the end of the of the first quarter and beginning the second quarter, but by and large we see our existing customers having got back to the original plan. So there's a modest impact there more significant impact associated with a delayed scaling of new cost.
So although a a joint emphasize that let's say the that that shouldn't be extrapolated to be less customer interest and and if anything we see a stronger pipeline.
Oh, no customers an activity so it in my mind it in a no way it diminishes the.
So the opportunity, but indeed cobot has resulted in a up a timing challenge a manifest in the.
And the revenue growth with the new guys.
John I imagine.
We subject yeah I apologize.
Sorry, I missed that just like there had been more metric here you know he had the 77.5 million one day and pick up last year I know that Comcast revenue. So if we exclude that and vehicle our updated guidance for the year, Let me point, there's still plenty to present a year over year.
Got it okay. Okay, and then just shifting gears a little bit to the five to see ban opportunity.
You mentioned, obviously, you're forecasting a a fairly significant sequential increase in for Q. I was just hoping you can help us understand how much of that is maybe some of which had gotten delayed earlier. This year in it's catching up a little bit are coming back on again now versus what that SCS is or what that opportunity is in.
Fiveg and more importantly, how we should think about that potentially even into 21 as a as a potential no growth driver for the video business.
Well I'll start with us they are the C band five GE opportunity Oh, we see it is let's say several hundred million dollar opportunity to play out let's say over the next 24 months. So we don't expect to went all of that business, but we think we're positioned to when a good chunk of it. So it can in fact be impactful for for multiple core.
There's a we've got our first.
Initial opportunities well in our sites and indeed, its amir <unk> material contributor to the fourth quarter I I think we don't want to go as far John as to kind of giving you the exact percentages, but we do want to say on one hand, that's a material contributor on the other hand catch up of the pent up demand and let's call. It the regular video business.
It is.
Comparable.
Piece of the of the step up in Q4.
Great. Thank you very much.
Thanks.
Thank you in the next question comes on Simon Leopold with Raymond James Your line is now open.
Great. Thank you maybe maybe just following up on that line of thinking I'm looking at that the video segment in 2019, the business averaged about 70 million a quarter and I think what we had envisioned at the beginning of this year prior to co bid was that the business would would trend lower.
Overtime revenue, but gross margins would improve with SAS ramping in the mix. So we sort of envisioned a gradual slope down and I think this five GE award is incremental to anything I was thinking about at the beginning of year. So.
He didn't even if you're not prepared to talk about 2021, yet can you give us an idea what the normalized level of business should be if we try to get passed the cobot catch up.
Well I think you summarize what about right Oh side, and then I'll, let Sanjay chime in here in a moment if he wants to I think quantitatively, but but the qualitatively.
But this fiveg aside indeed, we.
A declining or a topline is where do less and less appliance sales more and more capex software sales as well as more and more assess and that that ER.
I think we have the conversation previously that manifests itself is a continuing expanding gross margin and overtime, a a a more profitable and and dependable a recurring revenue oriented business.
Still abroad in broad strokes that still what we see I think our it's interesting we've kind of gotten whiplash almost on one hand for reasons Weve explains.
The other clients thing really because it's it's by definition on premises. It's a it's taken a a much bigger has been was ever anticipated in 2020.
On the other hand coming in the back ended the year, we have a new.
Mostly appliance, but it's a mix I'm opportunity coming in to fill the gap.
And so that's not a long term a fundamental change Simon but it actually the changes the equation, let's say for the next.
You know 12 to 24, where so much and.
My perspective, that's that's a very welcome news not only in the context of of some of the Kobin headwinds, but also I'm, giving you the business a little bit more runway to affects this or getting ourselves business discount.
Finally did you have anything to add numerically maybe.
I'll just add that Simon for video business. You know we did you did have and lead your margins. So in the meaning of 55% to 60% in the last you know to Q1, we saw lower margins. If the one but you do we should be seen improvement again and the guidance. We are giving for the next two quarters here and Dale marginal improvement again, so I think the I guess.
Going back on track at least on the margin perspective, they'll be able to product mix is working and while the you're not talking of older years decide but oh, we see the margin we see the margins improving as you might as well.
So to this leads to my follow on question enough I'm I'm a bit puzzled why the fourth quarter gross margin is is 50% to 53% pro forma basis, I would've thought that a higher mix of a video products, whether they're appliances or software I would have imagined.
That that would be more that more gross margin accretive and so I'm a little bit thrown by my what you're you're forecasting on that fourth quarter gross margin, maybe you could drill down a little bit on what's influencing that prediction.
Yeah. So 50 to 53 is a combined gross margin Simon for blood the segments, we do on cable.
As gabled margins are somewhere close to 45 and video with other than 50 567 and ask if there is a mix of it'd been gable than video.
That's a licensee 50 53 fourth daunting, but videos are on a improving trend in Q4 compared to the area.
Okay. Thank you very much for taking the questions.
Thanks.
Thank you in the next question comes from Samik Chatterjee with JP Morgan. Your line is now open.
Hi, Thanks for taking my question I'm, sorry to ask you to go back to this fiveg opportunity, but just wanted to understand this a bit but doing it.
You can help me think about who the target customers or is every keeping costs to motor dog appeal and is that an opportunity going away you see this kind of projects being used I would say North America as well.
And how quickly do your customers do you believe kind of need to this kind of solution and how should we think about Blake.
How lumpy does that make this business with <unk>.
<unk>.
So the the of the customer base is or anyone who actually distributes video to things like cable headwinds so it's actually more.
On the programmer side historically satellite was Houston is still used extensively around the world to move a video programming from where it's created to to though you know IP TV cable what have you centers, where that is distributed locally.
So that's a that's a worldwide model and use in the U.S. as fast as well as internationally. So they are the target is really anyone who uses these so called C band satellite frequencies for this what's called primary distribution.
You know kind of think it is more trunking in the backend of a video content around.
Each country in the way, they're approaching Fiveg and finding a spectrum is a little bit different the opportunity. We wish we are definitely we're pursuing opportunities overseas, but I would say the opportunities and sharpest focus right now and our initial activities or are anticipated to be in the in the U.S., where there was a.
Kind of a well publicized process being led by the FCC too.
To to reclaim some of the so the spectrum.
And in fact.
As noted in our press release, where that's yes.
Someone who is really interesting <unk> digging deeper can look into.
Filings that have been made by the of the major satellite operators some with the FCC.
About.
About how this whole thing is going to work.
Okay.
Just a follow up on the keeping Lexus segment, so relative to the full it's tough based they do have you dig a little step up your regional roughly 35 million off revenue in the back have you had mentioned that is.
Limited customer engagement, just given cool with says you know kind of have these discussions with custom or should we be expecting them to another step up as we move into the first quarter of 21, just trying to get an estimate of what are you hearing from custom wasn't dumps off.
Do you ramp up in the opportunity as some of these projects can do you need and Bush for next year.
Look if you step back come in let's let's forget about it was this quarter next quarter I mean, the this is a we believe this is a strong growth engine, we believe that to cable operators around the world Our Australian Rolling out quickly and I think that the I'm the whole pandemic situation.
It has its really highlighted the.
Importance of.
Not only having been with it having scalable bandwidth and a platform for scaling back at scale bandwidth going forward. So I would say the engagement the dialogue with customers has actually expanded significantly.
You know that being said, it's a non trivial matter too to bring new technology in the field and to and to roll it out and pinch that rollout process, which has been somewhat delayed by the oh by the pandemic.
So as we look.
Yes, as we look forward into 2021 and of course you know this is so this is not just specific guidance, but we absolutely expect more customers.
As well as more consumption by existing customers being the too.
The two drivers of this a this business for the foreseeable future.
Okay. Thank you.
Thank you.
Thank you in the next question comes from Stephen Frankly, with Colliers. Your line is now open.
Thank you Patrick and congratulations.
I wonder on cable.
Access if you could talk a little bit about the shelf opportunity and and how does that change either though revenue opportunity per.
Customer or the margin opportunity as as customers start to to utilize shells versus D.A. and maybe how you see that mix playing out over the next year or so.
Well. Thank you I, it's an excellent question I appreciate it.
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So depending on you know where a cable operator isn't a particular community and what kind of traffic patterns, you're seeing in some cases, the so called D.A. architecture makes sense, but and others that doesn't so call centralized architecture.
And we see a ton of you know so called traditional notes, what's going on and it's that latter application, where the shelf really fits in.
So for us it its that.
We had a centralized solution from day one in fact, it really deployments were all centralized I think that's still a somewhat of a misperception out there that virtualization or somehow exclusively associated with D.A. <unk>.
Well, we really understood working with some of our key customers the to really or what they have an equally disruptive impact on centralized architectures are coming up with this new shelf concept was was really what what the Doctor was order right and so we rolled it out and indeed that is opening the door to substantial opportunity.
The to.
Across all customer types too.
I have a centralized solution that equally or let's say powerful and disruptive as our D.A. solution is so if you will imagine a unified centralized software core.
On the cases made even with US and then a shame cable operator, it's it's dealing with decentralize shelves and others with these these these deep devices. These so called D.A. J devices.
So it really allows this solution to have up more of a Swiss army knife kind of feel to it.
And it means for us that we get to work with a customer make them, where they are and have a solution that that that a satisfactory requirements regardless of.
What's making sense from that particular architecture.
I asked about margins of course, the software core extremely high margin or the other piece of D.A. that hardware that goes out in the node is somewhat lower margin and this shelf is somewhere in between it's a hardware appliance device, but it kind of hasn't less hardware and more software.
Content.
And so it say I'm kind of a middle of the road a margin device on a blended basis.
Shelf deployments will tend to drive the blended blended margin up.
Well I'll pause there so I don't make sense.
Yeah that makes sense to me and.
What do you think the market looks like over the next couple of years what percent of your customers do you think do shelf versus.
Yes.
So I'm not sure. The D.A. architecture is extremely powerful that being said it really depends on topology and and Ah.
And traffic pattern.
I had to give you a rough number I'd say is house you know a 50 50 inch.
It's it's that rough order of magnitude I think it's possible overtime, yeah. It gets more traction.
And certainly we see da being a favorite of a larger operators in particular, who.
Who are really a building for the future in terms of bandwidth but.
But I would say just about every single customer I can think of has an interest. It has an interest and using both himself I had to stick a stake in the ground right now Steve.
I'd say, it's about 50 50.
Okay, Great and then a one more question on this C band opportunity.
Our the customers just the networks words their revenue associated with the satellite operators like the CF is of the world as well.
It's a it's are somewhat a it's an interesting model I'm the end customer certainly just the a the programmers, but see or the money is coming from the as the actually she is ultimately as part of this whole host part of this whole plant.
So kind of depends on what you mean by by customer I think it's a joint industry effort that involves program or satellite operators technology providers harmonic and the government to basically as efficiently and quickly as possible free up this family.
Oh.
Okay.
And maybe just the last Big picture question, you know if you look at your.
Tier one customers in their rollout of came below last are we in the now the baseball started up again are we in the bottom of the first are we in the third in any kind of where do you think you are in the the rollout.
This first tranche of tier one.
We're not at the first as if a third inning, yet I mean I can't tell you whether you know we're [laughter] bottom of the first are top of the seconds or something but were oh are not in the third inning I think it's still relatively early days I mean, I mean look of the numbers were proud of the 1.7 million modems don't get me wrong, but I mean, let's face it that's a.
That's a small percentage of the footprint. So just the customers. We've we've announced so far so there's a there's exciting a runway a lot of runway ahead of us with existing customers and of course, we're we're increasingly confident of bringing new customers on board.
Great. Thanks, so much better.
Thank you.
Thank you. Our next question comes when Tim long with Barclays. Your line is now open.
Hi, This is Peter if that's here on for Tim 60 for taking my question I was started in April and specifically to what extent do you still see.
Potential upstream bandwidth demand growth and as a driver of the outlooks or maybe more specifically how much traction and see what customers using your virtualized solution to address the [laughter].
Uh huh.
Upstream bandwidth is a big big deal and so it's a it's definitely a oh it.
It's a driver of the Oh of the wins that we've had to date and it certainly is a driver of the.
A key driver of the business, we anticipate going forward.
Right.
Just just to give you an anecdote.
I live.
They are just about to start a a school again in a virtual away and that's what you're suddenly going to kind of kids signing on to zoom or whatever it is go to classes. So I think I think that this you know this was not a onetime bumped in our view and I think in our customers here.
I I think Oh, two way traffic heavy upstream traffic is up is here to stay and a it's gonna be growing and indeed, we think that was one of the key.
Drivers of the of the opportunity, we see and the competitive differentiation that we have.
That's helpful thing and moving to the video segment to the extent that we might maybe see some more challenging advertising revenue in broadcast.
We still see that business the insulated from those.
As you sort of during the first quarter and then just touching on the on the Fiveg, Steve and Fiveg opportunity.
That are just that reengineering of the delivery systems, how do you see your competitive position in continuing to with more accounts in that business or.
To how great here is there a comparative rescoping someone else coming in there taking a greater share of that.
Yeah.
Well look on the first one I think where all waiting to see what's going to happen long term with media, but I mean, there's no doubt that regardless a across all platforms of media consumption is quite strong well I definitely think or the advertising market has has taken some hits its great to see live sports coming back and.
And fundamentally our conversations with our broadcast and media customers.
Suggest that they are is committed to ever as a true there to their business. I mean remember these are hugely profitable businesses worldwide. So we don't think anybody is a abandoning that infrastructure the anytime soon.
You know on Fiveg, it's a very fair question, we expect there to be competition or that being said, it's a it's kind of an interesting application, but as I said really is to our sweet spot. It's a combination of of appliances and know how about.
Right, which is a little bit if you will old school. Unfortunately, we have been around then the other hand, there's a very advanced element of it to touches on streaming and IP deliberate and here, we think we've really differentiated ourselves relative to our traditional competitors. So.
We think when they are really unique a a position and and we think that's resulted in us oh being so confident and in the initial opportunities. We've gotten our sites you know going forward. It isn't significant opportunity others are gonna come after it for sure I'm never overlook the competition, but we feel like ours.
Position to let's say to capture a oh, our fair share or more.
Great.
I think it for that could good luck.
Alright, thank you.
Thank you. Our next question comes from George Notter with Jefferies. Your line is now open.
Hi, there. Thanks, a lot I was just curious about the competitive response, you're seeing cable Lewis in the marketplace. Obviously, you've got some entrenched incumbent competitors, you're competing against their you've got some marquee customer wins, certainly and I guess I'm just curious on how those guys are responding compare.
It will either through technology or through.
Pricing or to the turns or otherwise and then.
You know I'm on the flip side you guys have this really significant a deal with Comcast of course is you've got a special kind of pricing model with those guys and I'm wondering if you're seeing customers ask for similar terms you know outside of Comcast and you how are you handling that.
Thank you.
Sure.
The first one.
We're not experts and everything are competitors are doing that frankly, we don't know and we haven't seen anything material from the technology perspective, I I will tell you that in a couple of a international markets or situations weve seen but I would kind of characterize is desperation pricing, but other than that I'm not aware of any real.
<unk> response, frankly, we learn.
[laughter], we learn as much from.
Earnings calls like this is from anywhere else from our perspective, a limited admittedly limited we don't know what we don't know from what we see and from what our customers tell US is that we Ah we maintain a oh very sizable a lead.
So regarding the Comcast arrangement.
Fortunately that arrangement was documented well kind of in the early days when we first we're showing a demonstrating our virtualized software working on to off the shelf.
Intel server, which I know, you'll remember George and and I I think other cable operators around the world kind of appreciate the fact that for number of reasons. The the relationship with a with Comcast was was truly truly unique and so therefore, we're not we're not entertaining really.
It's not it's not really an issue for us today and of course, we have to come with a strong value proposition.
Which we think we have I mean, that's you know virtualization isn't good for its own sake. It comes with a very strong commercial value proposition and.
Today, we're finding that to be or more than adequate in terms of.
Getting it done commercially with a with new customers.
Got it okay, and if I get to squeeze one more in you guys talked about a the number of cable modems you have a live in running relative to a you were cable or less can you talk about the denominator just how many.
And what's the size of the broadband subscriber footprint collectively across all the customers you've won.
I I regret I don't have an updated number for that I did a ballpark is roughly 50 million.
Okay very good alright. Thank you very much appreciate just Comcast Vodafone alone I think are the only that number.
Perfect. Okay Super. Thank you so much alright. Thank you.
Thank you in the next question comes from Tim Savageaux with Northland Capital markets. Your line is now open.
Hi, good afternoon, Warner pickup on that.
Baseball analogy there.
Given that we're in relatively early inning sit around and.
Hundred mentioned.
However, 30% type group, great. If you normalize for the software payment last year, and that's where arguably.
But a headwind.
Pandemic and whatnot so.
Would it then be reasonable.
To look at that 30% growth is sort of a baseline for what we might expect.
Going forward or more even as being conservative given the headwinds we saw this year or how you're thinking about.
Kind of medium term growth.
And and cable access business remember or.
So then you know for cable access, especially you don't need, but a very strong backlog deferred revenue wendy's customer contract.
You think the are very they'll position not only for the second half but far.
But beyond that as though.
It's hard to you don't give up given guidance at this time or come up in a very precise or when do they didn't number but we feel we are very strongly position the number of customers the deployment.
Peter Wamsi out and you know not only did that discussion we had on shelves at the same thing I think all defines up winding that cable is.
A segment, which is definitely drilling, but I'd be don't at this point how good we love the number for next year and do it definitely feeling in the upcoming calls as we get more precisely.
Okay and just.
Following along that front.
You mentioned the good visibility for the second half.
People, then I guess I'm trying to figure out whether that's.
It seems like that would be coming more from current customers ramping deployments than the new customers given what you've described about.
Pandemic related challenges to Onboarding.
But it's sort of trying to understand that in the context of what we've seen with Comcast in particular in the first half.
Yeah, it looks like yeah outside of the.
Your quarterly software opinion, I know, you're kind of revenue there's been sort of flat.
With what you saw last year through the first half Robert you did feel pretty good ramp there even.
Excluding the software agreement in the second half of last year. So.
No.
Is it that's sort of dynamic or you're correct to drive the second half which is.
Current customers getting to kind of a new.
Plateau in deployment.
And you know we return.
I guess it remains the same.
Comment.
Anyway I guess.
About deployments with some of your bigger customers that you've been working on for a while as you would be.
The entire opportunity and cable access maybe another way to approach there.
Well then it's a mix so it's a mix off or most of those after that you said you know we have and just think customers who are ramping up deployment at the same thing do you have new customers starting also in the second half.
Oh, and the customers, who with whom we didn't seem to five cap, who kind of delayed a little bit disposal signing up so I think it's a mix of all of them in the in the second house, and you see that uptick or compared to first half.
And as you mentioned you know excluding the onetime gone gas up last year. It's.
Still up but for the second half.
If you did that's one piece out be are up 23% doesn't second house. So that that is the them a bit on these three factors.
Okay. Thanks very much.
Thank you.
Thank you and I'm showing no further questions in the queue at this time I'd like to turn the call back to Patrick Harshman for any closing remarks.
Okay, well, we simply trying to say thank you all for joining us and up and your support Oh, We look forward to speaking with you all again very soon goodbye and have a good day.
Okay. Thank you.
Thank you ladies and gentlemen, this concludes todays conference. Thank you for participating you may now disconnect.
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