Q4 2020 Harmonic Inc Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the Q4 2020 harmonic earnings conference call.
At this time, all participants on a listen only mode. After the Speakers' presentation, there would be of question and answer session.
And I ask the question during the session you will need to press Star then one on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star then zero.
And now I'd like to hand, the conference over to your speaker for today, David Hangover Investor Relations, Sir you may begin.
Thank you to Wanda and Hello, everyone and thank you for joining us today from harmonics fourth quarter of 2020 financial results conference call with.
With me today are Patrick Harshman, President and Chief Executive Officer, and Sanjay Kalra Chief Financial Officer.
Before we begin I'd like to point out and in addition to our audio portion of the webcast. We've also provided slides to this webcast, 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 or future financial performance of the company.
Such statements are only current expectations and actual events or results may differ materially.
We refer you to the documents harmonic files with the SEC, including our most recent 10-Q and 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 to differ materially from those contained in our projections or forward looking statements.
And please note that all the unless otherwise indicated the financial metrics. We provide on you on this call are determined on a non-GAAP basis.
These metrics together with corresponding GAAP numbers and a reconciliation of GAAP are contained in today's press release, which we posted on our website and filed with the SEC 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 on a recorded version of this call or on our website.
And now I'll turn the call over to our CEO Patrick Harshman Patrick.
Thanks, David and welcome everyone of our fourth quarter call harmonic.
On the monarch delivered a strong fourth quarter with record new bookings sequential quarterly and year over year revenue growth.
The earnings and cash generation that exceeded expectations.
Both of our cable access and video segments contributed meaningfully to this results.
The cable access financial success is being driven by scaling existing customers and by continued new customer wins for.
And for video business demand for both innovative new broadcast and streaming solutions resulted in our strongest revenue quarter and.
Two years.
Big picture.
Back on 'twenty, and 'twenty harmonic responded incredibly well to unexpected challenges and opportunities and.
Demonstrating the transformative value of our newer solutions the <unk>.
Depth of our customer relationships and the.
The extraordinary capabilities of our global team.
Despite continuing pandemic challenges our business is exiting the year with strong market momentum record backlog and deferred revenue.
And a solid plan for growth and value creation.
Taking a closer look at our cable access segment, we had another strong quarter.
Commercially deployed with 44 cable operators worldwide up 91% from the fourth quarter of 2019.
And there is the appointment scaled to serve over $2 6 million cable modems up of 149% year over year.
So net revenue was $45 $5 million, bringing full year revenue growth of approximately 56%.
What's the normalized for the onetime Comcast software license revenue recognized from the third quarter of 2019.
Segment operating margin was over 20% demonstrating the operating leverage possible, even if the still early stage of market transformation.
And while we're pleased with its financial progress, we're even more encouraged by the fact, the global leaders and broadband delivery and had been expanding the reliance on the harmonics cable of less through the pandemic the time when expectations for broadband services or it on.
The old type of heart.
A cloud native solution has been performing extremely well with increasing scale and traffic load.
<unk>, the efficiency and effectiveness of of truly Virtualized core networks and software.
Next generation distributed access architectures.
Our leading customers have been seeing the business benefits the conviction evidenced by strong the bookings and backlog.
Looking ahead, we're focused on two complementary growth sectors.
And these existing customers and accelerating the cable the west deployment across the entire footprints and.
And winning and beginning to scale with new customers.
Regarding customers have already begun deploying cable the Wes we're still at the first and.
Cable of west of so far been rolled out to only approximately 5% of.
Of the over 50 million and cable modem served by early customers.
For this existing customers, we continue to innovate to make it easier to expand cable of west and to all of the various use cases for.
And for example, and in the fourth quarter of our new shelf products began the b successfully deployed at volume.
Opening the door to expanded centralized architecture of deployment of table of Wes and 2021.
Similarly, now and the first quarter or beginning to ship, our new node platform that incorporates the powerful symmetrical gigabit solution announced and coordination with Comcast last quarter, making.
And making the business case for our industry, leading distributed access solution even more compelling.
We're also continuing to aggressively advance our core software.
With the latest containerized cloud native capabilities, providing augmented co deployment of agility and real time telemetry capabilities that are translating directly to the significant operational advantages for our customers.
Turning to winning new customers the biggest news coming out of the 2020 is our first multimillion dollar purchase order and initial shipments to a new tier one north American cable operator.
This is another important milestone confirming on continuing mind share and market share momentum with global tier ones of homes.
Five are now rolling off the table of Wes and <unk>.
And we added six new cable the west customers between mid October and.
At the end of the year.
This positive momentum is also evident from our growing pipeline of new customer engagements span additional tier ones and <unk>.
<unk> operators.
Across both of our cable DOCSIS and or fiber to the home solutions.
While the pandemic continues to create some headwind for hardware allowed the valuations and trials.
Recreated the powering through this <unk> and anticipate of continuing flow of new customer wins throughout 2021.
Summarizing for cable access harmonic delivered another strong quarter financially and strategically.
Our early customers of successfully scaling leveraging of our latest cable the west innovations to optimally address and increasing range of broadband service challenges and opportunities.
And we're steadily adding new customers, both large and small.
The future of cable access and we think of broadband wireline and wireless access more generally.
Cloud native core software of powering of flexible distributed access network.
From Onyx leadership, and this transformational industry direction continues to shine brightly.
Yeah.
Turning now to our video segment.
Following a solid third quarter, we delivered and even stronger fourth quarter, driven by healthy global demand for both broadcast and screening solutions.
Net revenue was $86 million up 57% sequentially and.
Segment operating profit was $15 seven per cent, bringing the business to a full year operating profit.
Bookings were also strong greater than the revenue contributing to our record backlog and deferred revenue entering 2021.
Behind these headlines are several notable business highlights and encouraging market trends.
The first the demand for high quality live streaming solutions continues to grow.
During the quarter, we signed one of our largest streaming SaaS agreements to date of multimillion dollar deal with the Blue Chip domestic media company to power their free AD supported and subscription live sports news and entertainment streaming service.
This is the big win for Us and part of the record backlog and the deferred revenue story.
And total we added net 17, new SaaS customers over half of which are new to the company demonstrating growing success and expanding our reach to addressing the streaming players worldwide.
Through the end of the quarter, we were <unk>.
And over 50000 live streaming channels globally up 15% year over year.
The second video headlines and the extent to which five G. Bandwidth reclamation has been the catalyst for both the near term business and new opportunity creation.
Our initial wave of work with Ses on this initiative kicked into high gear during the quarter contributing materially to our strong fourth quarter revenue results.
The execution of our team and our business partners on this program has been nothing short of stellar.
As many of you know the five day, driven bandwidth auctions and the U S have been extremely successful further focusing industry attention and expanding the potential opportunity for further government sponsored bandwidth transitions.
The broader context, here's the tradition of broadcast infrastructure remains the foundation for hundreds of billions of dollars of TV advertising and subscription revenues today.
Revenue streams that are essential to global media companies as they invest and new streaming.
So when it comes to existing media companies harmonics video strategies to meet our customers, where they are supporting the essential broadcast infrastructure of while also partnering with them to transform to more efficient and targeted advertising friendly cloud and SaaS platforms, the compelling multiyear growth opportunity.
And it's important to remember that FCS and many of the media companies involved and five G. Reclamation have historically been important harmonic video customers.
And this broader industry context, <unk> bandwidth reclamation is best understood as the new catalyst for our media customers to commence necessary and advantageous technology transformations.
And harmonic is well positioned to capitalize on them.
Oh.
So in summary here, our strong fourth quarter underlines the resilience of our video business and the opportunities ahead spanning both new streaming and traditional media.
The announcement last week of two new Emmy wins for a video of innovations further highlights our technology excellence and the vital role we play for hundreds of media companies around the globe.
We're entering 2021 with real market momentum strong backlog and deferred revenue.
The new opportunities, taking shape and the planning for growth.
We're excited to see what we can take our video business next.
And I will turn the call over to you Sanjay for more detailed discussion of our financial results and outlook.
Thanks, Patrick.
And thank you all for joining us today.
Before I discuss all of the quarterly results and outlook.
I'd like to remind everyone that the financials adult all day nothing to hide from.
Do I get on a non-GAAP basis.
As David mentioned earlier, our Q4 press release and earnings presentation and Blue.
Reconciliations of non-GAAP financial measures to GAAP net debt.
I've discussed on this call.
For the fourth quarter of 'twenty and 'twenty.
We delivered solid the above of our guidance ranges.
On the strong performance during the quarter underscores the competitive advantages and complementary strength of both all of cable access and video segments.
These results demonstrate the.
Trends of our business is performing.
Well, even under the uncertainty caused by the pandemic.
As the end of the new year.
The incredibly proud of everything that all the team accomplished in 'twenty and 'twenty.
We have positioned all of our businesses for continued long term success.
And I'm excited to build upon this momentum in 'twenty and 'twenty one.
Before I run through of our quarterly and annual financials in more detail I'll briefly review some of the highlights.
The reported solid Q4 revenue of 131 5 million up seven 7% year over year and.
Gross margin for the quarter was 55, 3%.
Up 300 basis points year over year.
Also noted the need the operating margin for the quarter was 17.8% the cable access operating margin coming in at 21 eight per cent.
And on video operating margin at 15, 7%.
Further we reported adjusted EBITDA of 26 4 million and ladies on UBS.
During the fourth quarter, we saw strong business momentum, resulting in the record book to Bill ratio of 157.
As a result, we ended Q4 with the record backlog and deferred revenue of $295 million positioning us well for the year ahead.
For the full year, 'twenty and 'twenty total revenue of $378 8 million now on $24 1 million compared to 2019 and above the high end of a whole lot of guidance range coming into the fourth quarter.
And the revenue in our cable segment grew 56% on an adjusted basis. After excluding the one time upfront revenue benefit of 37 5 million from all of $175 million came a little less software license agreements with Comcast.
All of our annual video segment revenue declined 12, 1%.
The media investment flow and the smallest of the pandemic.
Let's review all of our financials, one of the fourth quarter and more detail.
Turning to slide seven.
Q4 revenue was one of them and get $31 5 million compared to $94 9 million and Q3, 'twenty up 38, 6% sequentially.
And $122 2 million and Q4 19 up seven 7% year over year.
And then what cable access business, the continued to see and green fraction, we and.
The Q4, two and EBIT 44, commercial deployments compared to 38 as announced during the cable Tec Expo show in October and <unk>.
The three deployments and December 2019.
Reflecting a sequential growth of 15, 8% on.
Year over year of growth of 91, 3%.
Cable access segment revenue was $45 5 million compared to $40 3 million and Q3.
Up 13% sequentially, and 43 million and Q4, and 19 up five 8% year over the year.
Cable access revenue performance was driven by the increased penetration of all of our existing customers.
And addition of new customer deployments.
And our video segment, we reported Q4 revenue of $86 million compared to $54 6 million and Q3 up 57, 5% sequentially and.
The $79 2 million on the ear.
Net up eight 7%.
This segment saw steadily increasing activity worldwide during the fourth quarter and.
And several of other media customers to catch up on pandemic delayed projects.
In addition, we also began to see initial satellite C band five G of the Lithia and revenue during the quarter.
We had two greater than 10% revenue customers during this quarter.
Comcast contributed 22% of total revenue and contributed 19%.
As mentioned earlier gross margin improved quarter over quarter to 55, 3% and Q4 'twenty compared to 52, 2% in Q3, 'twenty up 310 basis points and.
And if you do 3% and Q4 93.
300 basis points.
Cable that's the gross margin was 53, 7% and Q4.
Compared to 48, 9% in Q3 'twenty.
480 basis points.
And 38, 3% from the prior year up 540 basis points with net.
The improved product mix.
Also as previously mentioned cable access operating margin was very heavily and 21, 8%.
And then two boats are growing top line and improved gross margins and strong expense management.
Video segment gross margin was 56, one and 2% and Q4 compared to 54, 6% in Q3.
3% and the ear.
Period.
The sequential and year over year fluctuation was primarily due to product mix.
Moving down and our income statement on slide eight.
We continue to maintain strong expense control during the quarter.
We'll go into the operating expenses of $49 3 million compared to $45 3 million and Q3 'twenty.
And $49 2 million and Q4 and 90.
The sequential and Greens primary.
The increased sales and expenses as a result of increased revenues and the border.
The year over year operating expenses on essentially flat.
Even with increasing revenue net over here due to reduced travel entertainment and trade show expenses.
As well as overall aggressive expense management.
We reported an operating profit for the fourth quarter of $23 4 million comprised of cable access operating profit of $9 9 million and media operating profit of $13 five of them.
This operating profit of $23 4 million compared to an operating profit of $4 2 million and Q3, and Wendy and operating profit of $14 8 million and Q4 19.
Adjusted EBITDA for the fourth quarter and was $26 4 million, reflecting contributions from cable access of $11 million.
And the $15 4 million from video.
This compares to an adjusted EBITDA of $7 2 million and Q3, <unk> and adjusted EBITDA of $17 6 million and Q4 19.
Q4, then Glenn do you the operating profit sales.
Leads to better than expected Q4, EPS of <unk> 20 per share.
Compared to Q3, 'twenty EPS of <unk>.
And Q4, 19, EPS of dwell and science.
We ended the quarter of the diluted weighted average share count of 100 point and $3 million compared to $98 4 million and Q3 and $97 5 million and Q4 19.
The sequential increase primarily reflects convertible debt dilution and shares net gain into the money during the fourth quarter as the result of increased average stock price.
The year over year increase was due to the issuance of $3 6 million shares to employees all of the stickiest stock units and performance based compensation during the year.
Offset by the dilutive effect of 0.8 million shares not in the money during Q4 'twenty as a result of reduced average stock price compared to 2019.
Q4 bookings, but a record $206 4 million.
105, 1% increase compared to $107 million in Q3 'twenty and.
The $47 four per cent compared to $140 1 million and Q4 19.
The other thing in the record book to Bill ratio of 1.57.
It was encouraging to see another quarter of sequential bookings growth demonstrating strong demand for all of our solutions.
Bookings grew sequentially and year over year in both segments during the fourth quarter.
Turning to slide nine, we'll now discuss our liquidity position and balance sheet.
We ended Q4 with cash of $98 6 million. This compares to 78 million and the end of Q3 and.
And $93 1 million at the end of Q4 19.
The $27 8 million sequential increase and cash is comprised of $41 6 million cash generated from operations.
Primarily attributable to higher profitability and strong working capital management and both on the cable access and video businesses.
Net of 6 million cash use and portion of the fixed assets.
And $8 million cash day, two was the retirement of convertible debt during the quarter.
Fixed asset expenses included approximately $2 seven movie and the whole of new Silicon Valley headquarters and this was completed during the third quarter and.
And research and development and testing equipment for our cable access business.
During the fourth quarter as mentioned on all of our last earnings call. The retired all of the remaining 4% convertible debt due in December 2020.
And Mr Diamond reduces the potential dilution by one 4 million shares from our total diluted share count.
Using and if converted basis.
And going forward we.
And we've been also reduced our annual interest expenses by approximately zero point $3 million.
All of our day sales outstanding at the end of Q4 was 45 days compared to 77 days in Q3 and.
And 55 days and the end of Q4 and $90.
The sequential degrees and DSO reflects the collection from <unk> within the quarter.
And continued overall collection of improvement.
All of our days inventory on hand was 54 days at the end of Q4.
On bird to 73 days at the end of Q3, and 45 and the end of Q4 and 19.
And the end of Q4, all of our total backlog and deferred revenue was $295 million compared to $216 2 million at the end of Q2 'twenty.
And 200, and pinpoint 2 million and the end of Q4 19.
And increase of 38, 2% year over the year.
The increase in backlog and deferred revenue primarily reflects increasing commitments from our large cable customers and.
And continued growth of all our still modest SaaS business, both key strategic initiatives.
We are pleased to have kept the business profitable by significantly expanding our high quality backlog.
Please note historically about 80% to 90% of home of backlog and deferred revenue gets converted into revenue within the rolling one year period.
Please also note deferred revenue and represented 22% of of our total backlog and deferred revenue and the end of Q4 compared to 21% at the end of Q4 hundred 90 day.
And the fact that revenue conversion of backlog and deferred revenue is happening at levels consistent with the old expectations.
As mentioned on previous calls.
Not included in all of our backlog.
Additional contractually agreed gave of Louis business, the three year hold on existing tier one cable customers.
And the end of Q4 'twenty this amount was approximately $158 million.
Down from 187 million last quarter and.
Approximately 29 million went to the price. She is the order of process and therefore moved into bookings.
Taking these gabe on the West contrast into account.
In total the have future contracted revenues of $448 5 million.
We realize the very solid foundation for us for 'twenty and 'twenty one.
I'll now turn to all of our non-GAAP guidance for the full year on slide 10.
While COVID-19 related uncertainty still exists.
Of our customer activity and pipeline have the bone gig since the onset of the pandemic.
And he is the number of analysis and current environment. We expect this the amount to continue into 'twenty and 'twenty one.
And although I want to highlight.
And that full year visibility is even less than normal.
That said for the full year 'twenty 'twenty, one we currently expect revenue and the range of $430 million to $465 million.
With video revenue and the range of $260 million to $275 million.
And the cable access every day in the range of $170 million to $190 million.
At the midpoint of the hollered items. This reflects approximately 10% growth for videos and.
And 32% below the book able over 'twenty and 'twenty.
Part of our video segment, we are targeting solid contributions from both of our evolving broadcast of investments, including five G of the explanation project.
And the growing pipeline of streaming SaaS opportunity.
But all of our cable access segment the anticipated relatively learned from all of our existing customer base as the scale.
And the addition of new customers and initial modest fiber to the home.
Paul on revenue.
Gross margin and the range of 51, 5% to 54, 5%.
At the midpoint of our guidance. This reflects an improvement of 50 basis points over 'twenty and 'twenty.
Operating expenses to range from 206 million to the 113 million at midpoint of the whole and items.
Reflects an increase in spending of 13%.
Primarily due to increased sales and marketing expenses.
As the work to expand our customer base and increase the search and development primarily for all of our cable access segment.
Operating income to range from $15 5 million to $40 $5 million adjusted EBITDA to range from $27 5 million to $53 million.
EPS to range from nine to 31 thing.
And the effect of that sales of 10%.
The weighted average diluted share count of approximately $103 7 million.
Ear on cash SKU range from 100, and then $230 million.
Moving to slide 11.
We provide Q1 'twenty one guidance.
Well Q1, we expect revenue and the range of $97 million to $107 million.
And with video revenue and the range of 61% to $66 million and cable access revenue and the range of $36 million to $41 million.
At the midpoint of all of our guidance. This reflects a 17% growth from video and 60% growth of cable over Q1, 'twenty and 'twenty.
Gross margin and the range of 51 five per cent to 53%.
At midpoint.
All of our guidance. This reflects an improvement of 360 basis points over Q1, 'twenty and 'twenty.
Operating expenses to range from $49 million to $51 million.
At the midpoint of the whole guidance discipline and increase of 4% over Q1, 'twenty and 'twenty.
Operating income to range from 1 million to $6 million compared to an operating loss of $9 5 million and Q1 'twenty and 'twenty.
Adjusted EBITDA to range from 4 million to $9 million.
EPS to range from zero cents per <unk>.
And the effective tax rate of 10%.
Weighted average diluted share count of approximately $102 5 million and.
And finally cash and the end of Q1 is expected to range from $85 million to $95 million.
In closing.
And again, we are proud and grateful for our teams the farmers during the fourth quarter.
The need to execute and position of our cable access and video streaming businesses for long term success during a period of unprecedented challenges.
With that thank you, everyone and now I'll turn it back to Patrick for final remarks, before we open up the calls and questions.
Okay. Thank you Sanjay we want to conclude by summarizing our strategic priorities for the year.
For cable access business of our objectives of accelerated expansion of existing tier one deployments and.
Drawing new global operators, particularly additional tier ones.
And expanding our address the market through cable versus new fiber to the home capabilities.
From our video segment of our objectives of accelerating the growth of our streaming SaaS customer base.
Capitalizing on the coming transformation of traditional media and broadcast infrastructure globally.
And delivering both top and bottom line growth.
Putting it all together, we aim to create value.
To deliver industry, leading solutions and to enable superior subscriber experiences worldwide.
And finally, I want to recognize and thank everyone, who hung with us sort of a crazy year, our exceptional employees our customers and.
And our stockholders and your support has been essentially.
Let's now open up the culture for questions.
Thank you.
Ladies and gentlemen, as a reminder to ask the question you May Press Star then one on your telephone.
To withdraw your question press the pound key.
And again Thats star one to ask the question.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Simon Leopold with Raymond James Your line is open.
Thank you very much for taking the question a couple of things I wanted to ask about the the first one.
<unk> is just getting a better understanding of what's driving the.
And the increased operating expenses and the 2021 forecast.
I guess when I look back at 2018 2019.
You held spending pretty stable below 200 million for the year and then we understand why 2020 would have been down so.
What kind of assumptions of you're making in terms of the sort of recovery of <unk>.
<unk> expenses and the normalization.
And as opposed to.
Investment in new initiatives, expanding the sales force and things like that just if you could help US bridge the the Opex forecast and then I've got a follow up.
Sure Simon this is Andre sorry out of the mute as of.
I mentioned in my prepared remarks, you know of.
We are planning to increase our sales and marketing expenses as well as the.
We are working on expanding of our customer base and.
Together the debt to be on investing.
R&D expenses, primarily for our cable access segment and.
Both of these initiatives are the significant factor of why the Opex is increasing.
And at.
At the same time, and we are seeing some benefit of saving and travel as well as you mentioned all of our.
And then well expenses are lower and we experienced lower and 'twenty compared to last year, but that's kind of a benefit but overall I think it's mainly driven by increases on the sales and marketing expenses and.
R&D.
And then one of the topics I haven't really heard you guys talk much about is the art of government funding program.
I imagine that that could present, some incremental opportunities and just if you could maybe elaborate on how you would think about that as an opportunity for incremental revenue for harmonic.
Yeah, Hi, Simon.
Patrick here I'll take that.
But we do see this and incremental opportunity and in fact, what we talked a lot about tier ones with cable OS as you've seen from various press releases et cetera, We've had a fair amount of success with the other end of the market. The smaller cable operators of the so called tier two and tier threes.
You may recall that we signed a pretty significant agreement with the national cable television cooperative the CTC.
A year or so of go to actually cooperate on break and cable of west to each of them.
Part of the market and.
And indeed, that's where a lot of the art of.
The stuff is going to happen and so both of our existing relationships around our existing cable less platform as well as our are now.
And coming forward into fiber to the home, we think will be advantageous.
That being said, we're not prepared of rapid number around that.
And it's still a and emerging opportunity.
And I'd say watch the space and we will continue to communicate with you as it is it takes more shape, but it's definitely something that is on our radar screen and does present an opportunity.
And maybe just to level set folks even if you were to win opportunity.
Resume that wouldn't really contributing until 2022 is that a reasonable assumption.
We don't have a significant dollar of revenue built into the the guidance that we've just provided I wouldn't preclude the opportunity of upside there, but but yes by and large our thinking is is that just I.
I think of wins can be happening this year, but our assumption is most of the revenue will start to flow into the following year.
Thank you for taking the questions.
Thank you.
Thank you.
Our next question comes from the line of Rich Valera with Needham and company. Your line is open.
Thank you.
Question on the video business. It looks like you had really strong Rev. Rec from your sort of wave one win for re banding and it looks like youre expecting that to be down in the first quarter wondering how youre thinking about that for the balance of the year I'm, assuming you expect that to be up and <unk> and do you expect any of that engagement.
Flow into the second half as well and then kind of as a follow up to that how are you doing on pursuing kind of wave two opportunities for re banding and do you think theres. The chance you could land something on the wave two side in the.
The first half of the year. This year, just how youre thinking about wave two and how that pipeline looks thank you.
Okay, Richard I'll take I'll take the.
Swing at it and Sanjay please sir fulfill to fill out any of the blanks.
The the first half.
Piece of business that we've won.
And do expect additional revenue to be recognized in the in both Q1 and Q2, but we expect the totality of what was originally run.
The last year to be to be recognized by the end of the second quarter.
There is a.
A significant and in fact growing pipeline of additional opportunities.
We are actively pursuing on our objective is to is to be awarded additional projects. During this year.
Uh huh.
It remains possible.
Possible, it's not likely that we'll see additional revenue.
This year certainly we are targeting additional revenue and 2022. So this is a.
This is an opportunity that is specifically focused on five Jay continues to look attractive to us.
That being said if I can expand slightly of rich and we're seeing some pretty interesting I'd say knock on effects from this whole thing.
Okay.
And that's a combination of the success of the of the auction and.
And the innovation, we're bringing around the solutions to not only compress things and satellite, but actually the bring some of that content on to onto fiber terrestrial of IP networks.
And that's intriguing for operators that maybe even don't have immediate pressure because of the the whole bandwidth reclamation and things so.
This whole industry dynamic is getting a lot of attention and is indeed, serving as the catalyst for a number of media companies to really rethink their media because of their distribution strategies is opening the door to a lot of conversations and.
And two yes.
Yes, and to a wave of of activity around.
The traditional broadcast infrastructure, the frankly has been.
And it has been kind of slow moving over the last couple of years. So we're increasingly seeing this as less of a standalone distinct.
Yeah.
The opportunity, that's kind of one or two or three or four bullets.
But more a.
A catalyst for.
For the overall industry to really rethink.
And some fundamental architectural paradigms and.
And.
And and opportunities going forward and it's tight intimately to the whole idea of moving to the cloud as well so sorry for that somewhat long and long winded answer but there.
But I also wanted to highlight the but it is an evolving space and it is causing us to be incrementally more encouraged.
Spending around brought cash infrastructure in general.
Got it and sorry, one final follow up if I could and.
And maybe this is diluted a bit by your statement there and I appreciate the color on how that sort of debt debt opportunities sort of diversifying but can you talk about what's sort of baked into your initial video guidance for 'twenty, one with respect to additional re banding wins do you should've had wins baked in already or.
Just wondering how we should think about that back half.
Yeah.
Well it makes the began really specify what percentage the of baking in the guidance for any particular on kind of an opportunity.
That said I just want to highlight debt. If you look at all of our total backlog and deferred revenue. It's the record this year and.
True comprising of not only cable, but it's video.
Video game of like all of all categories of revenue and all of that of your screens, it's up year over year and gone through one quarter and as I also mentioned and you do 90% that's been running money and and so we are we are feeling pretty good about the ear of how this whole and deferred revenue was gonna see above and conduct the revenue and.
And I think of the question and then.
Most of our Ics.
As we discussed it tapers off later after each one but I think you of a strong backlog this year, they should get up to the ear.
The guidance part.
That's great.
Thanks for the answers and congrats on a on a strong quarter.
Thank you. Thank you.
Thank you.
Our next question comes from the line of stomach Chatterji with J P. Morgan Your line is open.
Oh hi, Thank you. Thanks for taking my question Patrick Sanjay I, just wanted to start off with the broader question.
About the strength and trained and 21, you obviously have strong backlog.
Whether it's contracted revenue youre guiding the strong revenue growth, but I think Sanjay and your prepared remarks, you just mentioned you feel like visibility and for the full year of less than usual and I just wanted to see what's driving the comment what's driving kind of the impression that.
You go to the customers are not willing to spend or are you more hesitant about their piece of the spending.
Wanted to check on that.
Yes, I think I would say that you know.
There is still limited visibility regarding the macroeconomic outlook for neighbor of part of this year.
And it kind of also depends on what's the.
The demand and back of that one customer's deployment plans and.
Could there be shifts so I think that was the main windup of highlighting that the visibility from full year and less than normal, but otherwise I think of our backlog and deferred revenue scans and supports all won't be one of the company's next year.
Okay. Okay.
And just a quick follow up of Sanjay.
Also for you.
And when I look at gross margins you are guiding to $54 five at the high yet and for <unk> and 'twenty one.
2019, it's probably not the best compare just going to be software revenue you had but going 18, you had done.
Before passing the gross margin on lower revenue base and I'm, just wondering if why isn't there more upside on the gross margin on the high end of the guide wise and Theyre more kind of leverage on the back just given the higher revenue guide versus 2018.
So let me highlight one thing you know definitely on the gross margins are improving and bought but there's also a segment.
Shift happening starting from and the Dean if you're going to kind of you're going to be one along the ear and via marched the bad debt on the cable revenue as a percentage of total revenue is increasing and both segments have different margin profiles and so from that perspective, yes getting to a margin of $54. Five overall combined on the company if you look.
And it was primarily driven by video and beaches.
The higher margins and came on so I think the segment mixture and also will be considered for the.
And gross margins.
Okay great.
Some of it was quickly of any supply chain constraints that are limiting factors on gross margin of at all and frankly, one of the team on that aspect.
No there and talk we have the.
Non appropriately for that.
So we don't expect any supply issues too.
The impact on or performance of indications of the next year.
Thank you thanks for taking my questions.
Thank you.
Our next question comes from the line of Steven Frankel Your.
Your line is open.
Good afternoon, and thanks for the opportunity Patrick I like to get a feel for where are we and the traditional video business in this transition to SaaS, so and we.
<unk> seen the bottom and the perpetual business.
And and and.
And just some commentary on and how you see that mix playing out in 'twenty one.
Well I think it's a great question and there's many ways of the REIT question, Steve and and.
On the truth is we don't have perfect visibility I mean, just take a step back I think you know but.
For the broader audience here.
We've been on.
On one hand, we've seen as I mentioned, a moment ago kind of of stagnation of investment and traditional broadcast infrastructure really is made of companies try to figure out.
And where to go and we've seen growth of around streaming and in particular of the SaaS component of Australia, which makes sense, which parallels whats happening and that being said, we come off of the very strong position and traditional broadcast infrastructure and so we were disproportionately hit I'd say by a stagnant spending on broadcast infrastructure.
And anyways, although it's kind of a lot of challenges the positive aspects of the pandemic as it has been a real wakeup call for a lot of media companies and even around the traditional infrastructure about the value of getting to cloud.
The the.
The urgency of evolving some of the it infrastructure to get off of satellites to become.
Personalized and get ready for targeted advertising et cetera.
We see a real growing of tailwind behind our broadcast infrastructure.
And flattening, let's say the decline curve on that substantially.
And while at the same time.
And we see growing momentum behind what we're doing and streaming and particular, the SaaS component of streaming so putting it all together, we feel comfortable coming out this year with the.
The the growth forecast that the.
We have put forward.
But keep in mind of lot of what we're talking about is simply about timing I think if you take a step back.
There are billions of dollars of advertising and subscription revenue of riding on this infrastructure, it's not going anywhere it's going to be around and harmonic has an amazing position is really a foundational supplier enabler of that infrastructure.
And so.
Immediately we've had a little bit of of difficulty kind of calling the timing.
But the the need for a rejuvenated investment cycle and this infrastructure has has always been apparent to us and we're seeing encouraging signs that we're really on the cusp of debt.
And and.
And we've tried to capture that as best we can and the and the guidance. We've given you for this year.
Great and then flipping over to the cable access business I am very impressive back half.
Operating margins.
Should we think of those as kind of the new normal or were there.
Particular things that happened in the back half that the kind of makes the back half margin above what you would consider the run rate and that business.
So the Steve.
And definitely Q4, you know there was a decent mix of hardware and software, giving us very good margins and started.
And at the same day and you know the strong margins were also up on the good cost controls.
And combining to produce a very good operating results of all the segment.
Long term, we do expect gross margins to improve partner, but I think it would be the expenses of different even light this quarter and the blending and more aggressive spending next year as I mentioned and part of research and developmental cable at the same day and increase in the global market for sales and expenses.
So definitely we expect the gross margins to continue improving operating margin and I just want to be cautious of that the extensive and the like the site, but we are going out on a living and make more spend.
And that increase and spend.
Is that mostly fixed or theres, a material variable component there as well.
Well I think I think there are two pieces there is a piece of research and development the cable.
Classify and fixed by the on the same time for sales expenses is mainly.
The only value.
Okay.
On that.
That's helpful and then.
On the fiber to the home stuff was there material revenue recognized in the quarter for that new product or that's something that we'll start to see and Q1.
I think there's more coming for next year.
You mean this year I think yeah.
[laughter] yeah.
Yes.
So no escape there was not materially the revenue we're very pleased of we last quarter, we talked about our first when we saw that type of project being deployed and we should have several other.
Let's say the advanced trials that are going quite well.
So we're we're excited about the progress there.
But indeed, we have yet to recognize.
Material risk.
Okay, and then last question.
And you keep redefining what cable OS is and broadening its mission.
Is there anything new on the competitive front with your competitors getting to market with something that maybe it looks like what cable the last was or.
And what it.
And what it might be at the moment and not where it's going on.
The next year or next quarter.
We're not aware of any meaningful change on the competitive front I mean, and I think as you know now for a couple of quarters, our competitors have largely of change their tune and everybody is talking about virtualization as well.
That being said, we continue to perceive debt.
We are the way of.
And well ahead.
To the point you just made though.
It would be the wrong mental picture and I think we're kind of of the stationary position waiting for people to catch up I mean really tying into your question about expenses, we continue to have.
Of the pedal firmly on the ground.
In terms of really pushing forward and and so I would say expenses redefining what it is but we're expanding what it is and.
And having a core cloud native of foundation and enables tremendous of flexibility and Optionality as we go forward our fiber to the home solution that you just asked about a moment ago. For example, it's not a completely separate product. It's a it's just it's the variation of the same.
And network and core software.
Particularly when it comes to the cloud native capabilities and the real time of Endo and telemetry that some of our customers are talking.
Publicly about.
We're not aware of of anyone who is the.
Playing the same game.
And frankly and and our intention is to continue to invest and to press, our advantage and and stay well stay well out of ahead.
That's great. Thank you so much.
Thank you.
Thank you.
Our next question comes from the line of George Notter from Jefferies. Your line is open.
Hey, guys. Thanks, very much and I wanted to go back to a comment earlier I think Sanjay youre talking about reduced visibility and.
And I heard your comments certainly about the.
The macro being part of that but to be fair. We're beyond the presidential election, and vaccines are getting distributed I think the environment is probably.
More of certain feeling than it was say three or six months ago.
Obviously, you guys have a lot of orders and the order book here for this year I'm still confused by the comment about lower visibility is there something thats the of formulaic about your business, that's driving that with reduction of visibility or am I missing something.
Yeah.
I think the risk there is some confusion George let me let me try this time I think the comment was relative to any other ordinary year, the kind of on wasn't relative to the three months ago or six months ago were setting at any other non pandemic year sitting here. It is.
Always a little bit of a look and the.
And in the Crystal ball to say, what's going to happen on the second half of the calendar year and I.
The comment was simply as we look at 2021, we think that that picture is a little bit Hazier then it would it be and then another 2018, let us say on non pandemic here.
All of them.
And so certainly the visibility relative to what it was six months ago has improved and.
And and I think the there were a number of reasons to be modestly encouraged about the the overall situation and and I think that's that encouragement is manifest in the in the guidance that we've provided.
Got it Okay. That's great clarification, and then I also wanted to ask about another comment you mentioned earlier I think you said that of 5% of our 50 million cable modems and your cable and less customer base are being run on cable OS and.
I know that situations.
And for a while but can you just talk about the catalyst sort of the the levers that can get you into a higher mix of that network going forward. Thanks.
Yeah, I think it's.
The key question and it's one of the reasons why we call out scaling within our existing customers is just kind of gross job number one.
And frankly, it's not something that we can do on our own this is oh.
And as you know this is many cases reengineering networks et cetera, it's profound work and there is a certain pace at which our customers can move now.
What do you think they climbed the tremendous learning curve over the last of 12 to 18 months.
And we're seeing the pace of deployment and creates I think our strong order book speaks to that.
Hum at the same time, we're all learning center and one of the things I mentioned in my prepared remarks is as enhancements, we're making to the systems to further improve the.
The operationalization of the overall of the overall solution, so our customers gaining more experience.
More confidence.
More training of the rone has their own staffs of subtle improvements and enhancements to the technology all of that is contributing to a continuously increasing deployment pace.
And and and I think that that dynamic will continue.
I think and I think our customers public statements support this but I think we will see.
Continually increasing pace of deployments of cable the west within our largest customers footprints as we go forward.
Great. Thank you.
Alright, Thank you Georgia.
Thank you.
Our next question comes from the line of Tim Long from Barclays. Your line is open.
Thank you.
Guys, two if I could first.
Could you talk a little bit about the new tier one win maybe anything that was different about that and how we should think about timing.
And maybe kind of what what that means is you get another one as far as converting some of the pipeline. That's out there and then second could you talk about the SaaS business and kind of customer count and what we need to see happen to see that that revenue line start accelerating thank you.
Okay.
Tim for both questions on the new tier one top five North America a K.
Customer frankly every one of them is different.
And of the Big guys. This was a.
You may recall, we've been talking about it for a couple of quarters, we've been working on it for some time and it's just great to have a multimillion dollar order and have that shipped and I'd say, it's more than just to put and the door.
It's a great start and it's a it's one that we're continuing going to continue to push behind.
And as with all of our engagements I mean, it's somewhat the success based so we're we're very focused now on making this first wave of deployment of successful and we think of doing that will well.
And we'll we'll open the door to a bunch of.
Further to further deployment I guess, the only thing I'd say more broadly about tier ones is that.
And the experience of all of our large customers is at scale is getting just to be better known throughout the industry. So I think there's there's the virtual virtuous circle here.
The greater deployment scale greater word of mouth CTO chatter.
Better and better results, better and better operating metrics coming back.
From the customers who have deployed us all of that is it's not lost on the leading CTO and the industry. So we think that there is a virtuous circle of of confidence and the and recommendation that's happening.
And and it creates a tailwind which is not to say that every tier one isn't going to have their own rigorous.
Evaluation and approval process I mean, let's face it broadband right that was the goose explained the golden eggs. So everyone is going to be extremely cautious about.
And the introducing the new technology.
And the virtues of the advantages of the Nyx tax the.
Our new technology.
Our board of parents.
And I think more clearer than ever before so all of our confidence is greater than it's ever been and about our ability to continue to pick up of such wins.
Now on the video front.
The the SaaS business.
We did see an acceleration, particularly in the second half of the year I think there's part of this is just natural there again, we're also building of brand beyond our traditional let's say Brock.
Cash heritage.
At the same time, we also saw the pandemic really being a catalyst for more focus.
More realization for the advantages of having a SaaS service and the public cloud and particularly how they service it.
The time, when many operators were struggling to properly.
Karen and trade for their their on premises deployments.
As I mentioned on the prepared remarks, we picked up of 17, new customers, including a couple of very significant Oh are called Blue chip kind of household name wins, and that's pretty exciting and.
And look we're just kind of kind of continue to push forward. There I think we've got good momentum.
And there's an inherent lag.
As you know of between picking up of SaaS win and recognizing and reporting the revenue.
Bookings and in the SaaS as part of the record.
The bookings excuse me and backlog and deferred revenue that we have right now, but having net revenue flow through it's it's a it's recognized ratably with usage over time.
And some cases these are multi year contracts in place of all at once.
On the capital purchase order.
So there is an inherent headwind there.
But frankly, we think that.
And maybe block one of the criticisms of our business has been a little bit the up and down on it and having strong backlog and deferred revenue a growing portion of that being associated with SaaS and.
And then having that play out and a way that gives us more stability and reliability to our revenue. We think it is a positive dynamic over time and it is.
The one that we're encouraged by the the momentum we're seeing and then what kind of continue to lean into.
Okay. Thank you very much.
Alright, well. Thank you thank you and.
I'm sorry go ahead, I'm showing no further questions and the queue I'll now turn the call back over to management for closing remarks.
Alright, well, thanks, everybody again for joining us here today and more generally for supporting us through what the certainly was a roller coaster of the year. We're excited about the momentum that we have the opportunities in front of us and we look forward to reporting back to you soon.
Thanks, very much have a good day.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
[music].
Uh huh.
Yeah.