Q1 2021 Harmonic Inc Earnings Call

Okay.

Okay.

Ladies and gentlemen, thank you for standing by and welcome to the Q1 2021 harmonic earnings conference call.

At this time, all participants are in listen only mode.

After the speaker's presentation, there will be a question and answer session to.

To ask a question. During this time, you will need to press star one on your telephone keypad.

Please be advised today's conference is being recorded and if you require any further assistance. Please press star and C ran.

I would now like to hand, the conference over to your Speaker today, Mr. David Hangover. Please go ahead Sir.

Thank you operator, Hello, everyone and thank you for joining us today for harmonics first quarter 2021 financial results Conference call.

With me are Patrick Harshman, President and Chief Executive Officer, and Sanjay Kalra 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 for this webcast, which you may see by going to our webcast on our Investor Relations website.

Now turning to slide true during this call, we will provide projections and other forward looking statements regarding future events or future financial performance of the company and.

Such statements are only current expectations and actual events or results may differ materially.

We refer you to documents harmonic filed 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 unless otherwise indicated the financial metrics. We provide you on this call on determined on 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 website and filed with the SEC on form 8-K.

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

And are 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.

Well, thanks, David and welcome everyone and for first quarter call.

Harmonic delivered another solid quarter with seasonally strong new bookings and solid year over year revenue earnings and cash growth and bulk.

For a cable access and video segments again contributed meaningfully and both carry substantial backlog and deferred revenue until the remainder of the year okay.

Cable access the story has continued scaling by existing customers and new customer wins, and driving 79% year over year segment revenue growth.

For video business demand for both our broadcast and streaming solutions remained healthy, enabling us to deliver 29% year over year segment revenue growth.

Big picture harmonic continues to respond well to both current challenges and opportunities leveraging and continuing to invest and differentiated technologies deep customer relationships and on.

And extraordinary global team.

All of this translates into a strong market momentum and and increasing growth outlook for the remainder of the year.

And so focusing first on our cable access segment, we delivered another strong quarter.

Commercially deployed with 53 cable operators worldwide up 96% from the first quarter of 2020.

And made the appointment scaled to serve over 3 million trademarks and about 127% year over year.

Revenue was $41 $3 million up 72 per cent from a year ago Harold.

The margin Sag somewhat as we had a heavier mix of D. A hardware and a quarter and a hardware it was impacted by higher costs. We Nonetheless again delivered positive segment operating margin.

Looking ahead, we're well positioned to continue this pace of revenue growth we see.

The broad market momentum for next generation multi gigabit broadband solutions spanning fiber cable and wireless and the emergence of cloud native software working in concert with and open distributed access architecture and that's the winning formula.

And within cable harmonics cloud native and DAA solutions continue to be way out in front for the rest of the market price.

Gratifying to have been recently recognized for the day Laura.

Great leader and these next generation technologies.

To fully leverage our unique position, we're focused on free interrelated growth sectors.

Working with existing customers to scale cable and less deployment across their entire footprint.

Winning new customers from large tier ones to rural broadband players and <unk>.

Spanning our dress market to include fiber to the home and fiber to the business.

We saw good progress on all three of these initiatives during the first quarter.

Regarding customers, who are already actively deploying capital S.

Appointments are going really well the pace is accelerating and yet our solution has been rolled out to less than 6% of the combined footprints, which.

Which means we still have huge growth runway ahead of us with these already deploying customers.

Regarding adding new customers. We also continue to make good progress.

Keith and initial multimillion dollar purchase order from a new tier one international operator and.

And we went and several new regional and rural and North America broadband customers during the quarter.

And regarding fiber to the home we closed our first steel and North America and have seen steady growth and our global sales pipeline with engagements spanning a diverse group of larger cable operators and smaller rural broadband players.

Underlying all of this activity, we continue to invest heavily on new technology and services and <unk>.

Just on insights from our ongoing deployment rat and compelling new functionality to our cloud Native software Corp.

Our support for new applications, such as mobile backhaul and where.

Engaged and innovative joint efforts with public cloud players around new edge cloud capabilities.

And of course, our converged cable for fiber to the home solution continues to be a key R&D initiatives.

And finally, we're not immune to the global supply chain constraints.

Seeing shortages of several key components and related significantly higher costs impacting most significantly our DAA and shelf hardware products.

We're working hard to overcome these challenges and as a result, while we expect higher costs and lower margins for these products for the balance of 2020 one for.

We're not backing off of our revenue growth targets progressed.

For aggressively seizing new opportunities to expand our DAA footprint and correspondingly raising our top line guidance.

Summarizing for cable access harmonic delivered another strong quarter.

Global broadband market trends are favorable near term demand is healthy on.

Early customers and successfully scaling and we continue to add new customers, both large and small.

The future broadband access technology is clearly cloud native core software powering and flexible distributed access network and his primary architect of this new model harmonics broadband access future remains bright.

Turning now to our video segment, we followed up a strong second half of 2020 with another solid quarter.

First quarter segment revenue was $70 $3 million.

9% year over year and up 5% from the first quarter 2019.

And growth that is more than just post pandemic recovery.

Gross margin was 65, 1% and segment operating margin was five 4%.

Impressively demonstrating continued profitability despite business transformation headwinds and.

And as you know our key strategic transformation is from a purely broadcast technology and associated Capex business model.

Mix of broadcast Capex and streaming SaaS with recurring revenue.

Demand for high quality live streaming solutions continues to grow evidenced by a strong sales pipeline several new streaming SaaS wins, and our near record backlog and deferred revenue.

During the quarter, we signed net seven new streaming SaaS customers, mostly customers that are new to harmonic, bringing the total number of media companies on Australia and platform to 97.

Which is up 72% year over year.

Approximately a quarter of these customers are still on the process of fully launching their new streaming services underlying our continued streaming growth expectations.

As a recent example, a prominent new sports streaming service that we signed in 2021 and.

With us just a couple of weeks ago, and it's already delivering millions of daily AD impressions with even higher Ed volumes anticipated as the service experience.

So for that assertion portion of our SaaS solution is charged on an impression on unimpressive volume for CPM.

[noise] associated growth opportunity for this part of our video business is becoming more compelling.

Australia is the main headlines are secondary headline is revitalized broadcast and demand.

We're seeing a general rebound and broadcast project activity worldwide, which we believe for capturing an increasing share.

We're also seeing <unk> bandwidth reclamation, continuing to be a catalyst for both near term business and longer term opportunity creation globally.

And during the first quarter, we continued to execute our announced program with Ses.

And several new foundry bandwidth reclamation projects came into focus.

<unk> that we now expect to contribute to the second half of the year.

And 2022.

For a correspondingly raising our video segment revenue guidance modestly for the full year.

Looking further ahead, we believe for success the industry is seeing with the C. Band initiative is opening the door to a broader opportunity for wholesale of IP video distribution by a terrestrial fiber rather than satellite networks, a positive trend for sustained video broadcast investment.

So in summary.

And we delivered another strong video quarter characterized by solid revenue growth gross margin operating profit new wins and bookings.

This performance highlights the resilience of our video business our industry leading technology.

And our growing success, extending our brands from a realm of high and broadcast the high performance cloud streaming and SaaS.

Leveraging our strong backlog and deferred revenue and robust video sales pipeline.

We're moving forward for 2021 with real market momentum and conviction and innovative Wolf plant.

So let me now turn the call over to you Sanjay for a closer look at our financial results and outlook.

Thanks, Patrick and.

Thank you all for joining us today.

Before I discuss our quarterly results and outlook.

To remind everyone that the financial results I'll be referring to are provided on a non-GAAP basis.

As David mentioned earlier, our Q1 press release and earnings presentation includes reconciliations of the non-GAAP financial measures to GAAP net net.

On this call.

For the first quarter of 2021, we delivered solid results.

Kimberly above of our guidance ranges.

We reported Q1 revenue on all $111 6 million up 42, 3% year over year and.

And gross margin of 54%, a 150 basis point improvement year over year.

Operating margin was four 5% comprised of three 1% for cable access and pipeline and 4% for video.

And we generated adjusted EBITDA of $9 1 million and EPS all for.

We also had seasonally strong bookings during the quarter with a booked on the ratio of <unk> nine.

As a result, we ended Q1 with a solid backlog and deferred revenue of $274 3 million positioning us well for the remainder of the year.

Now I will review, our first quarter financials in more detail.

Turning to slide seven.

Total company Q1 revenue was 111 6 million or 42, 3% in Greece.

There too so maybe $8 4 million on Q1 'twenty.

As Patrick mentioned, we continue to see and green traction and a low cable access business.

And in Q1 were 53 commercial deployment with a sequential growth of 20% from.

And bear to 44 at December 31, and up 96% year over year.

Okay.

Cable access revenue was $41 3 million up $72, one per cent compared to $24 million and Q1, 2020.

And all of our video segment being imported and Q1 revenue of $70 3 million up 29, 2% compared to $54 4 million and the prior year period.

We continued to see a recovery video activity worldwide during the quarter.

Including continued satellite feed on five year related revenue.

We had two customers representing greater than 10% of total revenue during the quarter.

From guests contributed 23 percentage of total revenue and as he has contributed 16%.

As mentioned earlier gross margin.

And improved to 54% and Q1, 'twenty, one compared to 48, 9% and Q1 'twenty up 150 basis points.

Cable access gross margin declined slightly to 42, one and 2% and Q1 'twenty, one compared to 43, 3% and Q1 'twenty down 110 basis points.

And in Green and supply chain and boss and a higher mix of hardware.

As previously mentioned.

Operating margin was three 1%.

Video segment gross margin was 55, 1% from Q1 compared to 51, 3% and Q1 of last year.

380 basis point recovery to business as usual before the pandemic.

Moving down the income statement on slide eight.

Do you want and 21 operating expenses were $51 1 million compared to $47 9 million and Q1 'twenty.

The year over year in Greece was primarily due to increased cable access research and development and services and.

And sales and marketing for both segments.

As we continue to invest in our growth initiatives.

And secondly reason for holiday and Breeze was the conversion of some and.

Blogging and incentive compensation from stock to cash as I have and it's been further and then I discussed on our guidance.

We reported operating profit for the first of all water on pipeline 1 million.

Comprised of $1 3 million from cable access.

And people and get moving from video.

This is a substantial year over year improvement compared to an operating loss of $9 5 million and Q1 'twenty.

Adjusted EBITDA for the first quarter was $9 1 million, reflecting contributions of $3 million from game of latches and $6 1 million from video.

This compares to an adjusted EBITDA loss of 7 million and Q1, 'twenty and translates to Q1 EPS and <unk>.

Compared to Q1, 'twenty EPS loss of 10 cents.

We ended the quarter bid on diluted weighted average balance of $103 2 million per shares.

Compared to 103 point, and <unk> 3 million and Q4 'twenty.

And I think Rachel and Grease is primarily due to the issuance of 2 million shares to employees for vested restricted stock units, yes needed procedures and.

Performance based compensation.

And 0.9 million shares for convertible debt dilution as a result of oil and grease average stock price.

Q1 bookings were $96 3 million 26, one and 2% and Greece.

Paired with $76 3 million and Q1 'twenty.

It was encouraging to see another quarter of year over year bookings growth during the first quarter demonstrating continued strong demand for our differentiated technology solutions.

Turning to slide nine.

We will now discuss our liquidity position and balance sheet.

We ended Q1, the cash of $100 8 million compared to $71 7 million at the end of Q1 'twenty.

And $98 6 million at December 31.

For $2 2 million and seek landfill gas and Greaves is comprised of $1 7 million cash from operations.

Primarily attributable to the profitability and both our businesses.

Net of three and 6 million cash using the per James I'll take that.

And for one 7 million received from common stock sold to employees under our ECB and from stock option exercises.

All of our day sales outstanding at the end of Q1 was 69 days compared to 107 days in Q1, 2020.

The year over year degrees and DSO and reflects continued overall collection improvements and the binding difference of certain large receivables.

Our days inventory on hand for 58 days at the end of Q1 compared to 78 days and the.

And of Q1, 2020.

And the end of Q1, our total backlog and deferred revenue was $274 3 million compared with $107 9 billion and the end of Q1 2020.

And a record $290 5 million at the end of Q4 'twenty.

Reflecting a sequential degrees of 6%.

Yeah.

All of our near record backlog and deferred revenue reflects both inc.

Increasing commitments for our large global customers and our growing video streaming SaaS businesses.

We are pleased to be maintaining a strong level of high quality backlog.

No one would have historically about 80%, 90% of home and backlog and deferred revenue and gets converted to revenue within a rolling one year period.

Also with a deferred revenue component of our total backlog and deferred revenue was 27% on the end of Q1 compared to 27% and the end of Q1 2020.

Demonstrating that revenue conversion of backlog and deferred revenue continues at levels consistent with our expectations.

As mentioned on previous calls.

Not included in our backlog is additional contractually agreed gave a low as business with three of our tier one cable customers.

And the end of Q1, 'twenty, one and this incremental amount was approximately $156 million.

Down from 158 million last quarter.

It was approximately $2 million linked to the Virginia, the audit process and therefore moved into bookings.

Taking these gabe on the west contracts into accounts, we have daughter of future contracted revenue of $433 million.

And this provides us with a solid foundation for the remainder of the remainder of 2021 and into 2020 two.

Now I'll turn to our non-GAAP guidance for 2020, one on slide 10.

While COVID-19 related uncertainty and volatility still exist.

Our customer activity and pipeline have substantially recovered since the height of the pandemic.

On the other hand, we have.

Contending with a somewhat unprecedented global supply chain situation, creating both cost and production dining challenges.

Based on extensive conversations with all of our key customers and suppliers and partners and internal analysis.

We expect the demand recovery and will continue throughout the balance of 2021.

With our typically seasonally stronger Q4 and second half.

And that meeting this demand will likely be somewhat at higher cost per day.

For our cable access hardware products.

For the full year of 2020, one we expect total company net revenue and the range of $435 million to $480 million.

And the high and this reflects upwardly revised growth expectations for both segments.

Gross margin and the range of 56% to 52%.

And to make wind up over guidance. This represents a decline of 120 basis points year over year.

This reflects a slight and breathe and video gross margin and a lower gross margin on cable.

And I will elaborate on shortly.

Operating expenses to range from $290 million to $218 million and increase from previous annual guidance, you do and Greece cable access and research and development expenses.

And the decision to settle certain employee incentive compensation payouts with cash instead of stock.

Reducing dilution.

The lateral and the decision recently made with overboard, considering on a stronger cash position and operating plan.

Adjusted EBITDA to range from $25 1 million to $45 7 million and and grease on approximately 49% year over year Hasnt been point.

EPS will range from six cents per 24 cents and effective tax rate of 10%.

The average diluted share count of approximately 100 for $7 million.

And finally cash and ended the year and expected to come in maybe a 110 $220 million.

On slide 11, and I will focus on total company guidance for the second quarter.

Revenue in the range of $100 million to $212 million.

And the midpoint of our guidance. This reflects an increase of 45 per cent compared to Q2 last year.

Gross margin and the range of $48, 7% to 56%.

At midpoint and to hold our guidance. This reflects a decline of 195 basis points compared to Q2 last year.

Operating expenses to range from $52 million to $54 million due to the reasons mentioned previously.

Adjusted EBITDA to range from 0.8 million to $5 8 million versus a loss of $2 8 million and Q2 last year.

EPS to range from a loss of three cents to a profit of <unk> 10 per share.

And effective tax rate of 10% a weighted average diluted share count of approximately 101 point to 200, and full point and $2 million.

And finally cash and the end of Q2 is expected to range from $90 million to $100 million.

Starting this fiscal year.

Augmenting our segment guidance to include segment gross margin operating expense and adjusted EBITDA for.

And just wondering do over existing practice of providing these segment metrics.

Our reported quarterly results.

On slide 12, I will discuss guidance for our video segment for the full year.

And the second quarter.

For the full year 2021.

We expect video revenue and the range of $260 million to $280 million.

And the midpoint of our guidance this reflects 11% growth year over year.

Attributable do boats rebounding broadcast market demand and.

And growth in streaming.

Gross margins and the range of 55% to 57%.

And the midpoint of our guidance. This represents a 150 basis point improvement over last year, mainly.

Mainly due to improved product mix.

Operating expenses are expected to be between $138 million to $143 million.

And increase of 7% versus last year.

Most of the increase is due to increased sales expenses tied to older higher projected revenue.

Adjusted EBITDA and the range of 13 $5 million for <unk> 5.1.

$1 million and increase of 135% over last year at the midpoint.

Or do you do we expect video revenue and the range of $57 million to $62 million.

And the midpoint and to hold our guidance. This represents approximately 25% growth over Q2 of last year.

We expect video gross margin and the range of 54% to 56%.

And the midpoint is a 20 basis point improvement from Q2 last year.

Operating expenses to range from 34.

$235 million and increase of 14% over Q2 last year.

Due primarily to increased sales expenses as mentioned previously.

Adjusted EBITDA to range from a negative $1 3 million to a positive on point $6 million.

On slide 13.

I live video guidance for our cable segment for full year and the second quarter.

For the full year 2020. One we currently expect cable access revenue and the range of $175 million to $200 million.

And the midpoint of our guidance does reflect a 38% growth year over year.

This growth is driven by strong momentum on the double existing customers as the accelerated deployment as well as new customer growth.

And modest converged fiber to the home revenue.

Gross margins and the range of 44% to 45%.

440 basis point decline versus last year at the midpoint, due primarily due and greens and costs related to supply chain headwinds.

And an increased mix of DAA hardware.

Operating expenses are expected to be between $71 million to $75 million and increase of 33% versus last year. Most of the increase is due to increased research and development and sales and marketing expenses.

Adjusted EBITDA and the range of $11 6 million to $20 6 million and increase of 3% over last year and the mid point.

For Q2, we currently expect cable access revenue and the range of $45 million to $50 million.

And the midpoint of our guidance is at 79% growth for cable over Q2 last year.

Gross margin and the range of 42% to 44% at.

And that midpoint of home and guidance. This reflects a 270 basis point reduction over Q2 of last year for the reasons mentioned previously for the full year gross margin guidance.

Operating expenses to range from 18 million to $19 million.

And the midpoint of our guidance. This reflects a 42% increase over Q2 last year.

Primarily due to increased research and development and sales and marketing expenses.

Adjusted EBITDA to range from $2 1 million to $4 2 million.

And clothing.

Again, we are grateful for our team's continued dedication and strong performance during the first quarter.

We continue to execute on our strategic priorities positioning our cable access and video streaming businesses for.

A long term per se.

With that thank you, everyone and now I'll turn it back to Patrick for final remarks.

Before we open up the call for questions.

Okay. Thanks Sanjay.

We want to conclude by reviewing our strategic priorities for the year for our cable access business. Our objectives are accelerated expansion of existing true when deployments.

And to a new global operators, particularly additional tier ones and expanding our addressed market for cable versus new converged DOCSIS for fiber to the premises capabilities.

And we're pushing toward aggressively despite near term cost challenges.

For video segment, our objectives of accelerating the growth of our streaming and SaaS customer base and usage cap.

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 and deliver.

For industry, leading solutions and true.

To enable superior subscriber experiences worldwide.

And finally, we're pleased to announce that later on they will be hosting two special industrial events.

The deep dive and towards cable access business and associated with multi year outlook and a similar deep dive and multi year outlook for our video business.

And <unk> featuring additional members of our executive management team.

We expect the day to be finalized shortly and hope that you all join us.

And with that we'd now like to open up the call for questions.

And as a reminder to answer your question you on need to press Star one on your telephone keypad.

And your first question comes from semi chatter from J P. Morgan.

Hi, This is Joe Cardoso on for Sonic strategy. My first question on your guide and kind of more of a clarification you always obviously spent a large portion on the prepared remarks mentioning.

And the supply constraints and implications on the higher cost I'm. Just curious if you guys are seeing any implications on the spike and changed on your topline and.

Basically are you are you being and.

Impacted by your ability to supply customers and whether you are baking any of that into your full year guide.

Yeah in terms of top line and the supply chain.

We have factored in any risk and you consider in all of our guidance range. So our guidance and completely on the risk would be considered at this point for this supply chain.

I guess, if I could just follow up there are you seeing any implications on your ability to supply customers currently or is that now you have not yet today.

We have not dealt with that to date, if I can step in and we've not dealt with that to date.

Thank the current situation creates a ceiling that's not to say, we're not working toward moved up and it does create a little bit of a ceiling on the upside.

And what we're talking about today is is going beyond our guidance of low last that we gave last quarter.

We're fortunate that we don't see.

We don't see any reduced expectations, but if your question is is the sky the limit right now the sky is not the limit and I. There is a scenario where demand may outstrip.

Supply and but right now on the supply that we see we think we can we think we can manage and and actually managed to deliver a little bit of upside, albeit as we've said a couple of times at higher than originally anticipated costs.

Simply entailed with with getting that done.

It's a dynamic situation Sanjay said, we're confident we're quite confidence that.

And we've got the resources.

And to deliver it within the range that we've talked about on.

And is upside on that possible.

It is possible.

It's probably more likely that the demand is there and then that will be able to satisfy that demand, but both of those things are a little bit dynamic and we'll continue to keep you updated as the.

As we move through the year.

And I really appreciate the color and then I guess just for my second question.

And this is more broader it looks like there's a bunch of initiatives from governments globally, and the pipeline, including <unk> and the infrastructure plan and the U S.

The U K project gigabit and and European Commission's broadband project, just curious to hear you on your overall thoughts on these government projects in terms of when do you expect them to materialize and how is harmonic positioned to benefit from these investments globally. Thank you.

Yes.

Much appreciate the question as you as your question implied.

The World is a big place and there's a lot of different initiatives with different timing happening all over the place, but I think we can agree the headline is as that broadband and access to broadband is it's it's a priority issue from every country from you on the United States to the UK to Bhutan, right and so being a parts.

Disciplined and being a key supplier of broadband and enabling technology is a great place to be.

And we think we have and extremely strong position within cable and.

And as you know, we're working to expand that position to also address fiber.

And fiber our first our first port of call. If you will as those cable operators, who are expanding and our fiber or have hybrid on <unk>.

Cable and fiber infrastructures, and we think that that.

Opportunity substantially expands our addressed market and as we've discussed before we once we kind of.

Got that and play well, we think we can expand beyond that.

So we think it's a very attractive environment and we think we're well positioned we're not targeting the totality of the market today, but we're targeting.

Growing subset of the of the broadband market.

Can not only participate but where we really can differentiate ourselves so we.

We think that the future is pretty pretty exciting and it's one of the reasons why we're leaning and now and we're continuing to lean in and to investing in and both the current and are coming and technologies true to strengthen our position not just for 2021 put for next several years and I guess, just one last thing.

As I mentioned, a moment ago, we do plan and investor events to really go into this topic.

From both on market and a technology perspective, and more detail later on on the mantra and <unk>.

Think of that.

Your question really hits on one of the reasons, we wanted to have.

Or slightly more in depth conversation to talk about what we're doing and on the market opportunity that we see.

Thank you I appreciate the question and congrats on the results.

Thank you okay.

And your next question comes from Tim long from Barclays.

Thank you.

Two questions if I could first on on the <unk> side.

It sounds like it's starting to broaden out a little bit more from our customer base. So could you kind of just give us an overview Patrick on on kind of level of activity there and maybe.

Update us as this moves along any changes to the competitive environment and then on the cable side. It sounds like a really big pipeline outside of the backlog so maybe.

If you could kind of give us a sense as to.

And why are you seeing that growth is it does it a lot of new deployment and traffic growth.

And what's driving that or competitive wins, and maybe a little bit on the on the slope of the curve too.

To turn on that stuff into revenues. Thank you.

Okay. Thanks.

Thanks for the question.

And on the C band stuff for indeed, we're seeing more opportunity.

And particular, we see a couple of a substantial new opportunities really come into focus.

And and where we see that is beginning the merch serialized on the second half for ear and we also share this is us.

As high probability for 2020 two so.

I'd say that that was that.

And next wave of opportunity is domestic and.

And so beyond that and we still see and.

Engaged on a number of conversations around.

And related to international opportunities, but I would call those still is not quite and focus and and and therefore not.

Not yet factored into and any way into until the guidance we've given.

But from a broader trend.

I think that.

It continues to.

To be promising from our perspective, not only because the government is looking to recover bandwidth, but because the market is waking up to the fact that.

Actually there's a lot of benefits to moving our video traffic over terrestrial fiber network.

Personalization customization targeted ads et cetera.

A dynamic.

On a positive way, it's a dynamic.

Evolving opportunity.

And that is leading to broader conversations with a number of customers both domestically and internationally.

Not really been any change for the last part of that question and then 10 does that really it really hasn't changed for the competitive environment for certainly not the only one we've seen some deals go to what your competitors, but we think we're pretty uniquely positioned and we're really leaned into or.

A couple of very significant additional opportunities.

Yeah on the cable side.

And <unk>.

Look, it's a little bit all day above and you.

And your comments on it think that.

Okay.

As we touched on the last question on broadband.

It is a must do whether it's.

And from a consumer perspective, and from a government perspective, it's only becoming more important.

I think we all see that and so there's a there's consumer demand I think there is strong and we're seeing strong demand from both our existing customers to go faster and and.

And from new customers, and particularly on new customers as we continue to get success and the market with appointments. There's a virtuous circle, we think we're getting more and more credibility, perhaps slightly more conservative operators or once you've got a little bit more questions about the technology and they're getting more and more comfortable.

With the deployment volume for success.

On the quality of service that we're seeing and so I think both of those things are factoring into a twist strength and pipeline.

That being said the risk rambling on here.

We've also learned that.

Depending on the environment and.

Not necessarily you snap the thing go and deploy it overnight.

There is a process and to the common share we are we're carefully managing our supply chain and that also.

Honestly impacts I would say the pace of which we can then we can move.

And.

So.

So strong demand.

<unk> position is I would say a strong or stronger than ever.

And I would say.

And the transition translation of all that and to volume deployment is okay. It's not quite as fast as we'd like to see supply chain inhibits that a little bit, but it's going okay and you know I think if you look at our guidance range.

The top and where.

Year over year, it's a respectable a respectable number and getting close to 50% and and given everything that's going on and the market and the fact that we're still in many places dealing with some.

Pandemic related issues et cetera, I think that that growth.

And our view that we wanted to discuss with you. All later on the month of multi year growth.

All of that from our perspective is.

It is quite possible.

Okay. Thank you Patrick.

Alright, thank you.

And your next question comes from Simon Leopold from Raymond James.

Great. Thanks for taking the question I wanted to ask maybe if you could help folks understand the metrics you've been offering on the past several calls regarding the cable modems served and I guess this quarter, you're up to $3 million, and you talked about 6% or better than 6%, which would imply.

And that the customers have a total of about $50 million could you help us understand how you measure that that metric and what stands between.

And basically serving $3 million and $50 million is there and what needs to happen for that number to grow is really what I'm looking for.

Okay.

<unk> got it and round numbers, you've got it about right of the people who are actively deploying cable OS are today.

They have.

And they serve about $50 million over $50 million on cable modem subscribers.

They are.

Alright, and LNG assignment and Theyre kind of rebuilding the house, if you will or repainting the house.

Room by room and and.

And it isn't a flip of the switch kind of thing there is at a minimum and centralized architecture. So there is a re wiring and re architecture of the the main head and and where DAA issues actually there was deployment of AV DAA nodes out out and the neighborhoods, which means the trucks needs to roll.

Someone needs to go up and a bunch of truckload go down to the ground and replace and old node with an existing node and and very often that involves pulling fiber deeper and to a neighborhood.

So that's the part of the process that is time consuming and it's not so much our technology itself, but it's it's making the architectural the wiring the infrastructure the rest of the infrastructure changes.

And our central office.

Well.

You're.

We're running our software core software on commercial off the shelf servers, you're moving for that server infrastructure that data center kind of infrastructure off of old legacy chassis, and and very often you're replacing.

And fiber deeper on the network. So that's that's a time consuming process that also takes capital money as well.

And it's that process assignment.

Net debt for any given operator.

Limits.

And even the most well heeled operators with a lot of budget.

<unk>.

They're not throwing infinite amount of money at the simultaneously and.

And frankly in many markets worked for crews are somewhat tough to come by et cetera. So there is a process of rolling out and that's why we've always said that even with those customers. So we expect to rollout our solution to a 100% of their plant and more.

Of our key customers, we do expect that to be the case.

But we expect it to be a several year process for each of four year process and and so where we were.

And where we're on that curve.

His experience becomes better and we expect the pace to quicken and we expect our largest customers to be picking up the pace and thats. The biggest part of the growth that were projecting of this coming year.

And to be clear.

But even on the quicker pace, we still expect a several year process for.

And for our larger operators to rollout the technology across the entirety of their footprints.

Thanks, and then as a follow up I wanted to see if maybe we could unpack the gross margin pressure on the cable access segment and certainly I. Appreciate you don't have some crystal ball, but.

Tells you when the supply chains open up necessarily but what I'd like to try to understand is what's the impact of supply chain versus product mix. For example, nodes dilute your gross margin versus your software and we understand that so I guess, what I'm trying to understand here is is what what would you.

You expect the gross margin and that business unit should be and are sort of more normalized non supply constrained market and do you have a view on when we should get back to those levels.

So Simon and I appreciate the question I think.

And as I pointed it out and my prepared remarks, there are both pieces to the gross margin. The gross margin decline gets me now margin really.

Is it substantially due to the supply chain related costs.

At the same time, we had also seen increased growth and there'll be a hardware. So both pieces are there.

It's hard to quantify.

And what is the piece of each but substantially it's the supply chain cost that said you know.

Once the supply chain challenges are behind us.

Sure to turn back on.

Definitely and better margins and where we are expecting for this year.

And I think no.

And in the older years, I think when we talk about the multiyear and our factories.

Patrick mentioned I think began began covert expectation at that time.

This point, we are not going until 'twenty two margin.

But that actually we should see improvement from where we are this year.

Is there I guess a level that should we look at fiscal 'twenty as kind of a normalized value or is that misleading for any reason.

And if I could step in and I mean.

<unk>.

Our target is to do better than 2020. So I don't think it's a normalized value.

I mean, maybe maybe.

And I could.

Is that from the share it from the CEO perspective look Theres, a software component and there's a hardware component for software component is going to be very high margin.

It's 90 plus percent.

And then we've got hardware and we've always said or we said previously that the hardware has been and the let's say mid thirties on average, but that is we expect that to be going up with volume.

And as well as our design enhancements et cetera, and and <unk>.

Long term, that's still our expectation.

I think yeah, we've got on the other way short term on the hardware.

But that is not a fundamental reset we're paying a lot more to unpack it a little bit as you asked for paying a lot more for key components, we're also paying higher and.

We're also paying higher.

Assembly and and transport costs. So we're kind of getting hit from a number of perspectives, we see none of those catch though to be.

Fundamental impairments that go forward indefinitely.

We don't have a crystal ball on this on the supply chain thing I mean, right now I think we expect it to kind of carryover somewhat into 2022.

But we would expect.

And this is a very clear expectation, but we expect some recovery later in 2022, but we certainly hope it sooner we don't have a good crystal ball, but.

But what this guidance.

And so there's that.

Is that it will be with us through 2020, one and I.

Again, I want to emphasize the fact that we could probably have higher margins. If we were willing to take lower.

Deal with lower volumes, but.

We see a land grab opportunity we've got real momentum with our solution. So we are we are leaning in and every opportunity we have to deploy DAA hardware out there, which means we are scouring the planet right now for the materials and we need and we're paying top dollar in many cases for them I think that's the right thing to do strategically I think capture.

Capture and real estate is absolutely the right thing in terms of our multiyear growth on <unk>.

T a growth opportunity on market leadership opportunity yeah, it's costing us the gross margin short term, but I think that.

I think the right way to look at it is is that.

Is it worth picking up significant market share.

And.

That's gonna be a durable strategically on up into the business for many years after this.

Near term cost headwind is behind us.

Great. That's helpful. Thank you that's what I was looking for I appreciate it.

And you have a question from George Notter from Jefferies.

Hi, guys. Thanks, very much I guess I wanted to come back to the C band discussion from earlier and I think you said youre seeing a broadening out of opportunities I guess I guess the clarification here.

Are you seeing then.

Some of the 2023 opportunities coming forward, there and I guess there is of course, a deadline December 5th I think 2023.

So when you talk about a broadening of opportunities is are those the deals that youre seeing now kind of coming forward or are there. Some other pieces of business that are coming forward that no.

Two is something a little bit different George.

And you know.

And just taking a battery backup I know you know this but others listening may or may not I mean, it's still around the world a huge amount of video is moving around over satellite networks.

And and.

And I think in many ways as a philosophy our philosophy its been out there if it Ain't broke don't fix it.

Even though it'll actually on the question it's been out there wait a minute why not be using fiber base for transport.

And I think what we're seeing is the sort of success and what's happening to date with the C band project that is causing some of the let's call. It.

It Ain't broke don't fix it folks true to.

Stop and pause so even in the absence of the government conversion plan or pressure.

The success of this initiative is opening the door to a different kind of discussion, saying wait a minute, even if the governor medicine and bearing down on us and requiring us to abandon satellite maybe moving more of that traffic to fiber is going to save money on one hand and on the other hand, maybe it's going to it now.

And more innovative service deliver offering so it's for ladder.

And we're referring to and not a pull and a government driven programs, but rather a growing industry dialogue around.

You know whether to leverage this technology more broadly.

So that might got it and that's very helpful. I guess I also wanted to ask about.

Maybe one on art off so.

Obviously, the list of award eases out there for phase one.

Are there specific operators or customers did you see on that list that are harmonic customers that create new revenue opportunity for you and are there specific guide you can identify.

Yes is the short answer.

I don't want to suggest that we've got a state wide on the front and center of the auditorium.

But the short answer is yes.

And there are people who are existing customers and there are people who are and our.

And our sales pipeline.

Now to be clear as we've stated.

And where we're focusing on today, we are focusing on a subset.

Those are the subset of those folks who own some cable infrastructure as well, so who would be kind of hybrid cable and and.

Fiber to the premises operators.

But for anyone who isn't that category, they're absolutely, which is a subset of the art off where it is.

Absolutely part of our.

And I'll go to market focus and.

Got it thanks very much guys.

Alright, thank you.

And you have a question from Steven Frankel from Congress.

Mr. Franco.

Check to see if your line is muted.

Patrick Thank you for the opportunity to what extent.

And is this acceleration R&D, reflecting on.

On the new projects that you think you need to get to market faster.

And versus kind of like just accelerating the pace around existing things you'd already targeted.

And I wish it was one of the other and it's a mix of both.

We do have.

To be Frank and I think we've said it before every tier one has their own unique stuff and part of the success Formula is kind of adapting a for them and we.

We've got.

So significant share one last quarter, we've added another one this quarter and we've got several more tier ones on our pipeline and we are we're planning for success and what the ones.

With the ones, we've recently signed and what the ones that are coming so there's part of it.

And the second part of it is us looking at what we're learning and existing deployments.

And what we're seeing the fiber to the home opportunity, we've talked about a couple of times and and the overall momentum and work.

Envisioning, where the puck is headed and we see the puck really moving down the ice if I can stick with that analogy and and so where we think that was the time to is true.

Really lean in and I mean, let's face it if we spend on R&D and in that regard now you know it shows up as a benefit and later in 'twenty, two or in 2020, three and and we've got real growth aspirations for those years and so we think we think now is the time and and I guess sorry.

Sorry go ahead.

Uh huh.

And then one follow up I think I heard you say before that.

U.

DAA is increasing and mix and it's coming from the tier ones. So is it fair to say that those tier one customers that were kind of dipping their toe and doing fits and starts.

Over the last 18 months are now far enough into it that they can kind of put their foot on the accelerator in terms of deployment.

Yes, the pace of employment is definitely increasing I think that's one thing I think the other thing is is that.

A couple of those operators and initially started off with several different day, a sources and we think we're getting a little bit higher market share because of the strength of our particular.

Our solution and and again, even if the short term.

You know higher cost we think we think the right thing to do is to lead into that let's call. It incrementals.

Market share opportunity, we view, putting a day no doubt there is gaining valuable real estate.

Hum and not just a short term.

Yeah, and that's just a short term revenue opportunity but.

A real presence and the network opportunity.

Well, we're leaning into it.

And you have a question from Tim <unk> from Northland capital.

Hi, good afternoon.

I'm trying to check here.

A couple questions first on the overall topic of deployment accelerating and cable.

And trying to bridge the gap between 3 million cable modems and 50.

Thank you commented on recent industry events that you thought that number would be nine.

So by the end of this year, which is a pretty market acceleration and.

That context.

And you'll notice interesting to see the guidance increase.

I mean.

First inning there.

And are your relationship between that type of acceleration and cable modems served and harmonics revenue.

Sure sounds like we should be thinking more about the high end of the range, where you mentioned, the 50% growth or even that's conservative in light of those targets and then I have a follow up on a completely separate from.

Well. Thanks for the question Tim I think you were referring to comments that I made at the recent industry event, which is really targeted at.

At the cable operator community and they are.

And I was not talking specifically about harmonic, but but the the the industry writ large.

And as I think you know.

We think we're well ahead of the class on DAA and there are a couple of others, who are doing DAA solutions, including.

Da solutions that are not tied to virtualized CMT assets et cetera.

So the estimate that I provided there was not a harmonic number but it was and overall industry number domestic as well as international and certainly therefore included.

A competitor of DAA solutions that are out there. So yeah. There's a couple of different variables floating around and and further I will also can see that.

<unk>.

Growth forecast with the industry is somewhat different and offering financial guidance.

So you've got you've got a couple of different things going on.

Hum.

I think the good news is as we are seeing the industry and get more and more comfortable with D. H as a technology and.

And and I think importantly.

Portland, and it came out of that light reading conferences as interest industry conviction.

<unk> is not only viable, but it's and actually increasingly is the way to go.

But yes, one can therefore not draw straight line between those industry and <unk>.

<unk> and.

And our revenue for a couple of reasons that you highlighted as well as what I've just said in terms of film and overall.

Overall industry numbers versus a home on it.

Okay.

Did you say you thought you were gaining share, but I'll just leave that one there.

Second one is I think there was a brief reference made maybe and the incentive comp discussion about.

Hum.

Part of this driver for that being the new kind of cooperation agreement or the board changes that you've seen.

And I Wonder if you might comment a little more expansively on that.

And also.

I'm going to guess that the more detailed.

Segment guidance and Investor days might be a function of that as well and I guess at a high level.

Should we be thinking about these segments increasingly separately.

For harmonic video and cable access.

Hum.

Tactically and strategically.

And.

Yeah.

That were the case it might make for a shorter press release at least or possibly possibly a shorter call.

But.

Your choice for how to approach and whether we should be thinking more about strategic activity and harmonic is a result of that agreement and what has been the impact to date. Besides what you've mentioned on the call.

So there and let me start with the first one let me clarify this change of golf incentive for them from start to cash has nothing to do with the cooperation agreement.

And is building internal decision as the board.

Looked at our plan for the year Vod and reading a very good cash and the operating profit level, reaching we took a decision to convert a piece of older stock comp to cash call and it helps marginally reduced the valuation of the company as well. So let me clarify it has nothing to do with that agreement setting.

And secondly in terms of the two segments moving distinct we have always reported the two segments right from the revenue and operating profit and actual reported results, but by giving the guidance we have not given the guidance and that transparency starting this quarter, we felt the need to do it builds on the convenient.

As a regular questions during the investor interactions you've had so we thought it's more transparent and it provides.

On a more visibility of what each segment is doing and again. This has also and nothing to do and any other any other agreement.

So this is more on transparency.

And then just maybe a follow on you know from my perspective.

Sure.

Truly is a cooperation agreement.

We value.

And ship for scope here they've been on the stock for for several years and and and that's all very good and and so that's.

A full statement full stop.

And separately I think.

On the lines of Sanjay just said, we've been quite clear over the past several years.

How do we think about the different pieces of our business and how we're trying to create value and the company.

And there really is no strategic change and and Ah yeah, it wouldn't be a mistake to conclude.

Anything and <unk>.

<unk> from them for free.

And anything that we've discussed.

We've discussed today.

Both of our businesses, we think has the exciting futures and opportunity as you can see that we're investing in both and we've been.

Quite transparent we've received the question numerous times over the past several.

Several years.

What's the level of synergy between the two we've been quite transparent to say you know theres modest synergy it's not overwhelming.

And the way the company the management team as well as our boards well, what you create value whatever way, we can but maybe what the true business unit and staying together and maybe whats apart there is no change and that answer nor in our thinking.

So it has a.

And over the past over the past several years.

We will continue to move forward looking to create as much value as we can and overall enterprise, which really means creating as much value as we can and the two and the two business segments.

And I.

Very players coming into this call that we see actually good strategic progress on both sides of the business I think there's a lot of reason to be encouraged on both sides and to see.

See good future so on both sides for the business.

And there are no further questions at this time I'm going to turn the call back over to management for closing remarks.

Alright, well, thank you very much all for joining us.

We've got a lot of challenges, but a lot of opportunities ahead of us.

We look forward to staying in touch with all of you and in particular as.

As mentioned keep an eye out for our planned Investor day.

So and.

And a month for Showtime.

Until then.

Take care and we'll look forward to speaking with you all again bye bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Yeah.

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