Q3 2020 Harmonic Inc Earnings Call

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I'll now turn the call over to David Hanover, Investor Relations, David You may begin.

Thank you Jamie Hello, everyone and thank you for joining us for todays harmonic third quarter 2020 financial results Conference call with me today are Patrick Harshman, President and Chief Executive Officer, and Sanjay called <unk> Chief Financial Officer.

Before we begin I'd like to point out that in addition to our audio portion of the webcast. We've also provided slides to this much cash, which you may see by going to our webcast on our Investor Relations website.

Now turning to slide two.

During this call we will provide projections and other forward looking statements regarding future events and <unk> 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 for harmonic filed with or furnished to the FCC, including our most recent 10-Q and 10-K reports and the forward looking statement section of today's preliminary results press release.

These documents identify important risk factors, which can cause actual results to 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 and a reconciliation to GAAP are contained in today's press release, which we posted on our web site and furnished to the FCC on form 8-K.

We will also discuss historical financial and other statistical information regarding our business and operation and some of this information is included in the press release.

The remainder of the information will be available in a recorded version of this call on our website.

And now I'll turn the call over towards CEO, Patrick Harshman Patrick.

Thanks, David and welcome everyone to our third quarter call.

Monica delivered solid third quarter as.

Cable access business continued to gain momentum.

Video business rebounded strongly from the Q2 pandemic slowdown.

Corporate revenue was $94.9 million up 28% sequentially.

EPS was three cents and book to Bill was greater than one highlighted.

Highlighting strong execution and market momentum as we head into the fourth quarter.

The company has really responded to the challenges and opportunities that this year has brought.

We're executing well our competitive differentiation customer relationships are stronger than ever and.

When we see healthy demand for bulk cable access and video products and services.

Taking a closer look now at our cable access segment.

We had another strong quarter revenue was $40.2 million or 52% sequentially.

Segment operating income was over 14% our strongest financial quarter to date with the exception of Q3, a year ago. When we recognized a onetime revenue from our foundational software license deal with Comcast.

As of the mid October cable Tec Expo, we were commercially deployed with 38 cable operators worldwide nine from the second quarter and 100% from Q3 a year ago.

As we ended the quarter cable west was actively serving over 2.1 million cable modems up 122% from a year ago.

Which over 1.4 million are served so were distributed access architecture.

All indicative of a transforming market kind.

Kind of strong harmonic momentum.

This momentum was evident at the recent cable Tec Expo the industry's Premier Technology Conference registry.

Industry consensus was clear.

The future of cable access to software based increasingly leveraging distributed access architectures.

Underscored by the fact, the largest cable operator in the U.S. and the largest cable operator in Europe, both rolling out harmonics cable less platform.

Correspondingly our good customer pipeline remains strong.

We continue to anticipate being able to communicate in additional top five north American deployment by the end of the year.

Associated with this cable Tec event, we made several significant announcements that further extend our market and technology leadership.

We highlighted several new customer deployments spanning the Americas, Europe and Asia.

In coordination with Comcast, we announced a powerful and competitively differentiated symmetric gigabit solution it breaks through cables upstream bandwidth bottleneck.

Actual innovation in the context of increased work in school from home video conferencing.

We raised the bar for core software announcing and demonstrating that operators can now leverage our cloud native platform for multiple simultaneous containerized.

Network applications, including PON Foggy opened ran and video caching did.

Delivering on the vision of a cloud native architecture in a way that's a groundbreaking not only for cable but for broadband service providers more generally.

The first of these cognitive applications weve attached Forex G.S. and 10 G Park for fiber to the home.

We're pleased to report that our first fiber to the home field trials are going well and that we've received our first volume purchase order.

This is an important strategic milestones.

Frustrating the extensibility ever cloud native cable or less platform beyond traditional cable applications.

Specifically the opportunity for harmonic to address the large and growing fiber to the home market.

We'll continue to update you.

All this important additive growth initiatives.

So summarizing for cable access we delivered another strong quarter.

Provided further evidence the cable operators around the world are moving to cable or less.

We announced powerful new technologies that are extending our value proposition and competitive advantages.

And we're expanding our addressable market to include fiber to the home and additional access network applications.

We're proud of our accomplishments and excited about where this business is headed.

Turning now to our video segment.

We saw solid rebound after several months of pandemic related slowdown.

Segment revenue was $54.6 million up 15% sequentially.

As previously delayed projects began to result in some cases sooner than we expected.

Associated gross margin was 54.6%, indicating a healthy mix of appliance software license and SaaS revenue.

Looking ahead, we continue to anticipate and even stronger fourth quarter, let's combine second half revenue in line with our previous guidance.

Specifically as Sanjay will discuss momentarily, we anticipate a further step up to $80 million to $85 million revenue and associated solid operating profit in the fourth quarter.

We're particularly pleased to see continued growth streaming solution sales.

For both public cloud SaaS and on premises appliance and software solutions.

We signed nine new cloud based streaming customers during the quarter.

Mix of both traditional and new media companies.

Live streaming of premium content is where our competitive differentiation and brand the strongest and where we see sustainable growth opportunity.

Highlighting our expanding position in thislife streaming space.

Through the end of the quarter, we exceeded 48000 live streaming channels deployed worldwide.

15% year over year.

Last quarter, we communicated an incremental business opportunity associated with the FCC mandated reclamation of C band satellite spectrum for Fiveg.

As you May recall, we estimated this to be a several hundred million dollar global opportunity that will play out over the next couple of years are substantial additional solution category. So copper.

Compliment our live streaming and traditional broadcast sales.

We also announced a partnership with sound like me to resi, Yes, and said that we expect associated revenue.

To commence in the fourth quarter of this year.

I'm pleased to tell you that all of this is still on track.

We received our first multimillion dollar order associated with the C band five g. opportunity during the third quarter.

We continue to expect to recognize revenue beginning in the fourth quarter.

In summary for our video business.

We saw solid rebound and customer activity and demand in the third quarter and.

We're carrying strong momentum into the fourth quarter.

The traditional broadcast expanding like streaming and do five G band looks localization projects all contributing to what we project will be a strong profitable quarter.

Looking further ahead the resilience were seeing in the second half.

Underscored by growing success with our streaming platforms.

Point to the strength of our video brand technology and customer relationships and to our compelling opportunity to drive profitable growth.

With that I'll turn the call over now to use on Jay for more detailed discussion of our financial results and outlook.

[music].

Hi, Stephanie and thank you all for joining us today.

Before I discuss our quarterly results and outlook.

I'd like to remind everyone that the finances and most I'd be lessening do are provided on a non-GAAP basis.

As David mentioned earlier molecules repressive even earnings to one piece and then lose Nichols lesions off non-GAAP financial measures to GAAP.

That up is because on this call.

Well the target of 20, Lindy, we delivered solid results of all of the guidance range given by boats on cable access Nvidia segment.

We are pleased with these results as they demonstrate diminishing golding 19 headwinds and it hasn't been busy [noise].

Before I loved to all my quarterly financials in more detail.

I'll briefly review some of the highlights.

We reported Q3 revenue of 94.9 million, reflecting 28.2% sequential growth.

Gross margin for the quarter was 52.2% up 60 basis points sequentially.

Also notably given last years operating margin was 14.6% in the quarter.

Further we reported adjusted EBITDA of 7.2 million and police and TBS.

During the quarter, we saw growing business momentum, resulting in a book to bill ratio of 1.06.

As it is I'll be able to do that even sequentially higher backlog and deferred revenue of 216.2 million.

Well this one as well as we head into a seasonally strongest quarter for this year.

Now I'll review, our financials for the quarter in more detail.

Turning to slide seven.

He was the revenue was 94.9 million compared to 74 million in Q2, Bloody aplenty, 8.2% sequentially and 78.2 million in Q3 might be up 21.3% year over year. After excluding one time up front revenue of $37.5 million from the 175 million.

Dollars gave Louis software license agreement that'd be close it won't get luckier.

You know were cable access business, we continue to see in Greece traction mid Thirtys commercial deployments to.

Well that would be the.

The digital cable deck export what are you doing.

We are the leading industry conference, reflecting growth of 100% from Q3 might be.

Yeah, well, that's a segment revenue was 40.3 million compared with 26.5 million in Q2.

Up 51.7% sequentially.

18.2 million in Q2 lending up 121.5% year over year.

After excluding the one time, let me show software license revenue I mentioned earlier.

You have a laxness revenue performance was driven by additional new customer deployments and in Greece migration of existing us customers.

In our radio segment, we reported revenue of 54.6 million compared to 47.5 million in Q2.

Up to 3.1% sequentially and 60 million from the year ago period.

During the quarter. This segment continued to see steadily increasing activity worldwide.

Well, you actually bookable to the left school they might be restrictions.

Additionally, somethings, we expected to occur in Q4 actually begin to fusion earlier than anticipated.

As we enter the fourth quarter.

We expect this rebound to continue across all of our markets as well as additional demand for suddenly see then five due to limited activity.

We have two greater than 10% revenue customers during the quarter.

Well I'm just wondering what your body person and Vodafone contributed 12% of total revenue.

As I mentioned earlier gross margin improved quarter over quarter to 52.2% in Q3 20.

Compared to 51.6% in Q2, bloody and 51.2% in Q3 19, excluding the onetime software license revenue.

Yeah, well, that's just gross margin was 48.9% in Q3 compared to 45.7% in Q2, bloody and 29.9% in prior years.

Excluding the one time software license revenue, reflecting improved product mix.

Also as previously mentioned Gamble access operating margin was very healthy at 14.6%.

Well into both growing top line and improved gross margin.

[music].

We just segment gross margin was 54.6% in Q3 compared to 54.8% in Q2 and 57.7% in the year ago period.

Video margins were relatively flat sequentially and the year over year degree this primarily due to product mix.

Sad and service revenue was 31.6 million in Q3 compared to 31.8 million in Q2, 20, and 32.6 million in Q3 lending.

Sadly service gross margins were 57.7% in Q3, 58.3% in Q2, bloody and 60.6% in Q3 90.

The slight year over year decline is due to a marginally higher portion of SaaS revenue in the mix of saddened services.

Or do you see that margins are lower than service margins.

Moving down our income statement on slide eight.

We continue to maintain good expense control during the quarter.

Do you think the lending operating expenses were 45.3 million compared with 43.3 million in Q2, Plenti and 47.7 million in Q3 90.

The sequential increase primarily reflects increased legal expenses has been involved in greens revenue in the quarter.

The year over year degrees is due to reduced travel entertainment and takes your expenses.

As well as overall beautiful expense management.

Yes.

We reported an operating profit for the third quarter of 4.2 million.

Well into strong people access operating profit of 5.9 million and a modest media operating loss of 1.7 million.

The Companys Q3 operating profit of 4.2 million compares.

Compares to an operating loss of 5.1 million in Q2, Bloody and an operating loss of 7.6 million in Q3 like Dean.

Oh, that's leading software license revenue and profit of 37.5 million as noted earlier.

Adjusted EBITDA for the third quarter was 7.2 million, reflecting a strong contribution from cable access of 6.9 million and 0.3 million from video.

This compares to an adjusted EBITDA loss of 2.8 million in Q2, Bloody and adjusted EBITDA loss of 5.5 million in 2019.

After this meeting the software license proficient in India.

The current waters operating profit dropped leads to a better than expected Q3, EPS of three cents per share.

Baird book, you do blend de beers loss of six cents.

And Q3 beers loss of license.

Office during the one diamond backs of software license revenue and profit previously mentioned.

We ended the quarter diluted weighted average share count of 98.4 million compared to 96.7 million in Q2, and 97.6 million in Q3 90.

The sequential increase reflects the immediate effect of stock issued to employees under the U.S. you'd be plan and the shares that game into the money during the third quarter.

The year over year increase is due to the issuance of 4.4 million shares issued to employees for restricted stock units.

And performance based stock compensation during the year.

As you know point 9 million shares to Comcast warrant exercise of warrants.

Offset by reduced muting effect of 4.5 million shares not in the money dealing they're going to go away.

Q3 bookings were 100.7 million a.

30.7% increase compared to 77 million in Q2 two nd.

And up 13.1% compared to 89 million cubic feet I'd.

Excluding one by bookings of 27.5 million in the year ago period.

The other thing in a book to Bill ratio of 1.06.

It wasn't very good to see the sequential bookings growth driven mainly north America and get back.

Building confidence in our ability to hit bottom from the pandemic slowdown in the media and broadcast markets.

Bookings grew year over year in both of our segments during the third quarter.

Turning to slide nine.

Yeah ill discuss our liquidity position and balance sheet.

We ended Q3 with a casual 70.8 million. This compares to 77.7 million at the end of Q2.

66.7 million at the end of Q3 might be.

The 6.9 million sequential decrease in cash is comprised of 3.3 million gas used in operations.

Primarily attributable to higher working capital needs in both our cable access and video business.

5.4 million use for capital purchases, primarily the proteins of fixed assets, approximately 2.9 million of which was related to our new Silicon Valley headquarters for the construction was completed during the third quarter.

And research and development capital equipment for our cable access division as we scale the business.

And that's a 1.3 million gas your major from financing activities.

They are primarily the proceeds from purchases under our SPP.

During the fourth quarter, we are committed to pay off the remaining 8.1 million up over 4% convertible debt due in December 2020.

This will immediately reduce the potential dilution by 1.4 million shares from our total diluted share account using an if converted basis.

Also note that this debt is in the money now and its conversion price inside.

In $5.75 and has this been started benefiting along reported diluted shares in Q4 clarity by approximately 0.1 million shares calculated using the treasury method.

This desert Island will also reduce our annual interest expense by approximately zero point Threemillion going forward.

As mentioned on our last call it will be extended our own sandals. The headquarters lease with a month to month range. When you do go Big 90 limited delays in completing our new headquarters and somebody.

During Q3.

We need to get it over me this is going to be determined if you're the only and moved into our new headquarters.

The new lease will reduce our annual cash outflow by approximately $5 million, an annual threed appreciation opex by approximately $2 million.

Clearly strongly agree to for us beginning in the current quarter.

Our days sales outstanding at the end of Q3 was 77 days compared to 91 days in Q2 and 78 days at the end of can see 19.

The sequential decrease in Dsos reflects continued collection improvements.

Although Dave inventory on hand was 73 any of that end of Q3.

Compared to 81 days at the end of Q2.

I don't think the advent of can see 19.

At the end of Q3 over to order backlog and deferred revenue was 216.2 million compared.

Compared to 210.2 million at the end of Q2 20.

And 192.5 million at the end of Q3 90.

An increase of 12.3% year over year.

Historically about 90% of our backlog and deferred revenue gets converted to revenue within a rolling one year period.

Please note deferred revenue represented 23% a hallmark total backlog and deferred revenue at the end of Q3.

Compared to 21% at the end of Q4 and 28% at the end of Q3 I'd.

Reflecting revenue conversion consistent with our expectations.

As I mentioned on previous calls approximately 187 million up gave a little less business. Since you did the three d. in one game and with customers under contract.

He is not included in this backlogs either pending purging owners.

Taking these cable contracts into account.

In total we have future contracted revenues of 403.2 million. This.

This noise a strong foundation for us moving forward.

Now I turn to our non-GAAP guidance for the full year on slide 10.

What a degree or will be light deals and they didn't know started anything still exists or customer activity and pipeline has certainly rebounded since the onset of the bundle.

There is no one analysis and the tenant environment.

We expect this rebound to continue through the remainder of 2020.

Specifically for the full year, we now expect revenue in the range of 367.5 million to 377.5 million.

Video revenue in the range of 236.5 to 241.5 million.

On cable access revenue in the range of 131 to 136 million.

This top line guidance is higher than our previous full year expectations.

Whatever video segment, we have tightened our revenue guidance raising the low end of the guidance by approximately 7.5 million and.

And they are using the high end by only 4.5 million.

Thereby increasing our midpoint by $1.5 million.

Well our cable access segment, we have raised the low end of the revenue guidance by 10.5 million and.

And in Green the high end by unifying 5 million.

Thereby increasing over midpoint by $5.5 billion.

Gross margin in the range of 51% to 52% an improvement from our prior guidance of 50% to 51.5%.

Operating expenses in the range from 184.5 to 186.5 million.

Reflecting an increase of 1 million at mid point from the prior guidance.

As we expect higher second half revenue.

Operating income to range from 3 million to 10 million significantly improved from our prior guidance of operating loss of 7.5 million.

Operating income of 11.5 million.

Yes, the range from a loss of three cents to a profit of four cents.

Materially improved from our prior guidance of a loss of 12 cents to a profit of bison.

And the effective tax rate of 10%.

Updated every diluted share count of approximately 97 million shares 98.2 million shares.

You weren't gasoline from 80 to 90 million consistent with prior guidance.

Moving to slide 11.

We provide the corresponding or they did you hold 22 when he died.

Specifically for Q4.

We expect revenue in the range of 120 to 130 million.

Video revenue in the range of 80 to 85 million and cable access revenue in the range of 40 to 45 million.

Gross margin in the range of 50.5% to 54.5%.

Operating expenses to range from 48 to 50 million.

Operating income to range from 12.5 million to 21 million.

Adjusted EBITDA to range from 15.5 to 24 million.

Yes during some down cents to 18 cents per share.

And the effective tax rate of 10%.

Although we did have the diluted share count of 98.8 million.

And finally cash at the end of Q4 is expected to range from 80 to 90 million.

In summary, while we entered Q3, even songs are going to be around the ongoing impact of COVID-19, yeah.

Incredibly proud of how our teams executed and focus on positioning our cable access video streaming business.

For long term success during such a challenging period.

I will give a lot of business continues to grow rapidly as we expand our customer base and further penetrate our existing customers.

Based on the midpoint of full year guidance I just gave.

Evil after segment revenue is expected to grow by approximately 53% in 2020 compared to bloody 90.

After excluding the one time, you'll see 19 software license revenue.

At the same buying our video segment showed solid improvement in Q3, we continue to see increased customer activity and expect the rebound will continue for the balance of this year.

Driving profitability and cash generation in both of our business segments.

Regarding to anybody want expectations, we are in the middle of our planning process.

Maybe they'll be able to share more detailed guidance on our next earnings call.

At this time, we expect to be profitable in both segments and 2021 licensing of a market leadership position for both cable access and live video stream.

In summary, the company is continuing to execute on its strategic priorities in both segments.

Delivering results that have been quite positive.

With that thank you and back to Patrick.

Okay. Thanks, Sanjay we want to conclude by emphasizing that our core growth progress and execution priorities for 2020 are very much intact.

For cable access business, we remain incredibly focused on scaling our tier one customer deployments across their extensive footprint with.

With a growing range of products and services.

Securing new design wins with additional global operators, particularly additional tier ones.

And launching new solutions that expand our addressable markets, especially fiber to the home.

Try video segment or objectives continue to be accelerating the growth of our live streaming deployments except.

Expanding our addressable market to include both non traditional streaming customers, especially to cloud based services and Fiveg bandwidth reclamation projects.

And to remain profitable as we drive these growth initiatives.

Finally, a echoing suggest comments I want to again recognize our employees, who continue to push forward with passion that conviction.

Despite this year's challenges.

I also want to thank our customers and our shareholders, who continue to place confidence in our mind.

With that let's now open up the call for your questions.

Thank you as a reminder to ask the question you will need to press Star then one on your Touchtone telephone to enjoy a question from the queue. Please press the pound key please stand by what we can politic una roster.

Our first question comes from John Martin Currie with Stifel. Your line is now open.

Thanks, very much I. Appreciate you taking the question Patrick I know, you're not necessarily giving 21 guidance, yet or not giving that out yet, but you know sundry you both mentioned on the call once we adjust for the Comcast impact.

This quarter last year. The full year is obviously north of 50% growth in that case below AST business and I'm curious as we do start to look out into 21.

When we think about the growth rate given what you've gotten the backlog given you know that there's even a chunk of that.

That's not even full year there yet you know is it wrong to assume that we should be looking at that type of similar growth rate as we're looking out into next year or what are some of the puts and takes as you think about 21.

Just for that cable or west business.

Well thanks for the question John.

We.

In terms of parts, we feel very strongly about our competitive position and we feel like from a technological perspective, it's even more apparent that the market is headed our way if you will.

You know the open question is what will the pace of spending and investment base and.

And you know.

How quickly can we onboard new customers and scale with those I think as you know what we've seen we've seen a variety of results. We have seen some customers come on board and start scaling quickly others, we have taken a little bit longer amount of time.

So to be clear John our question is the question in our mind is not one of you know if we can gain more market share, but it simply how quickly and against what kind of market fundamentals working against us and that's what we're working through right now from a planning perspective on.

Okay.

Okay, and then maybe just as a follow up to that you know you mentioned cable Tec a couple of times that and we certainly were remotely participating in a lot of the panels on the discussions there just curious to get your take on the competitive landscape, obviously, a lot more being shared about others coming into this market you know what they're seeing from the trial in deployment activity.

Perspective, but just curious as you're talking to customers you had some very nice wins here over the last several quarters curious how you think the competitive landscape is shaping up right now.

We came out of a shout out to the event feeling pretty good we didn't know what to expect competitively as I've emphasized several times, we don't know what we don't know here, but.

Other than the marketing messages of our competitors kind of pivoting strongly to what we've been talking about for a for a while.

We werent, we werent knocked back by any any any specific announcements and and the feedback that we continue to get from.

From from customers as well as other up once they close India industry observers continues to tell us that we're.

We have a a comfortable technological lead and so.

So.

We.

Not certainly not too overconfident by any means but we didn't learn anything.

New competitively at the at the trade show and we continue to feel as though we're well out in front.

On the.

Virtualization cloud native and distribute excess or architecture ideas that we have really brought to the market in the first place.

Great and then sorry, if I could maybe just ask one last question we've seen some nice improvement here on the cable access gross margin line. Just curious if we should be reading into that in terms of mix of fewer no deployments or or how to think about the improvement there as youre over the last.

Well of course.

Well you know that this quarter, we did experience a decent mix of hardware and software and which actually generated gross margins.

Overall and yes. The mix is improving you know as the business is scaling and as we are getting in.

Thier, along the year Doosan deal trees, all in the mix and you know a good mix.

The mix of hardware and software is coming to conclusion.

Rooijen as we expected and I think overall, we are seeing improvement.

And you know going forward as we have said on a long term goal is to you know get 60% plus I think we are marching on that like that.

Thank you for taking the questions.

All right. Thank you.

Thank you. Our next question comes from Simon Leopold with Raymond James Your line is now open.

Thanks for taking the question first I just wanted to see if you could give a little bit more detail.

The revenue that you recognized this quarter that you had originally expected in the fourth quarter was this part of the satellite opportunity that you're talking about or something different can you help us understand what that was that occurred sooner than you expected.

Yes, yes side and it was not any of the Fiveg satellite revenue, we have yet to recognize that we received an order our first order multimillion dollar order in the third quarter, we've not recorded any revenue.

As you May recall from Q2, we mentioned we saw several projects anticipated high confidence projects slip out.

At our call three months ago, we anticipated well.

Well frankly, we weren't sure what to anticipate in the third quarter were shoots of it as a transition and but we are fairly confident we'd get it by the end of the year. So we kind of put it into the fourth quarter and our guidance.

Several of those deals we actually were able to close.

Close out in the fourth quarter to truly other.

I don't know, let me call the more garden variety video.

Video things that simply had had.

Had been delayed in the earlier pandemic lockdowns.

Yes.

Sure go ahead.

I guess I won't be as we experienced that in all the regions across the board you know revenue is increasing in this quarter.

Compared to last quarter.

Okay, and when you think about the opportunity you're seeing tie to the satellite folks and Fiveg spectrum.

You're expecting some contribution I presume then in the fourth quarter. How are you thinking about the opportunity in 2021, I guess, there's some struggling as to how we should think about the timing of the whole whole opportunity.

Well. Unfortunately, if you start generating revenue in Q4, and then you know it's going all big expense through 2021 as well. So I would say Q4 is a portion of it and then followed by revenue and only 91.

I guess, what I'm really trying to get at with my question is is it something that Burns Bright me in 2021 and that goes to zero and 2022 or does it have a long tail.

Let me jump in on that one Sanjay I think it's still early days for us assignment.

We are.

HM.

We have in our sights a couple of very specific opportunities, which I would call the front ends or the tail.

We believe we're going to to to drive.

Revenue in the fourth quarter, and let's say in the first half of 20 2021 and that being said we are pursuing other opportunities.

That will play out.

There will be opportunities.

Later in 2020, and 21 and even in 2022 in fact, there's a couple of different deadlines in this country.

That did play into that and and the international opportunity is also part of what we're looking at so it's premature Unfortunately still it's still relatively nascent thing.

Outside of a couple of more mature opportunities in North America that are very much in our sites. So there's it's kind of the high confidence steps, which yes will play out let's say over the next few quarters, but there's water business, which is included in the several hundred million dollar total opportunity that I mentioned that we we expect to.

To carry forward for you know.

Approximately two years, so we do see more runway, although the picture is still Hasan not unexpectedly on some of that slightly further out stuff.

Great and then just one last one if we could maybe talk a little bit about the.

I'll call them evolutionary opportunities around things like like fiber to the home opened Rand.

Could you help us maybe if you're not ready to size them at least rank order.

Where we are in terms of seeing those turning to revenue opportunity. Thank you.

Yeah. Thanks for the question I definitely fiber to the home PON is first in fact, we although we didn't take revenue we have our.

Our first material purchase order in the third quarter. So.

So that's where we we said we were going to go first I think it was a year ago that we announced that we were beginning to work on this and so we are your later when I first revenue order end.

And some very successful field trials ongoing and a and a growing pipeline.

But as your question suggests we really you know.

We're really leveraging the cloud native architecture here, so from us from another perspective, theres, nothing kind of that especially about the pawn application and we did successfully and to a lot of Harry interested customer feedback at the recent to cable event, we showcased a couple of other cloud native applications.

It is too early for us to kind of give you a it if we don't get ourselves having a good revenue forecast for that but we do think.

What we've built here with the cable awareness is a is this a very extensible very flexible.

Native core access platform that DOCSIS application first PON is coming second.

And but I'd tell you it's opportunity rich after that so we're going to we have business development work to do.

But we're working with a number of technology partners around that and.

I'd just say watch this space, we think that there's there's good opportunity to leverage to monetize. This this cloud native platform. We've we've developed.

Well monetize it overtime.

And who do you see as your competitors in that particular opportunity.

Well, that's a really interesting question I mean I I.

I don't know yet it's very much an evolving space I don't think theres nobody within cable that we see is is talking really does the same language.

It's.

As far as we understand even in a more broad Oh wire line access space. We're we think we've done something very.

Let's say ahead of the pack and we're working on getting a feel.

For that.

We're working on building alliances with a number of other players in the broader ecosystem and.

Yeah, really trying to get our arms around the the opportunity, but we're clearly there is an opportunity its just a little bit early for us to.

But to quantify.

Thank you for taking my questions.

Thank you.

Thank you. Our next question comes from Rich Valera with Needham and company. Your line is now open.

Thank you.

Question on the number of cable of west customers, which jumped pretty significantly I think from 29 to 38 this quarters.

Well I'm trying to understand where those customers are from a revenue generation perspective, I'm presuming, maybe you've actually received some revenue from them, but how would we think about these relatively new customers in terms of their revenue potential over say the next 12 months any way for us to gauge.

How much this could mean incrementally.

You know as we look out over the next year year and a half.

I think there's two parts to the question and maybe I'll take the first and then you can step in more on the model, but just in terms of the business I do want to emphasize that.

That you talked about the pickup I think the main message we had it is and what we talked about that at the at the trade show and by the way. The number was kind of past because of this trade show. The number was past the end of the quarter. We gave the number as of the date of the Oh that show Richard It did it did also include some October.

A couple of October.

Deployments as well so.

We're relatively early days and what we're really doing is just building up a bigger portfolio of customers and what really wanted to convey to the market, including our own cost or customers is that we.

We see growing momentum and being selected and having their customers begin.

Begins with a rollout so I wanted to give that context, and maybe I'll pass it to Sanjay to talk a little bit about how that you know waterfalls and to.

<unk> revenue.

Yeah definitely rigs.

Thanks, Doug the significant portion of our revenues come from being a month, but.

But at the same time, there is a good contribution decent contribution.

Every quarter from other non deal on customer still let me do your duty as he did contributing and that's increasing quarter over quarter I think as we head into 21 and as we scale.

It's going to start becoming significant as well and I think.

The deployments are called they do contribute knocking the Ethiopian years, but as they expand them as they may be the deployments.

The beauty of the benefits of revenue and margins in the longer.

So we expect going forward this is going to be getting significant.

Every quarter as you move ahead.

Got it so probably more of a 2021.

Meaningful contribution from those customers, but it sounds like they will be ramping and just as a percentage of the mix. I mean, you continue to add tier ones, you're adding more call it tier twos and tier threes, but obviously, they're small I'm just wondering how you're thinking about the mix longer term and tier one versus say tier two tier three does that shift one way or the other or do you.

They could kind of maintains its current levels.

I think over the longer term there is a slight change there that the our duty or teens do become.

Significant ethane passes but overall domicile contribution but remains lumpier ones in the market.

Got it and just just one more I think you reiterated that you expected to name a top five U.S. carrier as a new customer within this year and just trying to understand is that is that a currently a customer or still a customer you hope to win.

You hope to win that customer by the end of the year.

Just wanted to clarify that.

But oh rich I'll take that one.

I'd say, we're in process, it's a it's premature for us to communicate.

But where we're we're fairly confident we will be able to communicate.

By the next time, we speak with you so.

We don't want to say more for a variety of reasons, including competitive reasons, but we.

I think the real point here is that we're making good traction and good progress.

That's great. Thank you for taking my questions.

All right. Thank you.

Thank you. Our next question comes on meet Chatterji with JP Morgan. Your line is now open.

Oh, hi, Thanks for taking my question.

Patrick Sun just jump on quickly so this might be that here.

So if someone but just.

Just wanted to get your kind of what are you expecting in relation to video growth sequentially. Excluding the fight you did give me an opportunity and do you know that seems to be kind of a decent uptick over the last couple of quarters. So are you expecting that to continue in between 21.

We see a strong fourth quarter, Oh, yeah, regardless or without to the Fiveg reclamation part of this is organic growth of the streaming initiative and part of it is admittedly is catch up on on projects that they've got slowed down or delayed earlier in the year.

So this has been a well there's no surprise just somewhat tumultuous year, and we're really really pleased to see customers getting active again and and starting projects again with us in the third quarter and continue into the fourth quarter.

So, let's say overall the trend is encouraging on video a growing component of that that work is around streaming and we think that that piece of our business continues to scale. We think we have significant to competitive momentum and differentiating technology as well as I think we all see around us that.

Increase.

Increasing streaming of live content, which is where we particularly specialized is is doing nothing but growing at higher and higher resolutions.

Christy for K.

And then layered on top of that with.

Hey, I'm not a dominating but a incremental impact is a is the fiveg.

In the fourth quarter. Sanjay you said earlier, you may have missed where it's premature for us to talk about specific 2021 guidance, but were.

We're really happy to see the.

Oh the.

The video business doing so well in the second half and where we're we're strong believers in the underlying growth opportunity around streaming and the fact that its bolstered by this incremental five g. reclamation opportunity those things together, we think put the video business and in a strong position as we head into 2021.

I'll just add using some you guys you may have missed.

Video business or.

Our book to Bill ratio is high the idea during the quarter with a very strong backlog.

Q4 seasonally strong so you're getting more orders our pipeline is up water local water and you know all the signs up lending is going to be expecting a strong quarter Q4.

Got it so difficult just follow up on that we do business and particularly this fight you to commission opportunity.

What is the gross margin that you couldn't vote in this business.

Is it more similar to what you have for the video segment because does that mean that you kind of execute on this revenue, we should see kind of waterfall.

[noise] benefit on the corporate gross margin.

It should be very similar to our video segment margins you know high 50.

Okay.

Thank you.

Thank you. Thank you.

Thank you. Our next question comes from Steven Frankel with Colliers. Your line is now open.

Hi, Good afternoon, Patrick on this reclamation opportunity.

Is there also an opportunity for you to sell not just hardware to these customers, but also sell software and what's the plan to execute on that if there is one.

So first a big part of the solution that we're bringing to market to a.

State frankly, that's the case for everything we do in video these days.

And so that's that's part of where the revenue the margin profile excuse me that's on Jay just mentioned up comes from.

So.

So it's both there's a a a circuit components frankly, it's off the shelf servers. The rest of it is is software and where I'm were working.

Currently on the Oh, I'd say, the bird in hand, and and looking ahead to two expanding the Oh.

The win rate.

And is there an opportunity to to make those customers SAS customers as opposed to a perpetual.

Package that might go on that server.

I I.

The broad answer is yes. The initial the initial the opportunities that we have in front of us or our or perpetual license software.

But oh, we see a mid term to longer term SaaS opportunities with those companies companies that complements let's call it kind of the vanilla.

Satellite replacement solution and with other customers.

It's more generally how we go to market. These days, we offer both solutions, we have a a perpetual license option, but we we try to bring a says.

Solution wherever possible and and so this so this opportunity will will not be any different.

Great and then Oh cable as well.

There's been a visibility issue in the past.

With.

The momentum you have now in the market and the product maturing a little bit.

Do you have more visibility in to the rollout ramps of these new customer that you might have had a year ago.

Yeah, you know as.

You as we are.

Adding more tier one deal or do anything else he customers and we are getting more visibility in fact, the whole supply chain and he's involved and getting the visibility of the timing of shipments and the deployment dining so our visibility is good.

And as we gain more customers will be definitely are improving in that process and so we believe that's helping.

Over the guidance methodology, and the same thing or expectations for revenue as we scale the business.

Okay, Great and then Patrick.

And he had some great wins, you're talking about another tier one or a top five.

Uh huh.

The company between now and yearend.

What's the pipeline behind that look like in terms of field trial or is that number field trial still growing sequentially or is the story in 21 more about serving the 40 odd customers you will have.

At by the end of this year and and and.

Penetrating their customer bases.

We're seeing growing interest in the a and the the solution and the platform Steve. So the the number of trials and number of customer engagements I would say is growing worldwide and the recent the recent cable Tec.

Event created a really good job, a marketing and sales platform for us to yeah for further extend that.

What weve learned though is that there is a.

There's a lag time between the trial and the initial deployment and then the volume revenue as we've touched on a couple of times here. So.

As I look forward to let's say the first half of 2021 will be a revenue will be dominated by customers that are already up kind of scaling.

As we exit 2000, and we'll see.

Oh, we'll see revenue from you know even newer customers coming in line thereafter, so it's a it's a virtuous circle and where we're kind of focused on both sides of that its a.

It's one of things I really tried to highlight in our summary of our execution priorities. We've got to do both we've got to really.

Really work on scaling the existing customers and keep the pipeline is strong and and those those things to work hand in hand or more word of mouth. So successful deployments gets around the more the pipeline grows and et cetera et cetera. So we think we have good momentum I think there's a you know inherent uncertainty in timing, but as the number gets bigger.

Your statistics get better I think to your previous question I think we're on a better path as we continue to scale in terms of better path from a.

You know a reliability of numbers.

Strategically.

Oh, it competitively position continues to be as strong as it's ever been.

Great and then one last one Tom.

Talked about introducing the shelf product a quarter or so ago, what was the feedback on the shelf product from cable Tec.

A positive we did well with the product to the market in the third quarter and the the feedback that the the show was also positive on it.

We're aware theres other shelves out there we think ours has some significant advantages that to show gave us a really good opportunity to.

To showcase the.

The the advantages we think it was received.

Great. Thank you so much.

All right. Thank you.

Thank you. Our next question comes from George Notter with Jefferies. Your line is now open.

Hi, there. Thanks, a lot guys I guess I wanted to ask another question about the feedback and transition.

Obviously, you've talked about the U.S. opportunity you know.

We know there are other Steven in reclamation projects going on.

Internationally as well, Canada as an example, right now and can you talk about you know what you see outside of the U.S. in terms of see then opportunity is this something that you could be revenue next year for you like how do you think about it thanks a lot.

Yes.

It's definitely a phenomena, we don't know that will play out in every market, but right now George we we see a we see opportunity and let's say a handful of international markets and where we're kind of relatively early in the yeah in the qualification and.

The process of trying to secure those opportunities the head start we have in the in North America, certainly helps us in that regard.

But were I I characterize the international opportunity is still in a business development early you know pipeline.

Phase and you know how successful we are internationally and how many other companies countries excuse me get into the act I think is still remains to be seen but it's a it's an opportunity. We're very focused on and we feel we feel very well positioned competitively from a technology perspective as well.

Things to come to fruition kind of overseas.

Thank you.

All right. Thank you.

Thank you and our next question comes from Tim Savageaux with Northland Capital markets. Your line is now open.

Hi, good afternoon.

Right I made it on and congrats on the results.

I have a couple I'll try to do quickly.

You had a pretty decent uptick a week with Comcast in the quarter.

And you also had a.

End of what looks to be.

Kind of a headwind heavy.

Cable access mix driving your growth.

Gross margins higher as well as some revenue upside.

I wonder if we can relate those too.

Events, and and if not maybe what should we.

Relate that term that increasing your favorable mix too when I see this in the context of something I took out of that.

Cable Tec show were true Comcast executives talking about pop.

Populating.

The vast majority of their head end and hub locations with Virtualized technology by the end of 21.

Wonder if you could offer any comments on.

Where they are relative to the vast majority currently and what sort of activity.

You might be seeing there and whether that activity portend.

Additional activity out in the oxide plant distributor access network.

One quick follow up from there.

Okay. Thanks, Tim for the for the question I think I I can't speak to us about Comcast in particular, but if you just assume Alex on one hand, while we're proud of the fact that we're now serving 2.1 million modems.

Honestly, it's a very small percentage of the total footprint of Comcast plus Vodafone plus the other customers, we've announced never mind the ones. We haven't announced so we still think we're very early days are fairly early innings in terms of this oh this transition and data as you point out till we see the opportunity I think at one point there was a perception that what.

We are doing is exclusively for let's say the distributed.

Access should we see growing understanding that this virtualized cloud native architecture is equally powerful.

And impactful operationally in the context of the more centralized set up and so our pipeline of opportunities that we're working as a rich mix of the two and and it's still relatively early days on both trucks. So.

Going forward I think we've got a lot to do on both sides you may see certain quarters that have a search slightly stronger distributed outside plant mixed some that are more centralized but but the runway is there is long like both on both sides and we expect.

So we have we expect both <unk> both opportunity in both the architectures you go to.

Okay, and maybe just to follow up on that particular point I mean, you do report Comcast has or your 20% customers. So.

Seems like fair game to Uh Huh.

Just think about what drove that that increase sequentially can you say was that primarily on their cable access side or you know obviously there is a.

It's a big company and probably some video after.

Activity going on there too can you characterize the nature of that increase sequentially between your two segments.

Yes, we haven't broken that out historically, they give us total consolidated revenue percentage so it spans across most segments.

Great and my follow up was going to be on the remark current shelf side, where.

Commscope furniture did announce or product and an engagement with Comcast at the show maybe.

Among the more significant competitive development.

Yeah would you view that as distinct from.

What you're doing on the Virtualized side.

Or specific and in general.

And you referred to that before in saying, you're where you have competitors out there that specifically what you're referencing.

Referencing and maybe you can give us a couple of points of differentiation between the solutions.

Got it appreciate the question Tim I mean, let me zoom out just paint a mental picture for you ensure that there's two parts to the architecture. In this case, there's the the Virtualized core, which we've done a big deal with Comcast that and and then there's these remote phy devices could be essential.

On a shelf or could be remote out and they node.

And and I think we've been very clear from the beginning that Oh, our software talks to not only our.

In a remote phy devices, our shelf HSART notes, but also to our competitors and I think as as it should.

So where those are two different dimensions of competition. If you will so first the fact that.

What our competitors are coming out with products that to talk to a harmonic virtualized core I think is.

It's good news on that.

Excellent that shouldn't be lost here and so what that means is then we're competing head to head on down on the remote phy stuff and.

We saw nothing at the show we saw nothing that was announced that we think is strongly competitive with us. So yes, there are competitive remote phy nodes and shelves out there yes.

But it's not a surprise and we [noise].

Well, we came out of the show feeling you know well are we kind of saw what the other guys are cooking and we still feel pretty strong about our competitive position.

You know that's a.

That's not to say a 100% what the end customers can choose to purchase but we feel.

We feel.

That were very well positioned from a competitive technology point of view on the five stuff.

And and and I think we'll we'll see Oh, we continue to see a reflection of.

Effectively a both centralized and remote phy sales in our [noise].

Well, you know the cable or less numbers.

Thanks, Thanks very much.

All right. Thank you chip.

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 like we're out of time, we simply wanted to thank you all for joining US today. We're up we're very pleased with the work we've been able to do here in the third quarter Oh, we're excited about the opportunity or the challenges ahead of us in the fourth quarter as we head into 2021, and we look forward to updating you all on our on or try to address them soon.

In the meantime take care and good day, thanks, everyone.

Thank you.

Ladies and gentlemen, thank you for your participation on today's conference. This concludes your program you may now disconnect.

This year's American Music Awards.

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