Q4 2021 Harmonic Inc Earnings Call
Speaker 1: Welcome to the Q4 2021 harmonic earnings conference call. My name is Valerie and I'll be your operator for today's call. At this time, all participants on a listen only mode. After the speaker's presentation, there'll be a question in the answer session. To ask the question at that time, please press star then one on your telephone. Please note that this conference is a very important question.
Welcome to the Q4 2021 harmonic earnings Conference call. My name is Valerie and I'll be your operator for today's call. At this time all participants are in a listen only mode.
The speaker's presentation there'll be a question and answer session to ask a question at that time. Please press Star then one on your telephone. Please note that this conference is being recorded.
I will now turn the call over to David Handover Investor Relations, David you may begin.
Thank you operator, Hello, everyone and thank you for joining us today for harmonics fourth quarter 2021 financial results Conference call.
With me today are Patrick Harshman, President and Chief Executive Officer, and Sanjay Kalra Chief Financial Officer.
Before we begin I would like to point out that in addition to the 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 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 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.
Please note that unless otherwise indicated the financial metrics. We provide you on this call are determined on a non-GAAP basis.
These metrics together with corresponding GAAP numbers and a reconciliation to GAAP are contained in today's press release, which we posted on our 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, 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.
Well, thanks, David and welcome everyone to our fourth quarter call.
Harmonic capped a strong 2021 with another quarter of excellent financial and strategic results.
Revenue was a record $155 $8 million of 18, 5% year over year.
<unk> was 16.
Cash generation was strong the book to Bill was one seven resulting in record backlog and deferred revenue.
$440 million.
Full year revenue grew over 33% as both our cable access and video segments continued to invest in the future and secure new strategic wins, while also delivering positive operating income.
Fourth quarter cable access segment revenue grew 53% is the number of customers deploying cable OS grew 66% year over year.
Our video segment delivered strong year over year streaming revenue growth 56, 5%.
Adjusted EBITDA margin of 19, 8%.
These 2021 results and our 2020 outlook demonstrate the execution of our multiyear strategic and financial plans, we shared with you in our June Investor days.
Firmly on track, despite continuing pandemic on supply chain headwinds.
We're entering 2022 with truly industry, leading technology strong market momentum new customers actively deploying our latest solutions record backlog and deferred revenue.
Solid cash position, a great foundation for extending our solutions market impact growth.
So looking more closely at our cable access segment. It was another very good quarter, a very strong year.
Quarter end 73 broadband service providers were deploying our cable OS up 66% year over year.
Broadband modems served grew to $4 8 million of 82% year over year.
Segment revenue was $69 $7 million or 53% from a year ago.
Adjusted EBITDA margin was nine 6%, despite ongoing supply chain headwinds, which impacted both topline and gross margins.
In December we announced Roger selection of harmonic and cable OS to power the company's next generation multi gigabit broadband services.
But this is a true market leader in this high profile win further validates our technology leadership.
Significantly expands our market position in North America.
Looking ahead, we have a strong pipeline of demand from existing customers, who are already deploying cable OS.
Our customers such as Rogers, who are still in the early stages of scaling up deployment and.
Some customers that were still working to convert to our platform.
Existing cable customers seeking to secure supply well into 2022 drove the lion's share of a very strong fourth quarter bookings, however, newer customers and new software and service applications are growing part of the demand story.
We're particularly encouraged by the progress we're seeing with the fiber to the home application of our cable edge solution Q.
Q4 was a strong quarter for new fiber to the home wins spanning existing cable customers, new cable customers and new rural telco customers, who have no cable infrastructure.
<unk>. These wins, we also began shipping a new 60 gig remote switch during the quarter.
We continue to see fiber to the home is a competitive multiplier within cable accounts, where our integrated hybrid DOCSIS plus fiber to the home solutions both powerful.
Anthony.
Validating the value proposition, we are making good progress qualifying a fiber to the home solutions with a couple of tier one cable operators.
We also see fiber to the home as a means of significantly expanding our Augusta market.
Our recent non cable operator wins highlight there's still developing market expansion opportunity.
Correspondingly broadening of fiber to the home go to market investments in 2022.
Overall for 2022, we see a strong demand environment for both our software and more than previously anticipated a hardware DAA nodes of modules.
And this is important because it demonstrates that our end to end solution leadership and market share continue to grow.
That said, we're also continuing to contend with supply chain challenges, which means that our current outlook for 2022 are supply constrained and burdened by exceptionally high costs.
Despite these challenges we remain confident in our ability to continue to deliver on a multiyear top line income growth targets.
Specifically, we continue to see greater than $2 billion of addressable market and a clear path for us to leverage our cloud native DAA technology to be number one in cable broadband.
Spanned into attractive adjacent applications.
The technology marketplace and financial progress achieved in 2021, and our strong sales pipeline of both cable and fiber to the home opportunities.
<unk> demonstrates that we're on track to meet or exceed our broadband access growth objectives.
Turning now to our video segment.
Here also we delivered a solid quarter capping a year of strong financial and strategic achievements.
Fourth quarter segment revenue was $86 1 million up 25% sequentially and flat year over year.
Segment gross margin was 58, 8% up 260 basis points year over year.
Video segment revenue grew 18, 5% and full year adjusted EBITDA was 12, 6% driven by both stronger than anticipated traditional broadcast application demand and excellent progress with our strategic push into streaming.
Streaming revenue for the year encompassing SaaS and perpetual license sales was $48 5 million.
A 56, 5% year over year.
As a reminder, in June last year, we laid out our multiyear video business strategic plan.
Seo plan has two core elements, taking a leading position in the growing streaming infrastructure market and maximizing revenue and profit from the large but slowly declining video broadcast market.
Our 2021 results highlight strong execution of both elements of this plan.
On the broadcast side of the business higher than anticipated revenue demonstrates that the global broadcast market still has a lot of life left in.
And we're capable of profitably taking a growing share of this business.
Although we don't expect the surge of broadcast appliance demand we saw in 2021 to fully repeat itself in 2022, we see good opportunity to continue to profitably leverage the broadcast market for several years to come as we continue to transform and grow our streaming SaaS business.
And on the streaming SaaS side of the business.
<unk> and translated into growing a growing number of new accounts and a sustainable growth trajectory.
Our third quarter call, we highlighted new streaming SaaS design wins with several tier one media companies and during the fourth quarter, we saw a corresponding growing number of new services launched on our streaming platforms.
By year end, we were delivering over 2500 live sporting events per month.
360.
Associated with growing adoption and usage by tier one customers.
Seeing growing volume associated with major U S and international sports leagues and high profile events like the upcoming Olympic games, Big time content with big time quality of service and targeted advertising requirements, but.
To enable our solution to really scale and shine.
Looking ahead, we believe our ongoing streaming platform investments will continue to translate into growth with market, leading content owners and streaming service providers, particularly for high value live sports.
<unk>, we expect our streaming subs revenue to again grow over 50% in 2022 and.
And we remain firmly on track to achieve over $100 million streaming revenue by 2024 of.
Of which we expect at least two thirds to be SaaS as we laid out for you in our June 2021 Investor day.
In summary for our video segment.
<unk> delivered an exceptionally strong 2021.
And we remain on track to attain the multi year strategic transformation and financial performance targets, we've set for ourselves.
Creating increasingly differentiated and valuable video streaming business.
So now over to you Sanjay for a closer look at the financial results and our outlook.
Thanks, Patrick and thank you all for joining us today.
Before I discuss our quarterly results and outlook.
Like to remind everyone that the financial results I'll be referring to.
On a non-GAAP basis.
As Evan mentioned earlier, our Q4 press release and earnings presentation.
Includes reconciliations of non-GAAP financial measures to GAAP data discussed on this call. Both of these are available on our website.
For the fourth quarter of 2021, we delivered solid results near or above the top of our guidance ranges.
These results demonstrate the strength of our businesses, which continues to perform well.
Even with the challenges caused by the pandemic and supply chain landscape.
As we enter the new year, we are incredibly proud of everything our team has accomplished in 2021.
We have positioned our business for continued long term success and are excited to build upon this foundation in 2022.
Before I run through our quarterly and annual financials in more detail.
Briefly review some of the highlights on slide seven.
We reported record revenue of $155 8 million, along with solid gross margin and EPS.
We also saw strong sustained business momentum with a record book to Bill ratio, which contributed to record backlog and deferred revenue positioning us well for 2022.
For the full year 2021, total revenue was $507 1 million up 33, 9% compared to 2020.
Annual revenue in our cable access segment was $218 6 million up 64% year over year and video was $288 5 million up 19% year over year.
Now, let's review, our fourth quarter financials in more detail.
Turning to slide eight.
As I just mentioned.
Total company Q4 revenue was $155 8 million up 23, 4% sequentially.
<unk>, 5% year over year.
Looking first at our cable access business segment.
Revenue for the quarter was $69 7 million up 21% sequentially and 53, 2% year over year.
Both the continued ramp up of existing customers.
And new customer wins.
In our video segment, we reported Q4 revenue of $86 1 million up 25, 3% sequentially and approximately flat year over year.
This solid performance reflects continuing broadcast demand.
Robust revenue from five <unk> bandwidth reclamation projects and strong streaming SaaS revenue growth.
During the fourth quarter, our total streaming revenues grew 56, 5%.
And subset SaaS revenues grew 133% year over year due to increasing usage from existing customers and activation of new customers.
We ended Q4, 'twenty, one with 112, SaaS customers 24, 4% year over year growth.
In the quarter, we added 30, new SaaS customers and saw a churn of two small deployments.
We had two customers representing greater than 10% of total revenue during the quarter.
Comcast contributed 96% of total revenue and it does that contributed 15% of total revenue.
As shown earlier.
Total company gross margins declined by 480 basis points to 55% in Q4 'twenty one.
Compared to 55, 3% in Q4 'twenty.
This is due to cable segment revenue is becoming an increasing part of our overall revenue mix.
For the full year 2021 cable segment revenues grew over 60% compared to 2020.
Cable access gross margin for Q4, 'twenty, one look consistent with our expectations at 43%.
Compared to 42% in Q1, and 53, 7% in Q4 'twenty.
Extraordinarily supply chain costs related to the pandemic continued to depress margins in 2021 relative to prior year.
With a sequential decline, primarily reflecting a higher supply chain costs in Q4.
Video segment gross margin was 58, 8% in Q4, 'twenty, one compared to 61, 9% in Q3 'twenty one.
And 56, 2% in the year ago period.
I think Glenn shall degrees, where the product was due to product mix, while the annual improvement reflect an improved software mix within our appliance category.
As the lead expanding SaaS business.
Moving down the income statement on slide nine.
Q4, 'twenty, one operating expenses of $58 million compared to $54 9 million in Q3 21.
And $49 3 million in Q4 'twenty.
The year over year increase was primarily due to increased research and development and sales and marketing activities to drive the growth of our cable access business.
Adjusted EBITDA for Q4, 'twenty, one was 15, 3% of revenue at $23 8 million.
Comprised of $6 7 million from cable access and $17 1 million from video.
This compares to an adjusted EBITDA of 11, 7% of revenue at $14 $8 million in Q3 2001.
21% of revenue at $26 4 million in Q4 'twenty.
This all translated to Q4 EPS of <unk> 16 per share compared to nine cents per share in Q3, 'twenty, one and 'twenty, while Q4 'twenty.
We ended the quarter with a diluted weighted average share count of $110 5 million.
Compared to 106 $4 million in Q3, 21, and $100 3 million in Q4 'twenty.
The sequential increase is primarily due to convertible debt dilution of $2 3 million shares and the dilutive effect of outstanding RSV using options by $1 1 million shares both resulting from an increase in our average stock price in the quarter.
And 0.7 million shares due the weighted effect of stock and ESOP shares issued to employees.
The year over year increase reflects dilution of our convertible debt by $4 2 million shares.
And the dilutive effect of whole shedding RSC was an options by $1 1 million shares.
Both resulting from an increase in our average stock price during the quarter.
And $4 9 million shares due to the immediate effect of stock and STB shares issued to employees.
Q4 bookings were a record $267 3 million.
The $114 3 million in Q3, 21, and $206 4 million in Q4 already.
We are pleased to report another strong quarter of new bookings demonstrating continued robust demand for our innovative solutions and services.
Our book to Bill ratio was a record $1 seven in Q4 'twenty one <unk>.
<unk> nine in Q3, 21, and one six in Q4 'twenty.
The strong Q4, 'twenty one book to Bill ratio was primarily due to cable access bookings driven partly by accelerating <unk> deployments and partly by customers ordering ahead to secure supply well into 2022.
Due to increased lead times in this extraordinary supply chain landscape.
The full year 2021 book to Bill ratio is 1.0 for video and one three for cable.
Turning to slide 10.
We'll now discuss our liquidity position and balance sheet.
We ended Q4 with cash of $133 4 million compared to $128 4 million at the end of Q3, 2001, and $98 6 million last year.
The $5 million sequential increase is comprised of $7 $4 million of cash generated from operations, primarily attributable to both cable access and video segment operating profit.
Net of $2 4 million cash used in purchases of fixed assets.
Our days sales outstanding at the end of Q4 was 51 days compared to 54 days at the end of Q3 'twenty one.
45 days in Q4 2020.
All reflecting very healthy collection metrics.
Okay.
Our days inventory on hand was 83 days at the end of Q4 compared to 78 days at the end of Q3, 21, and 54 days at the end of Q4 'twenty.
Reflecting increasing inventory at the end of the quarter as we prepare for heavy 2022 shipments.
Where possible we continue to stock up on the inventory at higher than normal levels in anticipation of continuing supply chain challenges.
At the end of Q4 total backlog and deferred revenue was a record $441 million up 32, 3% sequentially from $333 3 million at Q3 'twenty one.
And representing 51, 8% growth year over year from $290 5 million at Q4 'twenty.
This Q4 backlog and deferred revenue reflects continued growing demand from our large <unk> customers and increasing video streaming SaaS volume commitments.
Nor that historically about 80%, 90% of <unk> backlog and deferred revenue gets converted into revenue within a rolling one year period.
As mentioned on previous calls not included in our backlog is additional contractually agreed gave a louis business with.
With three of our initial tier one cable customers.
At the end of Q4 'twenty one.
Mental amount was approximately $104 million.
Down from $137 million last quarter.
Approximately 33 million went through the purchase order process and therefore moved into bookings.
Taking these cable lose contracts into account.
We have total future contracted revenues of approximately $545 million with.
Which continues to provide us with a very solid base for 2022 and beyond.
With a strong finish to 2021.
I'll now share highlights of our <unk>.
Progress towards our long term model for cable access and video segments, which we shared with you during our investor event in June of 2021.
Starting with cable access on slide 11.
We are making solid progress towards our 2020 for revenue and profit goals.
In 2021.
Yes.
Topline growth was well in excess of a multiyear growth target growth rate targets sorry.
Our 2020 outlook further reflects continuing strong revenue growth despite of the current supply chain environment.
The faster than anticipated growth is due in part to higher than expected DAA hardware market share and sales.
Consequently, gross margins were lower in 2021, you do both extraordinary supply chain costs and product mix.
Although gross margin dollars remained roughly on track.
We expect these trends to continue in 2022.
Having said that when normalizing for these industry wide issues, our hardware margins continued to improve with volume and we remain confident in software growth rates, we outlined last June .
In fact, excluding supply chain costs, our gross margins in 2021 would have been approximately 46%.
And we expect this to improve further in 2022.
Hence, we expect adjusted EBITDA margins to improve in 2022 and remain in line with the progress anticipated to meet or exceed our 2024 goal.
As for the video segment on Slide 12.
So any 31 was an outstanding year compared to 2020 and with respect to what we're doing at only four goals.
Both revenues and gross margins improved significantly already approaching about 134 targets.
Broadcast revenue in 2021 was stronger than anticipated.
And strategically important streaming revenue growth remains on target to achieve our $100 million goal by 2024.
Streaming revenue growth is substantially driven by SaaS growth.
And 2021, SaaS revenues grew 66% over 2020.
Looking at adjusted EBITDA margins, while we anticipate a slight step back in 2020 due from an exceptional 2021.
The overall picture is fully in line with the transformation trajectory plan to achieve our 'twenty 'twenty four targets.
Now with that big picture background.
I also want to provide an update on our convertible debt.
We have $153 2 million of outstanding convertible debt.
Of which $37 7 million will mature in December 2022.
And $115 5 million will mature in September 2024.
In 2021 in light of our expectations for healthy cash generation under our multiyear business model.
We made an election.
Election to redeem the principal amount of these notes in cash upon maturity.
Thereby eliminating dilution exposure of six 6 million shares in 2020 due.
And $13 3 million shares.
In 2024.
I'll now turn to our detailed non-GAAP guidance for 2022, beginning on slide 13.
I will first review guidance for full year for all of our cable segment, followed by video segment and then for the full company.
To offer some further clarity as I go through the guidance I'm going to highlight anticipated effects of certain items included in our 2022 guidance versus 2021.
With respect to operating expenses changes in accounting treatment of SaaS, R&D and income tax rate.
For the full year 2020, due based on the progress to date, we expect cable access to achieve revenue in the range of $295 million to $307 million.
And gross margins in the range of 41% to 43, 6%.
As we expect continued heavy DAA hardware demand.
And supply limitations.
Gross profit in the range of 121 million to $134 million operating expenses to range from $92 million to $96 million.
Adjusted EBITDA to range from 34 million to $43 million.
For full year 2020, do video segment results.
We expect revenue in the range of $275 million to $289 million.
Gross margins in the range of 56, 5% to 58, 3%.
Gross profit in the range of 155 million to $168 million.
Operating expenses in the range of $146 million to $150 million.
With a strong pipeline of streaming SaaS opportunities, we are increasing SaaS investments accordingly.
Our operating expenses guidance reflects the impact of discontinuing the capitalization of certain SaaS R&D costs.
And needing to expense these going forward.
This change was required because in the fourth quarter of 2021 third in SaaS R&D activities are also supporting some of our broadcast appliance products.
We expect this to result in approximately 2 million higher R&D expenses in 2022 compared to 2021.
And then higher SaaS gross margins thereafter.
Adjusted EBITDA.
The range from 15 million to $24 million.
For total company for full year 'twenty, two we expect revenue in the range of 572 $596 million.
Gross margin in the range of 48, 5% to 57%.
Gross profit to range from $276 million to $302 million.
Operating expenses to range from $238 million to $246 million.
Our 2020 do operating expenses expectations.
Included approximately $4 million of additional expenses associated with higher than normal salary increases.
And additional planned travels to secure new customer wins.
Adjusted EBITDA to range from 49 million to $67 million.
EPS to range from 26 to <unk> 40 per share.
The net result of additional operating expenses I, just mentioned together with the change in SaaS, R&D capitalization and tax rate change, which I will discuss momentarily.
Results in a five cent decrease to our full year EPS.
The low end and a 6% decrease at the high end.
And effective tax rate of 13%, which is an increase from 10% in 2021.
This is primarily due to reduction of Nols as we continue to be profitable.
The weighted average diluted share count of approximately $112 6 million, reflecting the impact on share count via our convertible debt and due to stock issuance to employees.
Finally cash at the end of $2000 due as expected to come in between $100 million to $110 million.
Which allows for healthy continued investment in working capital needed for growth.
This gathering is net of approximately $38 million that we have committed to paying cash for the redemption of convertible debt principal due in December 2020, due which I mentioned earlier.
Now on Slide 14, I'll review, our non-GAAP guidance for the first quarter of 2022.
Part of our cable access segment in Q1, we expect revenue in the range of $70 million to $80 million gross margin in the range of 36% to 38%.
Gross profit in the range from $25 million to $30 million.
Operating expenses in the range of $22 million to $23 million.
Adjusted EBITDA to range from $4 million to $8 million.
For our video segment in Q1, we expect revenue in the range of $64 million to $69 million.
Margin in the range of 56% to 57%.
Gross profit in the range of $36 million to $39 million.
Operating expenses in the range of 37% to 38 billion.
Adjusted EBITDA to range from breakeven to a profit of $3 million.
For total company for first quarter of 2022, we expect revenue in the range of $1 34 to $1 $49 million.
Gross margin in the range of 45, 6% to 46, 8%.
Gross profit in the range of 61% to $69 million.
Operating expenses to range from 59% to $61 million.
Adjusted EBITDA to range from 4 million to $11 million.
EPS to range from <unk> to <unk>.
Our weighted average diluted share count of approximately $111 7 million.
At the end of Q1 cash is expected to range from 110 $220 million.
In summary, we made significant progress in 2021.
Position ourselves for continued business momentum in 2022 and towards the beginning of our long term targets.
We are very proud of what we have already achieved.
Our 2022 outlook remains consistent with long term revenue and operating models, we shared with you previously.
We appreciate your attention today. 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, very much Sanjay a lot there.
But we'd like to conclude by summarizing our strategic priorities as we enter 2022.
For cable access business, our objectives remain enabling volume deployments, where a growing list of tier one customers.
And scaling with new global operators.
Expanding our addressed market through our unique converged software core for DOCSIS and fiber to the home applications.
Our video segment, our objectives continue to be accelerating the growth of our streaming SaaS customer base.
Standing the capabilities of our streaming sales to support the requirements of our growing list of top tier customers.
Most valuable content, especially online sports and capitalizing them with traditional broadcast business to profitably enable these transformations.
2021 was a year of strong strategic and financial execution.
In 2022, we aim to continue to leverage and extend our industry leading solutions and.
And create even greater value for our customers.
And for our shareholders.
And with that I want to thank.
You all for your support.
And open up the call for questions.
Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one when your Touchstone telephone again to ask a question. Please press Star then one.
One other please for our first question.
Our first question comes from Simon Leopold of Raymond James Sir Your line is open.
Thanks for taking the question.
Youre right out Patrick there is a lot to digest here.
So.
Looking first at the gross margin trends in the cable access segment.
You've given us a forecast for the first quarter and the full year.
And I think this implies a lot of improvement as we get through the year, So I'm trying to get a better sense.
Where do you think we exit 2022 in terms of gross margin in cable.
Segment, and what gets us to that higher level, that's implied by the full year guidance.
In that I'm, assuming you've got input costs.
Not going down to what degree are you able to raise prices.
Or how much of this is about mix shifting more towards software from hardware. So if you could maybe paint the picture of the drivers and trajectory for cable access gross margin and then I've got a power.
Thanks, Simon so yeah, a couple of things here I think first of all I'll start with.
Yes, Q1, as you said, we guided a range in high thirties, but for full year is close to $43 six at high end and range of 41 to 43. So overall for the full year. The margins are expected to be where we ended last year or with a slight improvement if we get closer to high end that said starting in Q1 itself the <unk>.
It's a little lower and yes, they are expected to improve in the outer quarters compared to Q1 Q1 is mainly the mix and the supply chain <unk> ore coming from last year because of where the margins are.
More on the lower end I would say, but as we progress during the year, we expect that to get back into regular normal shape.
That said overall for the full year as I pointed out Simon the margins have been impacted by supply chain.
With our supply chain impact in the prepared remarks, I mentioned, it could be 47% instead of $42 60 short.
So thats the situation for supply chain impact that said in 2022.
Couple of things happening, even though you'll see the margins are in the similar range of last year, but our supply chain impacts are higher in 2022 versus 2021, instead of 4%. It may go up to 6% the supply chain impact that said the <unk>.
<unk> and impacts are offset by <unk>.
Price increases, which we are working with our customers at the same time with the economies of scale, which we have seen because of the growth.
So overall the margins may be saying, but has a lot going on.
Offsets.
Thanks, and then just as a follow up here.
<unk> been giving us the metrics in terms of cable modems served.
And it's kind of had this steady cadence.
I don't think <unk>.
Gave us the number of passing so I'm trying to get a better sense of what is the penetration rate for cable modems and.
My sense is that it's not growing that quickly at this point.
And I'm, just wondering how to think about maybe longer term trending.
The number of modems that should be served given the potential that you could share. Thank you.
The number of passengers is approximately is the neighborhood of $60 million assignment.
<unk>.
We reported now serving $4 8 million. So we still are below 10% of the passing so I think that theres been a modest pickup.
<unk>.
Uh huh.
From our perspective, that's good news on one hand, we continue to add new customers.
There is a lot including.
Couple of new tier ones, who are have not really got going in earnest.
So while we're I think we're starting to hit a pretty good cadence with some of our larger customers.
Continuing to expand that.
The past market.
That being said I do think that I would expect sometime during this year us to maybe.
Maybe probably cross more than 10% of the passing is addressed but I certainly wouldn't expect it to be 20% this year.
It's one of the reasons why we're so confident in this business on a multi year trajectory.
We see the demand just from the customers we've already won.
Being strong in driving very healthy growth for the next several years.
On top of that the additional business, we expect to win.
We think we're going to have a very strong runway in this business score for the foreseeable future.
Thanks for that.
Okay. Thank you.
Thank you. Our next question comes from Steve backlog.
Our next question comes from Steve Frankel of <unk>. Your line is open.
Thank you and then Ken to go back on the supply chain situation.
Maybe give us a little color on how it incrementally worse from last time, we talked.
And your confidence that you can.
Get your hands on the parts you need to meet the demand of tremendous demand. That's in front of you is it's really going to be a cost issue and.
The equation around how much of that you can pass through or are there material risk to just getting your hands on material and being able to deliver nodes.
Well there are risks, Steve, but we think we've taken a fairly balanced approach in the forecast that we've given today as Sanjay mentioned actually there is and I think as I mentioned as well in my prepared remarks.
The outlook, we've given you today is supply is limited.
We see more demand than we can supply them.
More demand than is reflected in the other guidance. We've given today. So we definitely are taking a haircut on that and the haircut. We've taken is informed by our experience over the past year.
We're relatively confident I'd say, we're quite confident that we can deliver.
What we've outlined here today based on our work to date.
There is an upside opportunity, but it's premature to.
To assume any of that in fact, we're not we wouldn't advise you to as well.
That being said, what we can supply is going to be at high cost for the full year and as Sanjay was just saying a moment ago. When you compare year over year and 2021, we're not struggling with.
Certain price increases in certain <unk>.
<unk> for the whole year.
Have things really kicked in the second half of the year and now we're entering the beginning of 'twenty two with those things in full force and while that is somewhat mitigated by some pricing adjustments et cetera.
From a full year perspective.
It's a bigger challenge.
I don't want to suggest that.
The situation has materially deteriorated from the second half of last year It has not.
But we are in a situation, where we're contending with it from day one.
We think we think we've done a good job. We think we'll continue to do a good job.
But but but the issues are with us and we don't at this point anticipate them subsiding before the end of the year.
I'll pause there that was wholesale amounts full but tell me does that.
Address the question Youre asking.
I think that addressing the question and then.
Maybe two other comments during your prepared remarks, one was sounded like you might be able to quantify what.
Supply chain.
Impact was to revenue in Q4, you said there were some things that you probably couldn't deliver and then my second question, maybe is a little more color on those comments around.
Well be stopped travel to.
To go after some potential customer wins, maybe some color on that.
Okay.
Yes.
Well.
Okay.
Look.
Q4.
I would say.
Very modest impact in terms of unfulfilled.
And in Q4.
Yes, so I'll comment really on being demand constrained I mean, that's all relative to the guidance we had in the plan we put in place.
For the second half of the year Steve.
The comment really is as we look at 2022, we see a very strong demand environment and frankly, we don't think we can keep up with all of that demand. We are working closely with our customers.
To basically do what they need.
But we see demand being realized orders being booked in 2022, where the delivery.
As at this point, we assume is going to spill over into 2023.
From a long term perspective, we don't think we're losing that business, it's not going away.
But it means for 2022, probably is not going to be quite as strong as otherwise would be.
That being said, it's a strong.
Year over year from a growth perspective, as you can see from the guidance, we've given and so we.
We're not at all.
St Bearish about we're able to do we're doing a heck of a job I would say it's amazing.
Amazing job with the business that we see even stronger demand.
By virtue of the good success, we are having with existing customers and the growing but growing number of customers were bringing into the fold.
And maybe on that.
Bringing customers into the fold.
Maybe.
The current short term pandemic issues notwithstanding our preliminary view right now is that over the course of this year.
Endemic situation will recede somewhat.
But there will be growing opportunities as well as the desire on the part of our customers for us to meet with them in person.
Sure.
We are getting those requests already from customers and indeed, we think more in person meetings may help us actually accelerate some of the market share gains that we've been able to ratchet up over the last 18 months. So it mean.
Our travel and entertainment budget is going to not get back to where it was pre pandemic.
Right now our guidance anticipates.
Sure.
A significant step up relative to 2020 in 2021.
But really that's all in the service of.
Continuing if not accelerating market share gains on both sides of the business both the cable access as well as video.
And would you characterize the cable pipeline.
<unk> still has a material number of tier ones.
But you haven't conquered yet.
So the next cohort.
No.
Sure.
Look.
Our ambition and our belief is we are going to be number one I think eventually we're going to be one way or another in every tier one Steve.
It may not happen in 'twenty, two but it is going to happen in my belief and we are engaged in one way or another with with virtually every tier one out there.
So.
In terms of the pipeline of 2022, I wont say that its every tier one, but our 2022 pipeline is strong overall.
Certainly includes.
Our remaining tier ones as well as a growing list of let's call them tier two and tier three operators, both cable as well as a growing number of fiber to the home.
And so that's something that's unchanged with this business. The sales pipeline continues to be strong and Thats. One of the reasons why you see us continuing to invest in.
And go to market.
Okay perfect. That's helpful. Thank you so much.
Alright. Thank you. Our next our next question comes from Tim <unk> of Northland.
Market Your line is open.
Hi, good afternoon, and congrats on the both the strong quarter and obviously the bookings and backlog results.
And my question is kind of in that direction.
And maybe following on your comments about customer acquisition, but.
I'm wondering if you could kind of give us your latest view of the competitive environment you've had.
A couple of your big competitors in analyst days late last year.
Kind of.
Maybe throw in the towel, but certainly offer outlooks for growth in cable networking that are.
Flat after seeing declines this year versus your substantial growth.
I guess, what did you take out of that and how do you look at this competitive environment going forward as you kind of seek these this market leadership position and I can follow up from there.
<unk>.
Well look we compete against some very good companies that have kind of long histories, and very strong installed base and we will give them a lot of respect and.
And take them seriously as competitors.
That being said as you know Tim for some time, we have continued to believe that we are way out in front.
On the next generation of technology.
And while some of the public comments that you mentioned were a surprise to some of the market for us they were more confirmation of what we think we're seeing that day in day out in the marketplace.
So we think we're ahead and we think that our technology leadership position is not something that.
It can be easily and I think that the experience over the last year or two.
It has demonstrated that.
Doing a completely new cloud native for Virtualized access platform is.
It is a monumental task.
Another quick another quick R&D program.
So we think we're way out in front.
And Thats why.
Frankly.
Not with bravado, but in all sincerity, we believe that we can and will ultimately be number one in this in this space.
Won't happen overnight, there's a lot of installed.
Competitive product out there et cetera, but from a competitive perspective, we think our position frankly has never been stronger.
And to follow up I guess.
Maybe you could extend those comments to the PON side of the house.
As well or maybe you are including them and going back to the <unk>.
Bookings.
Performance in the quarter I think you mentioned a couple of drivers both in acceleration.
And customer deployment activity.
And maybe some preordering and given the supply chain issues I Wonder if you can kind of parse.
Among those two factors.
To what extent did you have you really seen a meaningful step up.
And deployment plans, both among your top customers or more broadly.
Okay, Let's go to the PON piece of that first.
No.
I think it's premature for us to to compare our fiber to the home solution with the let's say the telecom specialist who are let's say selling the AT&T and Verizon everyday.
We do think we are increasingly strong and is in a.
The hybrid integrated converged solution.
For for DOCSIS and punished it's unique.
And it really is a competitive multiplier.
And cable accounts, which are increasingly themselves going after rural opportunities.
This is services.
And the like I think we all heard a lot of that on recent conference calls.
So.
When it comes to <unk>.
Fiber applications for cable operators.
That is in itself a significant Tam expansion and we think we really have something that's truly unique that being said going beyond that we think that our our our fiber solution is pretty slick.
And as I mentioned in the prepared remarks, we've started to see some interesting wins with with operators that have no cable infrastructure at all no I think it's premature to declare victory there, but it's a pretty encouraging trend is something we are leaning into more and we'll continue to report on as we as we go forward.
Now in terms of the backlog in the fourth quarter bookings.
And in particular Sanjay talked about indeed.
We saw we saw two things number one we've just got a bigger group of customers and they're all at various places on kind of accelerating deployment tourists.
So I wouldn't say it's.
Our market has stepped up on anybody, but all of our customers existing and new or are not kind of on a flat deployment.
Curve, but in fact, they are on a.
Parabolic are accelerating deployment.
That's part of just what is speeding the overall growth of the business. No addition in addition to that we are in a very difficult so client environments and our customers are seeing that not only from us.
But from from their other suppliers across product categories, and so a number of customers really we're working to get out ahead of that and so we saw from several customers orders that really look beyond Q1 look into Q2 and in some cases even into into Q3.
So so it's a mix of those two things.
That drove the kind of extraordinary order input that we saw in the fourth quarter.
Okay. Thanks.
Thank you our next question comes up.
<unk> of Needham Your line is open.
Hi, Thanks, most of my questions have been answered, but any more color you can share on the supply chain costs here that are impacting Q1 in terms of.
The types of chips.
Are there any logistics costs.
Any more color would be helpful. That's the only question I had thanks.
Well.
It's all of the bump to tell you the truth, Ryan I think that the.
Components is the is the big thing but.
Component cost, but youre right a component availability kind of comes quickly after that.
Late availability kind of drives continuing.
Higher production costs.
Certain lines late in the quarter around the clock for example, and air freight as opposed to.
As opposed to lower cost of transport.
So it's it's a little.
It's all of the above that we're dealing with but it's a component cost a couple of hundred availability that is really the core of the of the pump.
Of course, okay. Thanks, Patrick.
Alright, thank you.
Thank you. Our next question comes from George Notter of Jefferies. Your line is open.
Hi, Thanks, a lot guys.
I wanted to ask about pricing increases I think Patrick earlier on the call you mentioned that.
You guys were starting to mobilize on pricing increases can you just talk about how that works with customers. Both on the video appliance side and then also.
I guess on the hardware piece of the cable access business the nodes business.
How do you go into large customers like Comcast and negotiate higher pricing and how much higher do you think you can get in terms of where pricing levels can go.
Well thanks for the question George I, just heard the ears of all of my competitors perk up.
Seriously.
I can't and I shouldnt be too explicit about that.
What I will say is particularly the larger customers I mean every one of them is unique in every regard and so every discussion is unique every every existing commercial agreements as unit.
I think the good news is is on both sides of our business I think we've increasingly established ourselves. So it's not just a supplier but the partner.
And these are discussions not just about selling but about working together to help our customers.
Deliver on their plans when you think about our cable customers.
It isn't just to get a lower price, but they are out there.
Offering a competitive broadband service, that's going to compete with AT&T fiber or what have you. So we're having a collaborative discussion about what can be done to get the job done on time.
And most efficiently and when that conversation takes different forms with just with different operators.
What I would say is that we're being we're seeing a fair amount of success in that regard but.
In some cases.
Agreements haven't kicked in yet or only kicking in now in Q1 have kicked in late and in Q4, So I think as Sanjay alluded to.
We expect.
We expect more benefit from that.
Over the course of 2022.
That's part of the answer to improving gross margins above and beyond what we're what we're forecasting for Q1.
And.
But I also have to say, it's it is a moving target. We don't think we're done seeing surprises our customers don't think we're done seeing surprises.
It's an ongoing a cooperative conversation but.
That I think is in general is very much in a partnering mode.
Got it Okay, and then I guess.
The other one I had was really on cable OS.
I'm trying to drill down a bit in terms of what growth rates.
Revenue contributions look like there.
I asked because you have had a lot of success on cable modem adds you've gone from I think $3 9 million to $4 8 million sequentially and Thats. The biggest jump we've seen and I think forever in this cable cable.
Cable OS business and then.
At the same time.
The SaaS and service segment.
<unk> growing that much on a year on year basis.
On a sequential basis, and so I guess I'm.
Kind of wondering are there moving parts in here that I'm missing in terms of what's going on with the cable access business and that SaaS and service revenue line I guess.
I'm inferring, perhaps that maybe more of the business is coming from our Comcast where you have more kind of all you can eat.
Type of pricing structure, rather than other customers is that the right read or am I on the wrong path here. Thanks a lot.
Ah.
Yes.
Not quite I guess, I mean I appreciate that.
A question. We appreciate the question and we agree that it's not.
It's not completely transparent in fact, our SaaS and service revenue today is actually dominated by the video side of our business. As you May know, we have billions of dollars of video appliances out there in the market and so a heavy part of that video broadcast business has actually legacy support agreements associated with all of that that deploy product.
And part of what Youre seeing in terms of the weakness of the of.
The services and SaaS pieces of things piece of things is is that decline associated with the decline of our broadcast clients business.
Being offset by the the video SaaS growth.
Because cable OS is still relatively new in fact as a percentage of revenue support revenue on on cable is still relatively more modest.
So I guess Thats, one top level comment as you look at those different categories. We're not breaking out correct me, if I'm wrong, Sanjay software and services by cable versus video.
But just because you asked the question or for clarity George.
Support is today.
That being said as we have discussed George.
Within cable.
In general.
Software growth with.
Software licenses kind of should grow proportionate to where to hardware revenue and all accounts, except for Comcast, where you know we have a unique software license agreement and and and we continue to see that happening. If you look at our strong cable growth.
The software is Sanjay I think mentioned in his comments the software components is absolutely growing.
At the trajectory we envisioned.
Being said the hardware is growing.
Probably even probably even faster greater market share and.
And in some cases greater segmentation of those networks.
So I think I think we should think about to Sanjay going forward, maybe there is.
An additional way to provide a little bit more clarity to get after what George is looking for so I think we'll take that on not George but in the short term.
Please note that the software piece of our cable business continues to look very much in good shape along the line.
Very much aligned with our projections.
Unfortunately, not impacted by the.
The supply chain and cost challenges that are pulling down the hardware piece of that business.
Got it that's very helpful to that.
I'll just add to that that the SaaS growth primarily for SaaS streaming.
We have seen a very significant drilling in the most recent quarter is 133% up.
From Q4 year over year, and if you look at for the full year. The streaming SaaS is up 60%. So I agree with everything that you said SaaS and services, mainly where the video but for cable as a support which is more linked to the hardware growth. So maybe able to see going forward, how we dissect between the two clarify George's question, but overall, we are on target for SaaS.
<unk> and <unk>.
Support for video as well as all our software growth relative to our long term targets.
Got it great. Thank you guys. That's very helpful. I appreciate it.
Alright, Thank you George.
Thank you.
I am showing no further questions at this time I turn the call back end weighted Patrick Harshman for any closing remarks.
Okay well good we're just about at the top of the hour. We appreciate your time today and more generally we appreciate all of your support or your business. We had a fantastic 2021. Thanks again for your support throughout the year, we're looking forward to an equally exciting 2020 to.
We're excited about the opportunities that we have the momentum that we have and we look forward to keeping you all updated as we progress through the year.
Thank you very much everyone and good day.
Thank you.
Thank you ladies and gentlemen, this does conclude today's conference. Thank you all for participating you may now disconnect have a great day.
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