Q2 2022 Harmonic Inc Earnings Call
Okay.
Welcome to the Q2 2022 harmonic earnings Conference call. My name is Kevin and I'll be your operator for today at this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session need to press star one on your telephone please.
Note that this conference is being recorded I will now turn the call over to David Hanover Investor Relations, David You may begin.
Thank you operator, Hello, everyone and thank you for joining us today for harmonics second quarter of 2022 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'd 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 view by going to our webcast on our Investor Relations website.
Now turning to slide two.
During this call we will provide projections and other forward looking statements regarding future events or future financial performance of the company.
Such statements are only current expectations and actual events or results may differ materially.
We refer you to the documents 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 could 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.
Dana today's press release, which we have posted on our website and filed with the SEC on form 8-K.
I'll also discuss historical financial and other statistical information regarding our business and operations and some of this information is included in the press release.
Neither of the information will be available on a recorded version of this call or on our website.
And now I'll turn the call over to our CEO Patrick Harshman Patrick.
Thanks, David and welcome everyone to our second quarter call.
In the second quarter of 2022 harmonics again delivered exceptional business results revenue was up 39% year over year, reaching a record $157 $4 million EPS was <unk> 16.
And adjusted EBITDA margin was 15, 5% with balanced contribution from our two business segments. Okay.
Cable assets.
Extra segment continues to generate strong sustainable growth with revenue up 62% year over year.
Video segment revenue grew 20% with the underlying highlight again being SaaS revenue, which was up 69% year over year.
These results demonstrate growing demand for multi gigabit broadband in live streaming video.
And then associated products and services are highly differentiated and build value for our customers.
They also demonstrate the resilience of our business model is harmonic continues to execute despite current supply chain challenges.
On the macroeconomic environment.
Turning first of all our cable access segment.
We produced strong top and Bottomline growth during the second quarter.
Segment revenue was $81 $2 million up 62% year over year.
By quarter end 79 broadband service providers are deploying our cable OS and.
In cable modems served grew to $8 5 million up 159% year over year still less than 15% of our existing customers DOCSIS footprint.
Adjusted segment EBITDA margin was 14, 3%.
Demonstrating good earnings leverage despite product cost headwinds.
These results reflect both a healthy market and our strong momentum in this market.
Our current cable customers are global market leaders in their leaned into advancing their broadband networks to new multi gigabit offerings better analytics and more flexible operations all areas, where harmonics solution continues to be way out in front.
During the quarter, we announced and demonstrated groundbreaking new capabilities in support of the cable industry has 10 G vision.
We announced a new solution, enabling customers to leverage legacy Cisco node platforms to deploy our DAA.
Several of our engagements with respective tier one customers moved forward in ways that we find very encouraging.
Complementing this excellent work in broadband over cable we also drove significant progress in our more nascent fiber business area.
During the quarter, we received over $10 million of fiber solution orders.
Advanced trials with additional tier one customers and grew our fiber sales pipeline domestically and internationally.
We're increasingly convinced that our fiber and converged cable plus fiber solutions are winners.
Fiber represents a significant address market expansion opportunity.
And then fiber will be a key contributor to our longer range market leadership and growth.
Looking ahead to the remainder of 2022 and beyond we remain confident.
Confident that our broadband access business is uniquely positioned for sustained growth.
We have a very strong backlog, great customer relationships technology and service capabilities that are truly unique in the market.
We're investing and working hard to stay out in front.
As mentioned last quarter, we now forecast the 2020 for topline revenue EBITDA dollars and EBITDA percentage will be ahead of the plan. We communicated to you during our Investor day in June last year.
Solidified plans for our next Investor day in September during which we'll provide additional color on our view of the market and growth trajectory as well as updated long term financial models for both of our business segments.
In the meantime, we remain confident about the broadband access market and our ability to continue to deliver industry, leading solutions and compelling profitable growth.
Turning now to our video segment.
Here also we delivered another quarter of strong financial and strategic execution.
Second quarter segment revenue was $76 2 million up 20% year over year.
Ahead of our forecast as some business, we expected to realize in the second half of the year came in earlier than anticipated.
Segment EBITDA was 16, 7%.
<unk> continued strong financial execution.
Strategically the biggest highlight of the quarter was achieving streaming SaaS revenue of $8 6 million.
Which was up 69% year over year.
As a reminder, our video business strategy has two elements, taking a leading position in the growing streaming SaaS market, particularly for live sports and maximizing profit from the flat to declining traditional video broadcast market.
Our results through the first half of 2020 to demonstrate continued execution of this plan with important strategic sense wins topline growth gross margin expansion and continued segment profitability.
Despite ceasing sales in Russia with estimated loss revenue of approximately $6 million.
As I mentioned earlier, the highlight of the quarter and year to date is streaming sales growth, which was driven principally by our larger media customers, we're expanding their consumer footprints content rights and usage of our service, particularly for high profile live sports events.
We also secured several important new tier one SaaS customer wins spanning North America, Latin America and EMEA.
Life stores sports streaming as an increasingly active and opportunity rich and market and.
Our experience and reputation for enabling best in class live streaming continues to grow.
Considering our strong first half sales results Central coast sales pipeline, we continue to expect assuming sales revenue.
Over 50% in 2022.
Looking further ahead, we remain confident that our transformation and video to streaming says is working.
And that we remain on track to achieve the 2024 streaming SaaS targets that we laid out for you at our Investor Day last June .
As with our cable access segment, we plan to provide you a more detailed update on video market dynamics and our forecasts in September .
With that I'll now turn it over to you Sanjay for further discussion of our financial results and outlook.
Thanks, Patrick and thank you all for joining us today.
Before I discuss our quarterly results and outlook I'd like to remind everyone that the financial results I'll be referring to.
Provided on a non-GAAP basis.
David mentioned earlier, our Q2 press release and earnings presentation includes reconciliations of the non-GAAP financial measures to GAAP.
As discussed on this call.
Both of these are available on our website.
But the second quarter of <unk>, what are you doing any do we delivered strong financial results that were ahead of our guidance.
These results demonstrate the strength and resiliency as other businesses.
Continue to perform well in today's macro environment due largely to the strong demand we continue to see for other distinctive solutions.
Before I review, our quarterly financials in detail.
I'll briefly review the key highlights here on slide seven.
We reported record second quarter revenue of $157 4 million, along with solid gross margins of 52, 8%.
Adjusted EBITDA margins of 15, 5% and EPS up 16 cents.
Our balance sheet continues to be healthy with a cash balance of 121 $8 million at the quarter end.
We continue to maintain near record backlog and deferred revenue, which was $477 8 million at quarter end positioning us well for the second half of the year.
Taking into consideration of our second quarter performance and the positive market trends Patrick mentioned earlier.
We have raised our full year revenue adjusted EBITDA and EPS guidance once again.
Now, let's review, our second quarter financials in more detail.
Turning to slide eight as I just mentioned.
Total company Q2 revenue was $157 4 million.
Up six 8% on a sequential basis from Q1 and up 38, 8% year over year.
Looking first at our cable access business segment revenue for the quarter was $81 2 million consisted.
Consistent with our strong performance in Q1, and up 62% year over year, reflecting both the continued ramp of existing customers and newer customer launches.
In our video segment, we reported Q2 revenue of $76 2 million up 15, 8% sequentially and 23% year over year.
This growth was driven by both strong broadcast and SaaS demand.
Our revenue outperformance in video versus the high end of our original expectations.
Partly due to approximately $3 million of appliance shipments that.
That we had previously forecasted would ship in the second half of the year.
In addition to these shipments our video revenue included SaaS revenue of $8 6 million up 68, 7% from the prior year ahead of our expectations.
We had two customers representing greater than 10% of total revenue during the quarter.
Bomb guests contributed 37% and Intelsat contributed 11% of total revenue.
Total company gross margin for Q2, 'twenty two showed a 550 basis point sequential improvement.
Two 8% compared to 47, 3% in Q1, 'twenty two and.
<unk> decreased slightly by 110 basis points versus Q2 'twenty one.
The year over year decline was due to both an increased mix of cable access segment revenue and increased hardware mix within the cable access segment.
Because you have cable access gross margins of 43% for Q2, 'twenty, two which was within our expectations.
<unk> to 38% in Q1, 'twenty, two and 47% in Q2 'twenty one.
Consistent with the expectations stated on last earnings call cable.
Cable access gross margins improved sequentially.
Certain nonrecurring premium costs that.
We recorded in Q1 were not present in Q2.
The comparative year over year softness in cable margins was primarily due to increased hardware mix.
Video segment gross margin was a record 63, 2% in Q2, 'twenty two up 440 basis points sequentially, and a 390 basis improvement over last year.
The sequential and annual improvements reflect a more favorable software mix within all of our appliance category and strong growth in our expanding SaaS business.
Moving down the income statement on slide nine Q2, 'twenty two operating expenses were $61 7 million net of foreign exchange benefit of approximately $1 3 million.
As a result of the strong U S dollar during the second quarter.
Compared to $58 4 million in Q1, 'twenty, two and $54 6 million in Q2 'twenty one.
The increase was primarily due to increased research and development to support the growth of our cable access business and the ongoing transformation of our video appliance business to SaaS.
Operating expenses represented 39, 2% of revenue in Q2, 'twenty, two compared with 39, 6% in Q1 'twenty two.
48, 1% of revenue in Q2 'twenty one.
Demonstrating additional operating leverage as revenues continue to ramp.
Adjusted EBITDA for Q2, 'twenty was 15, 5% of revenue at $24 3 million.
Comprised of.
$11 6 million from cable access and $12 7 million from video.
This compares to an adjusted EBITDA of $14 5 million.
Our nine 8% of revenue in Q1 'twenty two.
And demonstrates significant year over year improvement compared to $9 5 million or eight 4% of revenue in Q2 'twenty one.
This all translated into Q2 EPS of <unk> 16 per share compared to eight cents per share in Q1, 'twenty two and five per share for Q2 'twenty one.
We ended the quarter with a diluted weighted average share count of 109 million compared to $110 6 million in Q1 'twenty two.
$103 8 million in Q2 'twenty one.
The sequential decrease was primarily due to a reduction in convertible debt dilution of one 4 million shares and a reduction in the dilutive effect of Australia RSC was an options buttons.
0.8 million shares.
Both resulting from a degree as you know our average stock price in the quarter.
And by the share repurchases of approximately 324000 shares in the quarter at an average price of $8 eight is expense.
Partially offset by issuance of 0.6 million shares to employees for invested outages.
The year over year increase reflects the dilution of our convertible debt by $1 2 million shares and the dilutive effect of outstanding artist Susan options by <unk> 5 million shares.
Both resulting from an increase in stock price during the year.
And $3 8 million shares from the weighted effect of stock issued to employees for Richard R issues.
And exercise options as well as ESP b shares offset by the impact of repurchases of approximately 557000 shares.
Turning now to the order book.
We reported solid new bookings.
Bookings about $140 9 million compared with $105 5 million in Q1, 'twenty, two and $186 9 million from Q2 'twenty one.
Falling over last two quarters, where we reported record bookings bookings in Q2 were in line with our expectations for the first half overall.
The book to Bill ratio was <unk> nine in the quarter compared to $1 40 in Q1, 'twenty two and one six in Q2 'twenty one.
Our year to date book to Bill ratio is one one.
Turning to slide 10 will now discuss our liquidity position and balance sheet.
We ended Q2 with cash of $121 8 million compared to $100 7 million at the end of Q1, 'twenty, two and $115 2 million in Q2 of last year.
The $21 1 million sequential cash increase is primarily comprised of $91 8 million of cash generated from operations.
And $7 $8 million of gas from an investment liquidation event.
These are partially offset by $2 9 million used for share repurchases.
<unk> 1 million used in the purchase of fixed assets.
And the foreign exchange rate impact on cash of $4 7 million.
The investment liquidation proceeds of $7 8 million was from a $3 6 million investment that we made during.
2014, and coding dot com a privately held company.
This investment generated a gain of $4 2 million for harmonic.
Which we reported on a GAAP basis for the quarter, but was excluded from our non-GAAP results as it is a nonrecurring event.
Turning to days sales outstanding at the end of Q2, DSO was 61 days compared to 71 days at the end of Q1, 'twenty, two and 80 days in Q2 'twenty one.
Collections, and thereby accounts receivable improved in Q2.
Our days inventory on hand was 100 days at the end of Q2 compared to 95 days at the end of Q1, 'twenty two and 74 days at the end of Q2 'twenty one.
Reflecting continued investment in inventory as we prepare for heavy shipments during the remainder of the year.
We continued to build inventory at higher than normal levels to proactively manage our supply chain.
Regarding capital allocation, our priorities remain consistent.
We'll continue to invest in building inventory.
<unk> enables us to better than drill inventory acquisition costs meet the strong demand we are experiencing.
Fulfill orders and drive our future growth.
We will also continue to be opportunistic in buying back stock when market conditions Merit.
As mentioned earlier during the second quarter harmonics repurchased 394000 shares at an average price of $8 86 per share.
$2 9 million.
Year to date, we have bought back 557000 shares of stock for an aggregate purchase price of approximately $5 million.
Given the current macroeconomic environment.
We expect to continue repurchasing shares in a responsible manner taking into consideration strategic inventory investments to support our future growth.
Broad equity market conditions, the importance of maintaining a strong balance sheet.
<unk> future debt obligations.
Our upcoming debt repayment of $37 7 million in December 2022.
At the end of Q2 total backlog and deferred revenue was $477 8 million marginally down sequentially from a record $497 3 million at Q1, 'twenty two and.
And up 38% year over year from $347 2 million at Q2 'twenty one.
This large backlog and deferred revenue reflects continued growing demand from our large cable customers and increasing video streaming SaaS commitments.
Note that more than 80% of our backlog and deferred revenue has customer request dates or shipment of products and providing services within next 12 months.
As mentioned on previous calls not included in our backlog is additional contractually agreed cable Louis business with two of our initial tier one cable customers.
At the end of Q2 'twenty do this incremental amount was approximately $96 million down from 98 million last quarter as approximately $2 million went to the appropriate order process and therefore moved into bookings.
Taking these cable newest contracts into account, we have total future contracted revenues of approximately $573 8 million.
Which continues to provide us with a very solid base as we move forward through the second half of 2022 into 2023.
Now I'll turn to our revised non-GAAP guidance for 2022, beginning on slide 11.
I will also give brief commentary on key changes from our prior annual guidance we gave in April .
For the total company for the full year 2022, we now expect revenue in the range of $607 million to $627 million.
The 2% midpoint in Greece similar prior guidance was driven by an increase in expected cable segment revenues.
Gross margin in the range of 49, 4% to 57% up.
Up 40 basis points at the midpoint versus prior guidance.
Gross profit to range from 300 million to $318 million.
Up two 8% at midpoint versus prior guidance.
Operating expenses to range from 239% to $248 million down <unk>, 4% at the midpoint of our prior guidance.
Adjusted EBITDA to range from $72 million to $82 million. This represents a 14% increase at the midpoint versus prior guidance driven by expected increases in cable revenues discussed previously.
And effective tax rate of 13% a weighted average diluted share count of approximately $109 6 million a decline.
Declining 112 million shares from prior guidance. This was primarily due to reduced dilution on that given softer average stock trading price.
EPS to range from 44 to 52 per share at midpoint. This is a 20% increase versus prior guidance.
Finally cash at the end of <unk> is expected to come in between $95 million to $105 million.
The reduced guidance in cash primarily reflects additional working capital investments.
Clear inventory.
<unk> for the second half of 2020 due to prepare us for 2023 revenue growth.
Turning to slide 12.
I will review of our total company outlook for the third quarter of 2022.
We expect revenue in the range of 147% to $157 million gross margin in the range of 48, 9% to 55%.
Gross profit in the range of $72 million to $79 million.
Operating expenses to range from $60 million to $63 million.
Adjusted EBITDA to range from $15 million to $19 million.
Our weighted average diluted share count of approximately $109 5 million.
As to range from eight to 12.
At the end of Q3 cash is expected to range from $110 million to $120 million.
Okay.
On Slide 13, I will first review guidance for both the full year and third quarter of 2022 photo of our cable segment.
For the full year 2022 based on our progress to date, we expect cable access to achieve revenue between $335 million to $345 million.
A 5% increase from the midpoint of prior guidance in.
Implying a full year revenue growth of 56% at the midpoint.
Given our success navigating capacity constraints through the first seven months of the year, we are comfortable expanding the high end of our outlook.
Gross margins between 42, 1% to 43, 5%. This marginal 10 basis point improvement from prior guidance is due to increased expected software and social contribution.
Gross profit between 141 million to $150 million up 5% from prior guidance at the midpoint.
Operating expenses between $94 million to $100 million.
That from prior guidance at the midpoint.
Adjusted EBITDA between 53 million to $56 million up 16% from prior guidance at the midpoint.
Part of our cable access segment in Q3, we expect revenue in the range of $85 million to $91 million gross margin in the range of 43% to 45%.
Gross profit in the range of 37% to $41 million.
Operating expenses in the range of $24 million to $26 million adjusted EBITDA to range from $14 million to $16 million.
Moving on to Slide 14, we will review full year and third quarter 2022 video segment guidance.
Currently for the full year, we expect revenue in the range of $272 million to $282 million.
A 1% decrease from midpoint than prior guidance, reflecting a decrease in appliance revenue, partially offset by an increase in SaaS.
Gross margins in the range of 58, 3% to 59, 5% with 125 basis point improvement in prior guidance at the midpoint.
Gross profit in the range of $1 $59 million to $168 million up <unk>, 7% from prior guidance at the midpoint.
Operating expenses in the range of $145 million to $148 million, 1% better than prior guidance at the midpoint.
Adjusted EBITDA in the range of 19% to $26 million at 12, 5% improvement from prior guidance at the midpoint.
For our video segment in Q3, we expect revenue in the range of $62 million to $66 million gross margin in the range of 57%, 58% gross profit in the range of 35% to $38 million.
Operating expenses in the range of $36 million to $37 million.
Adjusted EBITDA to range from 1 million to $3 million.
In summary, we continue to execute and drive strong momentum in both of our business segments during the second quarter.
As a result, we ended the first half of the ear with near record balances of both backlog and deferred revenue.
We believe this sustained momentum positions us well for the balance of 2022 as we continue to execute on our long term model.
This confidence is reflected in our updated full year guidance.
And lastly.
I will invite everyone to Mark your calendars.
On September 15th.
We will be hosting a virtual investor event similar to the ones. We held in June of last year.
During this event, we will provide multi year updates for both our cable access.
And video business segments.
Please stay tuned for additional details as we get closer to the date.
Thank you everyone for your attention today and now I'll turn it back to Patrick for final remarks, before we open up the Gulf of questions.
Okay. Thanks Sanjay.
Electric conclude by summarizing our strategic and execution priorities as we enter the second half of the year.
For cable access business that continues to be all about working with our existing customers to enable ramping deployment success.
Winning in launching volume deployments with tier one operators, we have not yet secured.
And leveraging our fiber solution to expand our addressed market and traded additives revenue growth and value.
For our video business, we continue to focus on growing our streaming says brand and customer base further extending our streaming SaaS capabilities, particularly for large parts and leveraging the traditional broadcast appliance business to profitably enable these transformations.
In each of these areas our execution and results in the first half of the year were excellent.
We're looking forward to the rest of 2022 and we appreciate your continued support.
And with that Sanjay just said, we'll now open up the call for questions.
Ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone keypad will pause for a moment, while we compile our Q&A roster.
Our first question comes from Simon Leopold with Raymond James Your line is open.
Thanks for taking the question.
Wanted to get your thoughts on what's going on in terms of the cable television.
Industry, the marketplace and potential implications for harmonic in that this was a quarter, where the largest cable operators reported declining subscriber metrics and it wasn't just lots of linear video subscribers, but now broadband subscribers.
And I'm just wanted to get your sense of.
What was your take on the most recent reports as an.
Industry Observer, and then what do you see as the implications of.
These new trends or this inflection on harmonic in the longer term. Thanks.
Okay.
Well thanks for the question Simon.
We're not in the details of our customers' number but a high level, we're not too surprised I think we've been talking about for a while.
Increasingly competitive playing fields around broadband services for our customers.
And in fact, this heightened level of competition are coming competition from technologies like fiber.
As part of the reason a big part of the reason why we've seen some of our customers really lean into investing in developing <unk>.
Deploying next generation multi gigabit services.
So I think we're really seeing play out.
Most in the industry.
Expected I think we can debate about what timing was anticipated but.
At the top level not a concern.
And frankly.
We look at it as constructive.
There is a consumer thirst for.
For even greater broadband speeds and access capabilities.
Thanks.
Service providers in general will be fighting.
Fighting over the consumer.
And investing to build.
Sure.
The highest quality.
Work the networks that can deliver the highest quality of service and our strategic objective is to is to provide it will be a key partner in terms of providing enabling technology.
The work we've done to date is really I think in anticipation of this next phase of heightened competitiveness between service providers.
And then as a follow up I wanted to see if your international business is feeling any effects.
Foreign exchange rates, given the strong U S. Dollar I guess two parts to my question.
I've assumed I don't know if this is correct assumed you write your contracts in dollar terms not in local currency and therefore your products would be more expensive for customers, who may be budgeting in a local currency.
Could you discuss what if any impact you've seen from the shift in exchange rates.
Simon definitely this quarter the U S dollar was very strong.
And overall it benefited as I pointed out in my Opex, but to your specific question on customer contracts majority of our customer contracts are in US Dollar there are some which are not in U S dollars, but they are like kind of.
An inherent hedge in terms of FX as our expenses are also in Europe . So we don't expect a significant change on a significant shift in the way we expect.
This tool.
<unk> engaged the exchange rate goes more stronger for us going forward.
Great and then just one last one in terms of what.
What youre seeing on supply chain constraints, just your latest view on sort of the trajectory and timeline for normalization.
Simon definitely supply chain is something we've been very cautious about right from the beginning of the year, but our experience to date since the last two quarters has shown us that things have not significantly changed we're still battling with the same challenges they still see bigger mix, we still see cost premiums were.
Still see surprises on prices.
Planned our ear in a way that addresses those risks and as you would have noted a our gross margins are very consistent what we guided earlier so yes.
<unk> are continuing.
And we don't think that there will be completely behind us certain costs go up and they never go down but overall as macroeconomic factors in Peru, we do expect some improvement in certain areas, but overall our experience in the last two quarters is showing us that things are kind of similar what we expected.
Thanks for taking the questions.
One moment for our next question.
Our next question comes from Ryan Koontz with Needham Your line is open.
Thanks for the question great quarter in both your segments there.
Richard comment Patrick on the composition of backlog here kind of given the softness Q over Q is this a new seasonality can you comment name kind of mix changes. There is some of this kind of bookings weakness coming more from the video side, how should investors think about that.
Follow up please.
Well Ryan year to date book to Bill is about $1, one of which is which is consistent.
Strong relative to historic trends.
We did see a couple of quarters.
We had extraordinarily strong book to bill, but as we called out in part this was.
Some customers really trying to get ahead.
Contemplating the supply chain issues that we just spoke about and really trying to order further ahead. So we saw.
<unk>.
We saw that effect, we never anticipated to be that long lift.
And what we're seeing now is that some of those orders in many cases that extend out 12 months are in place. We see more return I would say traditional book to Bill ratios, which again is still greater than one so I think that there is no.
Yes, we don't see any particular change certainly no.
Broad trend in terms of softness.
From a backlog and book to Bill point of view, if we look at the last several quarters in aggregate.
We're about where we expected debate.
Great. Thank you and on the surface some great news there on your fiber to the home trials and the strong bookings in the quarter can you comment on that it sounds like there was a tier one trial.
You have now.
Yes.
We've got a great solution.
To be Frank and a particularly resonates with cable operators of all sizes of tier ones down to small ones. There's.
Really powerful kind of hybrid unified solution for both fiber and cable which offers.
Tremendous operational.
Cost and and customer responsiveness.
Advantages.
We're seeing good traction with that really across the board. So we've got advanced trials going on with with several tier ones as well as with smaller customers and we've seen good order input.
From.
Early tier ones and as well as smaller customers. So the bookings the bookings results, which was a record for us So this quarter really.
Represents fairly broad strength.
And that mirrors the pipeline that we're seeing both domestically and internationally.
That's great Congrats again.
Thank you Ron.
One moment for our next question.
Our next question comes from Tim So obviously with Northland Capital. Your line is open.
Okay.
Hi, good afternoon, and congrats on the good results.
I wanted to follow up on the PON side.
You mentioned, the $10 million plus in orders I Wonder if you might be able to.
Quantify that a little bit more which is to say.
How should we think about that relative to the pipeline that youre looking at.
To the extent that you well I guess I'll ask specifically.
Of those <unk>.
It has translated into revenue.
Including with your top customer and as you look at the size of that opportunity both there and elsewhere.
How does that pipeline compare to the $10 million that you mentioned from an order standpoint.
The pipeline is substantially larger I guess in shorts.
And ultimately the opportunity is much larger.
I mean look.
Relative to the scale of the cable or the Doctor side of the business is still the smaller piece of what's happening.
The slope is starting to become interesting.
Sure.
And we're spending more and more and more time on it so.
Sure.
A pipeline that's bigger than what we are what was order this quarter and that being said Tim.
Still relatively early days.
I might expect some up and down in the coming quarters in terms of the amount booked but I think that the results that we've seen in terms of early orders.
And in the pipeline that we have a tell us that over the next several quarters certainly over the next year. This is going to become.
An important additional growth vector for us and well.
Again, we'll talk more about it in the in the.
The Investor Analyst day, we're talking about in September .
I think that well.
Previously shared in terms of multiyear ambitions around fiber to the home.
We feel increasingly confident about both because of the market opportunity and the residents are solution that seems to be having.
Right I was just going to follow up right on that which is I think you said last year at the analyst day, you felt like this can be $100 million business are pretty close in 24. So those are the.
The type of targets that we're talking about.
Final question on this topic for me I mean in terms of what we've seen kind of yet another increase in cable access revenue guide for this year, just as fiber contribute to that.
In any meaningful way.
Very modestly.
I think is the best way to think about it I think we're still really in creating the business we want to create a good backlog certainly there'll be.
Maybe modest revenue, but it's not a material contributor.
Two.
Hello to our guidance.
Okay, and I wanted to follow up on the gross margin side.
You did have a pretty.
Significant increase in appliance gross margins in the quarter and I think you've mentioned.
The video drivers there, but it does seem the cable access side a stronger mix of.
<unk> or head end.
Based activity also contributing to that margin strength.
Although you did call out component costs or maybe it's that but.
Am I right about that I guess on the one hand, and what does that portend for for your business going forward to the extent that you might be seeing a little.
Higher.
Appliance versus node mix in cable access.
So Tim you definitely.
Right on the video side there.
Our software makes us better and hence the margins were kind of record this quarter in terms of cable there is no real change in the mix.
Versus the way we expected the margin scheme right at the midpoint of what we were expecting the game at 43, our expectation was $40 to 44.
It's a confluence of mix supply chain impacts and whatnot, but overall, it's not the mix changing of any hardware as you mentioned.
Okay.
Okay. Thanks very much.
Alright, thank you.
One moment for our next question.
Our next question comes from Greg <unk> with Jefferies. Your line is open.
Hi, George Notter and this is and this is actually Kyle on for George Notter. Thanks for the question.
It is also around gross margin a little bit more specifically.
On cable access, but it sounded like overall gross margin upside was driven by mix is probably largely in video, but you also mentioned certain period costs in Q1 that didn't repeat so would you give us a sense for how the gross margin youre getting on optical nodes is coming in and whether that's improving driven by either better costs or better pricing or.
Are they still generally in line with what they've been over the past few quarters and your expectation or are they improving based on supply chain. Thanks.
Yes.
First part of the question, which is why the margins improved in Q2 versus Q1 for cable.
The margins improved basically because of we had one time premium costs for certain components, which we paid last year and they were amortized in Q4 and Q1 and in Q2, we didn't see them and this is exactly what we said in the last call. We expect those premium charges, we behind us in Q2, and they were behind and Thats. The biggest reason why margins are.
Up in Q2 versus Q1 now on the second part of the question regarding the nodes margins. They are they are in line with what we were expecting the trajectory plan for the year. They are going in accordance with that trajectory, we do not specifically called out margins of certain product lines, but overall they are within our.
<unk> and nothing significantly changed beyond that.
Okay, great. Thanks, and then one follow up if I can.
What's your general sense for the trajectory of supply chain, you did better this quarter reduced backlog somewhat well.
We will supply continue to get better from here or could there be some ups and downs.
In other words are we past the peak in backlog in your mind, given you have a good inventory position and book to Bill was a bit below one and this quarter specifically.
So while the increase over guidance for cable in the first two quarters, we did not really have a very good.
<unk> of what the supply chain would entail in terms of supply of what how much we can get from our manufacturers, but the experience of about seven months tell us that yes, we can generate.
The products that you'll be able to ship demand will definitely there will be supply and the answer is yes, and thats one of the reasons, we are raising the guidance on the supply.
So yes, while there are risks, but we feel confident what we've achieved so far we can continue over the next two quarters.
Okay, great. Thanks very much.
Again, ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your Touchtone telephone.
Yes.
And I'm not showing any further questions at this time I'd like to turn the call back over to our house for any closing remarks.
Okay, well, thank you very much for joining us today.
If it comes across we're very encouraged by our results for the first half of the year, we have a tremendous opportunity in front of us we're executing against that opportunity. We're looking forward to the.
Second half of this year.
We're looking forward to going after our longer range plan.
And to speaking with all of you in September until then thank you very much and have a good day.
Ladies and gentlemen.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
The conference will begin shortly.
As Johan during Q&A, you can dial star one one.
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