Q2 2023 Harmonic Inc Earnings Call
Speaker 2: Thank you for standing by. Welcome to the second quarter of the 2020 harmonic earnings conference call. My name is Jonathan and I will be your operator for today's call. At this time all participants are in listen only mode. After the speaker's presentation there will be a question and answer session. Please do not hesitate to ask a question at that time.
Speaker 2: you'll need to press star one one on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star one one again. Please note that this conference is being recorded. And now I'd like to turn the call over to David Hanover, Investor Relations. David, you may begin.
Speaker 3: Thank you, operator. Hello, everyone, and thank you for joining us today for Harmonics second quarter of 2023 financial results conference call. With me today are Patrick Harshman, president and chief executive officer, and Walter Cenkovic, chief financial officer.
Speaker 3: 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.
Speaker 3: 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 where results may differ materially. Subscribe to Red attacking Daily B EP on Skype F Khan on Google account www.redacon imphard bridge play
Speaker 3: We refer you to documents harmonified with the SEC, including our most recent 10Q and 10K 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 that differ materially from those contained in our projections or forward-looking statements.
Speaker 3: And please note that unless otherwise indicated, the financial metrics we provide you on this call are determined on a non-GAAP basis.
Speaker 3: These metrics, together with the corresponding GAAP numbers and a reconciliation of GAAP, are contained in today's press release, which we have posted on our website and filed with the SEC on Form 8K.
Speaker 3: We will also discuss historical, financial, and other statistical information regarding our business and operation, and some of this information is included in the press release. The remainder of the information will be available on a recorded version of this call or on our website.
Speaker 3: And now I'll turn the call over to our CEO , Patrick Harshman. Patrick.
Speaker 3: Thanks David, and welcome everyone to our second quarter call. In the second quarter, Harmonic delivered solid broadband and video SaaS growth. We'll also encounter short-term headwinds.
Speaker 3: Revenue was $156 million, EPS was 12 cents, and adjusted the EBITDA margin was 13.5 percent.
Speaker 3: Our broadband segment revenue grew 20% year over year. Our video sales revenue was up 58%.
Speaker 3: In book the bill was over 1.2, leading to record backlog and deferred revenue of over $663 million.
Speaker 3: Hardware deliveries on both the broadband and video sides of the business were softer than anticipated.
Speaker 3: and we expect this softness to persist through the third quarter before rebounding in Q4.
Speaker 3: A competitive position continues to be strong, evidenced by several important new customer wins during the quarter.
Speaker 3: The combination of record backlog and deferred revenue, active and healthy existing customers.
Speaker 3: and new customer relationships that have yet to scale continues to position as well for sustained long-term growth.
Speaker 3: Taking a closer look first at our broadband segment, we delivered another quarter of solid growth with segment revenue $97.1 million of 20% year over year.
Speaker 3: Customers deploying our solution reached 98, up 24% year over year, with corresponding 21 million cable modems now served worldwide, still only approximately 12% of the addressable global market, highlighting our significant expansion opportunity, expanding existing annual accounts.
Speaker 3: Now, we did expect Q2 growth, excuse me, we did expect Q2 growth to be higher. And during the quarter, we ran into unexpected reductions in hardware delivery.
Speaker 3: reductions we now expect to persist through the third quarter.
Speaker 3: I want to emphasize we see no lost business, nor do we see any change in our mid to long-term growth opportunity.
Speaker 3: Indeed, our customers remain on offense with regard to new gigabit services.
Speaker 3: Our new broadband bookings were strong, enabling record backlog and deferred revenue, and our competitive position has never been stronger.
Speaker 3: Contributing to these bookings were initial multi-million dollar orders from two new Tier 1 accounts, one in North America and one international.
Speaker 3: Neither of these accounts have yet begun deployment or contributing revenue.
Speaker 3: Further highlighting our still strengthening market position, market intelligence firm Delor Group recently and for the first time recognized harmonic is the cable broadband equipment market share leader.
Speaker 3: Another highlight of the quarter was the extension of our software license relationship with a key customer.
Speaker 3: Our Cloud Native Core software continues to be unwrivaled in the market, valued by our customers.
Speaker 3: and key to our unique and powerful market proposition.
Speaker 3: Illustrating the flexibility and competitive advantage of our software core.
Speaker 3: We're leading and enabling the new DOCSIS 4.0 standard.
Speaker 3: which opens the door to compelling new multi-gigabit services for our customers and new growth opportunities for our business.
Speaker 3: Complementing our extended software core is a new family of backward compatible DOCSIS 4.0 RPDs and optical nodes.
Speaker 3: The technology development and trial progress in this area has been truly remarkable.
Speaker 3: And we're now gearing up to support initial deployments in the coming months.
Speaker 3: Well, technology transitions such as this can result in short-term headwinds.
Speaker 3: as some customers begin to look ahead to the coming standard.
Speaker 3: The new growth opportunities being created by the associated new wave of symmetrical multi-gigabit services that Drs. 4.0 unlocks are good news for our business.
Speaker 3: Also good news for our business is the progress we continue to make in the fiber of the home area.
Speaker 3: We recently announced Claro Peru has selected our 10G pond solution for their new fiber service.
Speaker 3: And we also announced the availability of a powerful new hardened switch for SGS and 10GE pot.
Speaker 3: Worldwide, cable customers are looking to fiber as they edge out their footprints and compete head-to-head with telcos.
Speaker 3: and our growing fiber cells pipeline reflects this expanding opportunity.
Speaker 3: In summary for our broadband business, we continue to be confident in our technology position, our market position, and our opportunities.
Speaker 3: With record backlog and deferred revenue, we're continuing to execute on high impact cable and fiber initiatives.
Speaker 3: that are being embraced by a growing number of customers worldwide.
Speaker 3: positioning us for sustainable long-term growth.
Speaker 3: Turning now to our video segment.
Speaker 3: The highlight of the quarter was SAS revenue, $13.6 million, up 58% year over year.
Speaker 3: Total revenue was $58.9 million, down from $76.2 million a year ago, reflecting our intentional SAS transformation, some project delays, and a continuing transition of historical appliance revenue to software.
Speaker 3: evident in the second quarter from the 61.7% segment gross margin.
Speaker 3: The business delivered a positive EBITDA, demonstrating a commitment to profitability, while investing in the transition to SaaS with its inherent revenue timing challenges. A strong streaming SaaS growth was again driven primarily by live sports, with both existing and or customers contributing.
Speaker 3: As a reminder, we're benefiting from several newer SAS customers signed in prior periods that are now coming online and wrapping usage.
Speaker 3: The exceptional video quality and low latency characteristics of our video sass continue to shine in the market. For example, we're currently supporting the Women's World Cup and consumer feedback on the relative quality of the streaming services we're powering has been excellent.
Speaker 3: Based on this progress and growing impact of several new capabilities we announced last quarter, we continue to forecast SAS growth greater than 50% for the full year.
Speaker 3: On the appliance side of the business, North America was quite solid, but we experienced some project delay headwinds internationally.
Speaker 3: We've undertaken a thorough review of our sales pipeline and are working closely with key customers worldwide.
Speaker 3: The net result is a reconfirmed solid sales pipeline for the second half of the year with a seasonally strong fourth quarter which is typical for our video business.
Speaker 3: Recapping our video segment strategy, we remain focused on taking a leading position in the growing streaming SaaS market, particularly for live sports, while also maximizing profit from the traditional video appliance market. Our results for the first half of the year demonstrate continuing excellent progress on SaaS.
Speaker 3: and continued overall profitability despite some macro international head links. We're confident in our second half outlook and in our ability to continue to create value through sustained streaming fast growth.
Speaker 3: With that, let me turn it over to you now Walter, for deeper discussion of our financial results and outlook.
Speaker 2: Thanks, Patrick, and thank you all for joining us today. Before I discuss our quarterly results as well as our outlook, I'd like to remind everyone that the financial results I'll be referring to are provided on a non-gap basis.
Speaker 2: As David mentioned earlier, our Q2 press release and earnings presentation includes reconciliations of the non-GAAP financial measures to GAAP that are discussed on this call. Both of these are available on our website.
Speaker 2: During the second quarter, we delivered double digit year-over-year broadband and SaaS revenue growth and generated strong gross margins in total and across our business segments.
Speaker 2: Having said that, we also experienced hardware sales delays, which resulted in total revenue below our expectations.
Speaker 2: Despite this, our SAS business continued to grow to record levels, and our overall mix of software revenue was up significantly as reflected in our gross margins.
Speaker 2: Our operating model demonstrated its inherent strength as we continue to deliver solid profitability, resulting in EPS of 12 cents, which was within our guidance range. We ended the 2nd quarter with a solid balance sheet. As well as record backlog and deferred revenue of 663.8M.
Speaker 2: positioning us well for continued long-term growth.
Speaker 2: Before reviewing our Q2 2023 financials in more detail, I'll briefly review the key highlights here on slide seven.
Speaker 2: For the quarter, we reported revenue of $156 million with EPS of 12 cents.
Speaker 2: Bookings of $194.7 million and record backlog and deferred revenue of $663.8 million. In a few minutes, we will discuss our Q3 2023 and full year 23 guidance, which now taken to consideration the impact of recent customer demand pushouts that have occurred following our last earnings call.
Speaker 2: These demand changes reflect inventory adjustments by our broadband customers and macroeconomic challenges affecting our video customers.
Speaker 2: To offer some additional color, they do not reflect any loss of market share or any changes in the competitive landscape.
Speaker 2: Now let's review our second quarter financials in detail. Turning to slide 8, again total revenue 2-2 revenue was $156 million down less than 1% on a year-over-year basis.
Speaker 2: Looking first at our broadband segment, Q2 revenue was $97.1 million, down slightly sequentially, and up 20% year over year. We continue to see current customer ramp up and newer customer launches during the quarter, including modest contribution from fiber revenue.
Speaker 2: As mentioned, hardware revenue was lower than expected, reflecting sales delays across several customers.
In our video segment, we reported Q2 revenue of 58.9 million, up 3% sequentially and down 23% year over year. While hardware sales were lower, our video revenue included SaaS revenue of 13.6 million. 8M worth of increased participants upwards
or 23% of segment revenue in the quarter, up 58% from the prior year. We continue to execute the strategic transformation of our video business and the continued growth of SaaS while also focusing on maximizing profitability in the appliance business.
We had one customer representing greater than 10% of total revenue during the quarter with concast representing 47% of total revenue, which was similar to last quarter.
Total company Gross margins was 54.7% for 223, up 80 basis points sequentially and 190 basis points year over year, reflecting increased gross margins in both of our business segments sequentially.
Broadband gross margin was 50.5% for Q2, 23, up 40 basis points sequentially and 750 basis points year over year. The sequential increase predominantly reflects favorable software mix as a result of lower hardware sales in Q2.
Video segment gross margin was 61.7% in 223, up 130 basis points sequentially, and down 150 basis points year over year.
The sequential increase was primarily due to SAFs, continuing to scale.
Q223 operating expenses were 67.2 million, up 1.5% sequentially and 9% year over year.
The sequential increase reflects higher sales commissions due to recent contract wins.
Adjusted EBITDA for Q2 23 was 21.1 million or 13.5% of revenue. Down 13.4% versus Q2 22, comprised of 19.7 million from broadband, representing 20.2% of segment revenue and 1.4 million dollars.
from video. This all translated into Q223PS of 12 cents per share, consistent with Q123 and compared to 16 cents per share for Q222.
We ended the second quarter of 2023 with a calculated, diluted, weighted average share count of 119.3 million compared to 117.8 million in Q123 and 109 million in Q2222.
The sequential increases primarily due to the increased convertible debt dilution of 1.2 million shares.
Turning now to the order book, we reported bookings of 194.7 million. The book to Bill Ratio was 1.2 for the second quarter. For Q1, 23 and Q2, 22, our book to Bill Ratio's were 2.1 and 0.9 respectively.
This follows what we've stated previously. At over time, a supply chain conditions improve. We expect this ratio to normalize and approach the historical benchmark of greater than one as it did in Q2. He didn't even disclose so, this has been put back in another room.
There is one item that I would like to draw your attention to from our GAP to non-GAP reconciliation for Q2. In Q2, we recorded a non-recurring expense of 2.1 million that is excluded from our non-GAP results relating to professional accounting tax and legal fees.
associated with strategic corporate initiatives. Given their non-recurring nature, we have excluded these costs from our non-gap results to provide investors greater transparency regarding the performance of our core businesses.
Turning to the balance sheet on slide 10.
We ended Q223 with cash of 71 million dollars compared to 90.9 million at the end of Q123. The net 19.9 million sequential decrease was due to a few factors. We used 16.5 million of cash in operations. We used 16.5 million of cash in operations.
This was primarily due to an increase in accounts receivable, offset partially by a decrease in inventory in the quarter.
I will address these two items in a moment. We also used 1.5 million of cash in the purchase of fixed assets.
Turning to accounts receivables and day sales outstanding. At the end of 223, DSO was 69 compared to 50 in 2123 and 61 in the prior year period.
Our second quarter DSO reflected a significantly larger portion of shipments in the final two weeks of the quarter that have since been collected.
Going forward, one of our larger customers has informed us that they will no longer take an early pay discount so that we'll now be reflected in our Go Forward DSOs and cash forecast.
Days inventory on hand was 145 days at the end of Q223 compared to 163 at the end of Q123 and 100 at the end of Q222. It's important to note that the inventory decline in the quarter was a result of lower than expected material in feed as we tighten our supply chain.
Regarding capital allocation, our top priority remains driving our future growth. As such, when appropriate, we will strategically invest in building inventory as we've done in the past to meet strong demand. Having said that, as we've previously stated previously,
We have the flexibility to maintain somewhat lower inventory levels. That is reflected in our ending inventory balances for the second quarter.
At the same time, our capital allocation strategy takes into account our ability to return capital to our shareholders through stock repurchases.
Again, I stated previously, the timing and amount of any repurchases will depend on a variety of factors, including the price of harmonics, common stock, market condition, corporate needs, and regulatory requirements. We also consider our 2024 convertible notes.
in our forward cash planning activities. At the end of Q2 total backlog and deferred revenue was 663.8 million compared to 623.5 million at the end of Q1. This record backlog and deferred revenue reflects continued demand from our large broadband.
for shipments of products and providing services within the next 12 months.
In summary, while our Q2 revenue was below expectations, our SaaS business continued to grow direct-ord levels. In addition, our overall mix of software revenue was up significantly as reflected in the strength of our gross margins.
While we do expect to see continued short-term headwinds in our revenue as customers deal with inventory levels and macroeconomic conditions, we do not see these factors impacting our market share or our long-term expectations for continued growth.
Before reviewing the guidance, I'd like to take a moment to comment on my first 2 months here at harmonic and my priorities going forward. First of all, as I've met with all the organizations and conducted a deeper review into our technology capabilities and market opportunity.
I'm extremely excited about the opportunities ahead of us and our ability to grow over the long term. To facilitate our long term growth plans, I've laid out the following key priorities for my team in collaboration with the broader organization.
First, to conduct a thorough review of our long-term market opportunities to drive an updated strategic plan, which we will share with you at our next analyst day, late this year.
Second, to develop a roadmap on how we scale up the organization cost effectively and with the appropriate tools and processes to facilitate our expected growth. And third, revise our capital allocation plan based on our updated strategic plan.
I look forward to updating you as we progress on these key priorities. Let's now review our revised non-GAP guidance for 2023 beginning on slide 11.
Based on the current macro economic conditions and the continued demand we're seeing for our products for the full year 2023 on a total company basis. We expect revenue in the range of 620 to 660M. Gross margin in the range of 51.9% to 59 52.9%.
93 million an effective tax rate of 20% up from 13% from last year as we Exhausted our NOLs in the past year
A weighted average diluted share count of approximately 119.2 million.
Please note that the convertible debt-related dilution, included in our share count, uses the Q2 average stock price, which was approximately $16.5. As a reminder, the share count figure utilized in our dilution calculations will change, depending on stock price movements. EPS to range from 38 cents to 50 cents.
and cash at the end of 2023 is expected to come in between 80 to 95 million. 15 million?
Our cash guidance reflects one of our larger customers no longer taking an early paid discount option as I mentioned earlier. This will result in higher DSOs than what we have seen over the past few quarters. We still see cash accretion over the second half of 2023 and into 2024 to give us full optionality.
on how we handle the repayment of the principle of our 2024 convertible notes. For total company, for the third quarter of 2023, on slide 12, we expect revenue in the range of 125 to 140 million, gross margin in the range of 50.0%, to 50.8%. Thank you.
And EPS to range from a loss of two cents to a profit of two cents, and then cash to range from 80 million to 90 million. Turning to slide 13 for the full year, 2023 based on the progress today, we expect broadband to achieve revenue between 385 to 410 million, the low R-prior guidance at the midpoint. Gross margins between 47.0% to 48.0% reflecting a much greater mix of hardware in the second half of 2023 versus the first half.
You know, five gigabits, 10 gigabits of docs, just three dot one traffic or perpetual license for that. There's associated with the underlying compute. So with a customer migrate to 4.0, you, you essentially, having use software agreement. That is the most common model. That is correct. And Walter, you are going to say something? Yeah, it's just going to add as Patrick highlighted just to emphasize the point. There are different models in terms of the cable OS and how we're selling that through to customers and how that.
software revenues.
revenues. Thank you for taking the questions.
Thank you. Thank you one moment for our next question. And our next question comes from the line of Ryan Kutz from Needham & Company. Your question, please. Your question comes from compensates manager and we see fewFight Music on this call.
Thanks for the question. Your software license model around bandwidth consumption.
I've been hearing, there were some recent history reports about declines in broadband traffic demands, and I wonder if you're seeing that have any impact relative to the pace of customer projects and maybe overpurchase of inventory. So as you look at...
Chinese near-term headwinds and it sounds like a mentioned it was mostly international.
Parse out any of those thoughts for me in terms of how you think they might be affecting your near term demand. Yeah, hi, Ryan. It's Walter. Thanks. Thanks. Thanks for the question. So, 1st of all, with regards to. Um, international demand and comments, I think those comments reflect.
that point specifically. And then secondly as we had emphasized in our opening remarks, customers are adjusting inventory levels. I think that's something that's happening across the board with many customers out there and doesn't necessarily reflect their plans.
in terms of deployments moving forward. And I think that's a really important point to take away from the comments here. We expect as Patrick highlighted earlier that the fundamentals, the expectation of continued growth and rollouts from our customers.
is happening and will continue to happen and from the position of where we stand and the wins that we have in the market share we've never been stronger. So I just wanted to clarify with those comments.
That's great and I want to kind of continue that thought forward with the comment around FDX and DOCSIS-IV. Are you, it sounds like you feel well prepared to participate in some of these early trials.
want to continue that thought forward with the comments around at the x and doctors for uh... are you it sounds like you feel well prepared participate in some of these early trials when do you think
You'll see kind of the customers in total really begin to move over to Doxas 4. Are we still talking 25, do you think?
pu.
And I think it's exciting. It's creating, it's going to enable, I think, a very interesting competitor, additional competitive platform, excuse me, for cable versus Telco and Pure Fiber competitors. And I think it also speaks maybe back to the earlier part of your question to the continuing aggressiveness that many of our customers are still look, are still have motivating them. As they're looking at competing in the space.
Thank you both. Thank you.
helpful Patrick. Thank you both. Thank you. Thank you. Thank you. One moment for our next question. And our next question.
Comes from the line of David Frankel from Rosenblatt Securities. Your question, please. Thank you, Patrick. Let me just circle back to the second part of Simon's question, which was, I think all of us had this assumption that.
Well, your largest customer may be going through something. There was a set of other customers, including some tier ones that hadn't really gotten started yet. They were still in the early deployment phases. And the assumption was they would be ramping up in the back half.
We are seeing it in our Q4 guidance and we have built it in. Patrick, if you... No, I think that captures it all. But no one is stepping up in Q3 to fill the gap, clearly, from the guidance. Patrick, maybe some color on the two new Tier 1 wins? We are excited about them. They are definitely players, or let's say, if I can use them in quotes, household names in the community. So they are premier accounts and we are excited to have them on board. I think that...
As I mentioned in the prepared remarks, initial multi-million dollar orders, so we have a ways to go, but to your question, neither is contributing revenue yet and likely only modest revenue before year end. But it's really part of the layering that's going on of our business and speaking to what we think will be.
All right, thank you. I'll come back and make you.
And our next question comes from the line of George Nautter from Jefferies. Your question, please. Hi, everyone, this is Blake on for George. Thanks for taking our questions. I'm curious if you can provide any additional detail on the follow on software contract with the existing large tier 1, maybe how that deal is structured if it's any different and if the economics have improved at all for you. I appreciate the question and I understand where it's coming from, but I ask you to appreciate it's not something that we can really unpack for you.
of the leadership and of the relationships that are built around the software, how the software is a major building block. What we can't talk about really is the duration, the scope, or other aspects of it. And other than to say that it in no way is a one-for-one with what has been done previously with the customer. But it's an important reflection of our continuing relationship and the continuing
Leadership that we have in the industry with our software capability. Understood. Then curious where lead times stand for cable access equipment. I believe they're about 12 months recently for larger quantity node orders. Is that still the case? And maybe how.
Did they change at all out? They did during the quarter, if so. Thanks. Blake, it's Walter here. What I can say is that from our perspective, we've continued to work with our customers based on our lead time requirements.
and from a supply chain perspective, and I made the comments in the opening remarks, we continue to see certain long lead time parts that require 52 week lead times. But there's many parts in the supply chain now that have actually improved.
about the new tier one wins and I guess I'll throw a charter in there as well. To the extent, Patrick, you talk about your growth outlook, though not explicitly stated for 24 being unchanged, does that imply that you won't see much in terms of meaningful revenue contribution from any of those three wins this year with the, even though you booked some orders?
The meaningful ramp coming next year, and I guess could those in the aggregate help to get you pretty close to achieving that growth plan.
Well, I appreciate the question, Tim. I think it is premature for us to be talking in any quantitative way about 2024. And as you also, I think, will appreciate, I can't comment specifically about charter. But I think it is premature for us to be talking in any qualitative way about 2024.
But look, what we've seen with other Tier 1s and going back to the Comcast relationship, it takes a while to get going. It's a powerful but new operational paradigm in addition to technology, etc.
lies ahead in 2024 and 2025. That's for sure. And as we look out to 2024 and 2025, that's one of the reasons why we can say with more certainty or more confidence that as we look at customer concentration in our business, etc., we think we will be in a different place as more of these tier ones come online. Exact timing and exact size, I think we're going to have to hold
Please bear with me. And you commented earlier on the call and then the prepared remarks that you didn't feel like, you know, well, A, most of your comments about areas of weakness seem to be focused on the outside plan. When you say hardware at least that's what it means to me. And your order book kind of reflects that. It's a pretty good order book for a weakening demand environment and you mentioned some of the new tier ones there. So are we seeing some differentiation?
in how the business is behaving between some of the virtual IC cap the router side of the house versus the node side And you did mention you didn't feel like you were losing market share But to the extent that FDX is ramping pretty quickly and one of your big established competitors is arguably
A, would that implicitly imply some market share loss on the hardware side nodes? B, might that be a good thing for your business model over time, right? Less revenue, higher margins. And C, is that what's behind maybe a rethinking of the 25 analyst day targets? On the one hand, Patrick, you said support long-term growth targets. I thought Walter just told me we have new numbers coming. Can you guys clarify that? And I apologize in advance for that, so sorry. No, it's okay, but there's several things there, so we'll do our best to kind of track through them and maybe you can remind us along the way. Why don't we start at the end while...
with the team to thoroughly go through that process and build up our long-term strat plan. And so we will be, you know, revising that plan. We'll be working together as a team internally and then presenting that at our analyst day later this year. So I just wanted to clarify.
And with regards to the target models that have been provided previously, those were put together in a year ago and presented at analyst day. And as Patrick pointed out earlier, and in some of our remarks.
If you look at the long-term opportunity for us in terms of the market itself and our position in the market, we're still very strong in terms of our overall position. So I'll let Patrick handle the next couple questions here.
Okay, thanks Walter. So Tim, I think there's a couple of interrelated topics. I'll try to touch briefly and then you can direct a follow up. So in no particular order. Maybe Doc's just 4-0. We think we're incredibly well positioned there and the work we've done we think is exceptional and the feedback we're getting from the customer base on the products we've made is exceptional.
basis of the core is a big part of the of the agility and speed there. So we see 4.0 is a positive in terms of strengthening the competitive position and frankly it's from a hardware perspective it's a higher price point. So from multiple perspectives it's a good thing.
Although there may be a little bit of delay in the market as some folks begin to look ahead to DOCSIS 4.0 product.
maybe a little bit of delay in the market as some folks begin to look ahead to a DOCSIS 4.0 product.
You also touched and maybe related to that to market your more more broadly. Look, we do not think that we are losing any market share. In fact, we think, well, we think we, we, we, we. And what the politically correct word is, we think that we.
have by far and away leadership share on the software core, the only real virtualized solution out there. On the hardware side of things though, we think we actually continue to exceed our expectations in terms of market share. And in particular the most recent edition of the Deloro report I think calls out for the first time.
harmonic as the clear market leader here in all things DAA and VCMTS. And maybe last but not least, we talked about the, you asked about the software hardware balance and indeed I think what you saw in the second quarter was lighter software for the reasons we, hardware excuse me, for the reasons we've discussed, but you saw pretty strong software which is why the mix kind of tilted and the margins were as strong as they are. So no doubt about it, we are, our strength in software I would call commanding.
On the hardware front though, I'll take the opportunity to remind everybody that we have a couple of different models out there. And while some customers are buying our node and our RPD, there's some customers, particularly overseas, where we actually just provide the RPD inside of a third-party node platform.
And in fact, we have some North America customers who are looking at that model as well. And to your, I guess, your side comment, that's more than fine by us, frankly. The RPD is the highest value, the highest margin part of the hardware solution.
play out in the second quarter. So in summary, we don't think we're losing any market share in terms of lost opportunity. We are pursuing a couple of different business models that may tilt towards a higher software mix. And we think that the advent of Daxos 4.0 is doing nothing but solidifying our position in the market. Great, thank you very much. There, that was a mouthful, Tim. Forgive me, but did that cover what you were after?
It absolutely did. I really appreciate it. Thanks. All right. Thank you. Thank you. One moment for our next question.
And our next question comes to the line of Elisa Severs from Barclays. Your question, please. Of the
Hi, this is Alyssa from Barclays. Could you talk a little bit about the broadband slow down? Specifically, when did you kind of see in the quarter customers kind of changing their —
Plans and delaying and was it all at the same time or did you start to see it? Can you talk about in which geodes you are seeing the weakness in video?
Okay, thanks for the question, Alyssa. The changing requests or direction we were receiving for customers on broadband were really back half of the quarter, mid-quarter and onwards.
Yeah, I don't think there's much information to be further parsed by exact timing, but more on the back end.
And as you can see, a modest impact on the second quarter really, and this is more of a third quarter impact and somewhat movement to fourth quarter is evidenced in our guidance. On the video side of the business, the weakness is definitely overseas and we think it's really macro related.
Our SaaS business is strong worldwide. Our video appliance business was quite robust in North America. But yeah, the real weakness that we saw and really manifest as delays, not lost project, but customers kind of saying, ah, well, you know what, we're not ready to pull the trigger of this quarter as planned.
We'd like to do it a little later in the year. That kind of dialogue we saw in several instances internationally.
Thanks. All right. Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to management for any further remarks.
All right, well, thank you all for joining us again today through our prepared remarks and I think there's very good Q and a session. I hope it's evidence that the fundamental market drivers. Uh, on which we're focused, remain in full force and we believe will for the, the mid to long term. There's no doubt about it.
We've laid out our best understanding and as Walter said, we believe conservative understanding what the remainder of this year looks like. But make no mistake, we're playing long ball here and we're extremely excited about the future of this business. We're 100% focused on execution and we look forward to keeping you apprised of our progress.
Thank you all again. Good day. Thank you, ladies and gentlemen, for your participation at today's conference. This does conclude the program. You may now disconnect. Good day.
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