Q3 2023 Harmonic Inc Earnings Call

October 30, 2023

Okay.

Welcome to the third quarter 2023 harmonic earnings Conference call. My name is Carmen and I'll be your operator for today's call.

All participants are in a listen only mode. After the presentation. There will be a question and answer session to ask a question simply press star one one on your telephone you will hear and message advising your hand. This race to withdraw the question simply press Star. One again. Please note that today's conference is being recorded I will now turn there.

Call over to David Burke Investor Relations, David you May begin.

Thank you operator, Hello, everyone and thank you for joining us today for harmonics third quarter 2023 financial results Conference call.

With me today are Patrick Harshman, President and Chief Executive Officer, and Walter Jankovic, 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 through 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.

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've posted on our website and filed with the SEC on form 8-K.

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

The remainder of the information will be available on a recorded version of this call or on our website.

And now I'll turn the call over to our CEO Patrick Harshman Patrick.

Well, thanks, David and welcome everyone to our third quarter call.

We reported third quarter results, which were within our guidance range and expectations as we continue to make substantial progress in a number of key areas, including DOCSIS four dido fiber to the home and video SaaS.

We ended the quarter with strong backlog and deferred revenue showing our alignment with our customers' growth plans and giving us further confidence in our long range growth prospects.

Before diving into the details of the quarter I mentioned three overarching points.

First regarding our broadband business.

Financially healthy our technology execution of differentiation remains very strong.

We're uniquely positioned for sustained period of network investment and we therefore remain fully on track to deliver strong multiyear growth.

Second.

SaaS business continues to deliver strong recurring revenue growth of 42% in the third quarter on a year over year basis with several new customers recently won and being on boarded.

With live sports is still in the early innings of migrating to streaming platforms. We believe there is substantial runway for growth in our video SaaS.

And third we are announcing that we have commenced a formal strategic review process for our video business.

Changes in the marketplace and our customer strategies synergies between our broadband and video businesses are now less compelling.

Additionally, we have received interest from several external parties for our video business.

These factors coupled with capital allocation planning led us to initiate the strategic review.

Together with financial and legal advisors, we're assessing a range of alternatives for the video business with it.

Clear goal of optimizing long term value.

Walter will provide additional color momentarily.

Moving now to our broadband segment highlights we delivered segment revenue of $75 8 million down from $91 $9 million a year ago largely as expected.

Carmen: Welcome to the third quarter, 2023 Harmonic earnings conference call. My name is Carmen and I'll be your operator for today's call. All participants are in a listen on the mode. After the presentation, there will be a question and answer session. To ask the question, simply press star 1-1 on your telephone. You will hear a message advising your hand this race. To redraw the question, simply press star 1-1 again. Please note that today's conference is being recorded.

The number of global customers deploying our solution reached 104 of 21% year over year with a corresponding $23 5 million DOCSIS cable modems now served worldwide.

13% of cable modems to play globally.

Highlighting the significant footprint expansion opportunity still in front of us.

You will recall last quarter, we anticipated this third quarter revenue decline for two related reasons.

Some customers were bleeding down inventory positions established during the pandemic.

Carmen: 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 Harmonic's third quarter, 2023 Financial Results Conference call. With me today are Patrick Harshman, President and Chief Executive Officer and Walter Jankovic, 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.

Second better than anticipated progress on DOCSIS, four <unk> technology with leading to a slowdown in DOCSIS three one deployment plans in anticipation of DOCSIS four that our rollout.

This is all playing out largely as we had anticipated.

Regarding DOCSIS four that the progress has been stunning.

A powerful CLS cloud native software is way out front of the rest of the industry handling both variance. So the doctor support that our specification full duplex and extended spectrum, along with <unk> fiber in a unified way.

It's impossible with legacy <unk> solutions that we compete against.

Carmen: 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 made different materially. We refer you to documents Harmonic filed 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 to differ materially from those contained in our projections or forward-looking statements.

Equally impressive has been the edge device work, we've done to enable unified supported at the CSD and fiber providing.

Providing deployment Optionality, that's a game changer for the industry.

In anticipation of DOCSIS, four <unk> rollout may impact certain customers near term deployment plans.

The mid to long term story for harmonic is quite positive.

As our technology lead is extended we have an opportunity to sell this DOCSIS four nanotechnology into already deployed DOCSIS three one networks.

And our customers have a new tool to deliver their consumers highly competitive multi gigabit services.

Carmen: And please note that unless otherwise indicated the financial metrics we provide you on this call are determined on a non-gap basis. These metrics, together with corresponding gap numbers and a reconciliation gap, are contained in today's press release, which we have posted on our website and proud of the SEC on Form 8K. 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.

In parallel with this advanced DOCSIS work, we've also been making impressive progress in the fiber to the home area.

We secured 14, new fiber wins, including 10 in our existing customer base and for net new with fiber focused or fiber only providers.

The growing fiber success with existing DOCSIS customers highlights the value of cable operators see and our unique COF core with its flexibility to simultaneously power DOCSIS and fiber edge devices.

We expect fiber penetration within our existing accounts to grow as cable operators increasingly deploy complementary fiber based broadband to new and existing subscribers.

David Hanover: And now I'll turn the call over to our CEO Patrick Hartman, Patrick. Well, thanks David and welcome everyone to our third quarter call. Today, we reported third quarter results, which were within our guidance range and expectations as we continue to make substantial progress in a number of key areas, including Ducksis4.0, Fiber to the Home and Video SAS.

And then that new wins outside of our traditional cable operator footprint demonstrate our expanding fiber sales focus and success.

The recently announced <unk> shelf, which supports <unk> combo upon energy plan will further empower our sales force to engage with a variety of customer profiles domestically and internationally.

Patrick Harshman: We ended the quarter with strong backlog and a forward revenue showing our alignment with our customers growth plans and giving us further confidence in our long range growth prospects. Before diving into the details of the quarter, we'll mention three overarching points. First, regarding our broadband business, we're financially healthy, our technology execution and differentiation remains very strong. We're uniquely positioned for sustained period of network investment, and we therefore remain fully on track to deliver strong multi-year growth.

In summary, we remain confident in our technology, our market position and in our growth opportunities for our broadband business spanning broadband cable and fiber.

With continuing strong backlog and deferred revenue very strong customer <unk> for example, the recent S&P Expo in Denver and.

The new design wins in every geography.

Well positioned for sustained growth.

So turning now to our video segment the highlight of the quarter was again SaaS revenue $12 $5 million up 42% year over year.

Patrick Harshman: Second, our Video SAS business continues to deliver strong recurring revenue growth, a 42% and a third quarter on a year of your basis with several new customers recently won and being onboarded. With live sports still in the early innings of migrating to streaming platforms, we believe there is substantial runway for growth in our video SAS.

Total revenue was $51 4 million down from $63 8 million a year ago, reflecting our intentional SaaS transformation and several video appliance project delays, a select customers contend with macro economic headwinds.

Patrick Harshman: Third, we're announcing that we have commenced a formal strategic review process for our Video SAS. Business. Due to changes in the marketplace and our customer strategies, synergies between our broadband and video businesses are now less compelling. Additionally, we have received interest from several external parties for our video business. These factors, coupled with capital allocation planning, led us to initiate the strategic review. Together with financial and legal advisors, we're assessing a range of alternatives for the video business with a clear goal of optimizing long-term value. Walter will provide additional color moment early.

Highlighting the accelerating transition to streaming SaaS, new wins happened at a record pace.

As our total SaaS customer base grew by 20%.

Approximately half of these new SaaS wins.

With historic appliance customers so to be clear in addition to some appliance deal delays. We're also seeing more appliance customers starting to transition to SaaS.

Only a few of these new SaaS engagements came online during the quarter, meaning a recurring SaaS revenue funnel continues to grow.

Live sports remains the primary driver of these new SaaS wins. This exceptional video quality low latency flexible target that AD insertion and a broad array of quality related benefits continue to differentiate us in the market.

Patrick Harshman: The moving now to our broadband segment highlights. We delivered segment revenue of $75.8 million, down from $91.9 million a year ago, largely as expected. The number of global customers deploying our solution reached 104, up 21% year over year, with corresponding 23.5 million doses cable modems now served worldwide. Approximately 13% of cable modems deployed globally, highlighting the significant footprint expansion opportunity still in front of us. To recall last quarter, we anticipated this third quarter revenue decline for two related reasons.

Among our latest sports streaming customers are global player view lift and WRC promoter in Germany, with whom we recently issued press releases.

On the appliance side of the business, which is more capital intensive for our customers. We saw several instances of extended project delays, however, our domestic and international sales pipelines for the coming periods is actually growth.

And we're starting to see encouraging signs of pent up demand and a resumption of activity.

Patrick Harshman: First, some customers were bleeding down inventory positions established during the pandemic. In second, better than anticipated progress in Doxus 4.0 technology, we've leading to a slowdown in Doxus 3.1 deployment plans in anticipation of Doxus 4.0 low-lap. This is all playing out largely as we had anticipated. Regarding Doxus 4.0, the progress has been stunning. A powerful COS-cognitive software is way out front of the rest of the industry, handling both variants of the Doxus 4.0 specification, full-duplex and extended spectrum, along with 5G fiber and a unified way that simply isn't possible with legacy CMTS solutions that we compete against.

So finally before I hand, you over to Walter I'd like to briefly comment on the situation in Israel.

Like many we were outraged by the horrible events that have taken place there in recent weeks.

Our colleagues in Israel and their families. Please note that our hearts are with you during this extremely trying time.

As a company are first and utmost priority is the safety of our people.

The majority of our people are secure.

We're taking the appropriate measures to ensure their continued safety and.

In support.

And with that let me hand, it over to Walter for a deeper discussion of our results and outlook.

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-GAAP basis.

Patrick Harshman: Equally impressive has been the edge device work we've done to enable unified support of FDX, ESD, and fiber, providing deployment optionality that's a game-changer for the industry. Well, anticipation of Doxus 4.0 roll-up may impact certain customers near-term deployment plans. The mid-to-long-term story for harmonics is quite positive. As our technology leaders extended, we have an opportunity to sell this Doxus 4.0 technology into already deployed Doxus 3.1 networks. Our customers have a new tool to deliver their consumers highly competitive multi-gigabit services.

As David mentioned earlier, our Q3 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.

Our third quarter results were within our guidance range, taking into account customer demand push outs related to the larger macroeconomic environment that we referred to on our last earnings conference call.

Patrick Harshman: In parallel with this advanced Doxus work, we've also been making impressive progress in the fiber-of-the-home area. We've secured 14 new fiber wins, including 10 in our existing customer base, and four net new with fiber-focused or fiber-only providers. The growing fiber success with existing Doxus customers highlights the value cable operator C in our unique COS core with its flexibility to simultaneously power Doxus and fiber-edge devices. We expect fiber penetration within our existing accounts to grow, if cable operators increasingly deploy complementary fiber-based broadband to new and existing subscribers.

Before reviewing our Q3 2023 financials in detail all called out the highlights here on slide seven.

For the quarter, we reported revenue of $127 2 million with EPS of zero cents.

Bookings of $96 3 million and near record backlog and deferred revenue of $627 2 million in a few moments I'll provide Q4 guidance.

Turning to slide eight total Q3 revenue was down 18, 3% year over year, mainly due to the factors I mentioned earlier.

Patrick Harshman: And then at new wins, outside of our traditional cable operator footprint, demonstrate our expanding fiber sales focus and success. The recently announced new peer OOT-OOT-self, which supports 10G, combo-pon, and G-Pon, will further empower our sales force to engage with a variety of customer profiles domestically and internationally. In summary, we remain confident in our technology, our market position, and in our growth opportunities for our broadband. Business, Spanning, Broadband Cable, and Fiber.

Looking at broadband Q3 revenue was $75 8 million the year over year decline was due largely de inventory adjustments by our broadband customers.

I want to note that during the third quarter, we were in the initial ramp stage of another tier one customer we.

We expect to see the benefit of this ramp in Q4 as reflected in our revised guidance.

In video Q3 revenue was $51 4 million, while video appliance sales were lower due to the factors I noted earlier video revenue included SaaS revenue of $12 5 million or 24% of segment revenue for the quarter up 42% from the prior year.

Patrick Harshman: With continuing strong backlog into Ford Revenue, very strong customer endorsements, for example, the recent SET Expo in Denver, and new design wins in every geography, well-positioned for sustained growth.

Patrick Harshman: So turning that over our video segment, the highlight of the quarter was again, SaaS Revenue, $12.5 million, up 42% year over year. Total revenue was $51.4 million, down from $63.8 million a year ago, reflecting our intentional SaaS transformation, and several video-pliance project delays that select customers can tend with macroeconomic headwinds. Highlighting the accelerating transition to streaming SaaS, new wins happened at a record pace, as our total SaaS customer base grew by 20%.

We continue to execute on the strategic transformation of our video business with the continued growth of SaaS, while also focusing on maximizing profitability in the appliance business.

As Patrick mentioned, we are evaluating strategic alternatives for our video business to be clear, we still consider both broadband and video SaaS to be high growth areas.

Based on that and after making a thorough assessment of our capital allocation priorities. We decided now was the right time to assess strategic alternatives for video as it continues its strategic shift to focus on SaaS.

Patrick Harshman: Approximately half of these new SaaS wins were with historic appliance customers. So to be clear, in addition to some appliance deal delays, we're also seeing more appliance customers starting to transition to SaaS. Only a few of these new SaaS engagements came online during the quarter, meaning our recurring SaaS revenue funnel continues to grow. LifeSports remains the primary driver of these new SaaS wins, this exceptional video quality, low latency, flexible target that ad insertion, and a broad array of quality related benefits continue to differentiate this in the market.

This decision was also made partly due to the indications of interest in our video business from a number of parties over the past several months.

Please note no timetable has been established for the completion of the strategic review and the review May not result in any transaction, we do not intend to disclose further developments with respect to this review process unless and until our board approves a specific action or otherwise concludes the review.

Patrick Harshman: Among our latest sports streaming customers, our global player view lift, and WRC promoter in Germany, with whom we recently issued press releases. When the appliance out of the business, which is more capital intensive for our customers, we saw several instances of extended project delays. However, our domestic and international SaaS pipelines for the coming periods has actually grown, and we're starting to see encouraging signs of pent-up demand and resumption of activity.

Back to our third quarter results, we had one customer representing greater than 10% of total revenue during the quarter with Comcast representing 41% of total revenue.

Total company gross margin was 49, 5% for Q3 dollars 23, reflecting decreased gross margins in both of our business segments sequentially.

Broadband gross margin was 44, 5% for Q3, 23% down 50 basis points year over year and above our guidance.

Patrick Harshman: So, finally, before I hand you over to Walter, I'd like to briefly comment on the situation in Israel. Like many, we were outraged by the horrible events that have taken place there in recent weeks. To our colleagues in Israel and their families, please know that our hearts are with you during this extremely trying time. As a company, our first and utmost priority is the safety of our people. The majority of our people are secure, and we're taking the appropriate measures to ensure their continued safety and support.

Video segment gross margin was 56, 9% in Q3 dollars 23, reflecting macroeconomic headwinds and projects delays noted earlier.

Moving down the income statement on slide nine.

Q3, operating expenses were $62 9 million down six 4% sequentially and up three 2% year over year.

Walter Jankovic: And with that, let me hand it over to you, Walter, for a deeper discussion of our results and outlook. 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. As David mentioned earlier, our Q3 press release and earnings presentation includes reconciliations of the non-gap financial measures to gap that are discussed on this call.

The sequential decrease reflects cost containment actions and R&D that is assigned to cost of sales for specific customer projects.

Surely offset by an increase due to a specific bad debt expense of $1 million.

Adjusted EBITDA for Q3, 23 was $3 5 million or two 8% of revenue comprised of $8 1 million from broadband and negative $4 6 million from video adjusted EBITDA for broadband came in above the high end of our expectations while video was lower.

Walter Jankovic: Both of these are available on our website. Our third quarter results were within our guidance range, taking into account customer demand pushouts related to the larger macroeconomic environment that we referred to on our last earnings conference call. Before reviewing our Q3 2023 financials in detail, I'll call out the highlights here on slide seven. For the quarter, we reported revenue of 127.2 million with EPS of 0 cents, bookings of 96.3 million, and near record backlog and deferred revenue of 627.2 million.

Due to the factors noted earlier.

This all translated into Q3 23, EPS of zero cents per share in line with our previous guidance and compared with 12 <unk>.

In Q2, 23, and <unk> 13 per share for Q3 'twenty two.

We ended the third quarter of 2023 with the calculated diluted weighted average share count of $116 7 million compared to $119 3 million in Q2, 23, and $113 2 million in Q3 'twenty two the sequential decrease is primarily due.

Walter Jankovic: In a few moments, I'll provide Q4 guidance. Turning to slide 8, total Q3 revenue was down 18.3% year-over-year, mainly due to the factors I mentioned earlier. Looking at broadband, Q3 revenue was 75.8 million, the year-over-year decline was due largely to inventory adjustments by our broadband customers. I want to note that during the third quarter we were in the initial ramp stage of another Tier 1 customer. We expect to see the benefit of this ramp in Q4 as reflected in our revised guidance.

The decreased convertible debt dilution of $2 5 million shares.

Turning to the order book Q3 bookings were $96 3 million the book to Bill ratio was <unk> eight for the quarter.

For Q2 'twenty three in Q3 'twenty two our book to Bill ratios were one two and one one respectively. As we've stated previously overtime as supply chain conditions improve we expect this ratio to normalize and approach the historical benchmark of greater than one.

Walter Jankovic: In video, Q3 revenue was 51.4 million, while video appliance sales were lower due to the factors I noted earlier, video revenue included SaaS revenue of 12.5 million or 24% of segment revenue for the quarter up 42% from the prior year. We continue to execute on the strategic transformation of our video business with the continued growth of SaaS while also focusing on maximizing profitability in the appliance business. As Patrick mentioned, we are evaluating strategic alternatives for our video business.

For Q3, we were below one after several quarters of being above one.

Yeah.

Turning to the balance sheet on slide 10.

We ended Q3, 'twenty three with cash of $75 6 million.

The net $4 6 million sequential increase was due to a few factors cash from operations provided $11 million due predominantly to a decrease in both inventory and accounts receivable offset by a decrease in other current liabilities.

We also used $1 9 million in the purchase of fixed assets.

Walter Jankovic: To be clear, we still consider both broadband and video SaaS to be high growth areas. Based on that, and after making a thorough assessment of our capital allocation priorities, we decided now was the right time to assess strategic alternatives for video as it continues its strategic shift to focus on SaaS. This decision was also made partly due to the indications of interest in our video business from a number of parties over the past several months.

So in addition to cash of $75 6 million at quarter end, we had short term investments of term deposits of $6 3 million together totaling $81 9 million.

Turning to accounts receivable and days sales outstanding at the end of Q3 'twenty three DSO was 78 compared to 69 in Q2, 'twenty three and <unk> 61 in the prior year period.

Walter Jankovic: Please note, no timetable has been established for the completion of the strategic review and the review may not result in any transaction. We do not intend to disclose further developments with respect to this review process, unless and until our board approves a specific action or otherwise concludes the review. Turning back to our third quarter results, we have one customer representing greater than 10% of total revenue during the quarter. With concast representing 41% of total revenue, total company gross margin was 49.5% for Q323 reflecting decreased gross margins in both of our business segments sequentially.

As we mentioned on our last earnings call one of our larger customers informed us that they will no longer take an early pay discount in Q3, which is reflected here.

Days inventory on hand was 145 days at the end of Q3 dollars 23 compared to 145 at the end of Q2 dollars 23, and 116 at the end of Q3 2002.

The inventory decline in the quarter was a result of lower in feed as we continue to tighten our supply chain.

Regarding capital allocation, our top priority remains driving our future growth when appropriate we will strategically invest in building inventory as we've done in the past to meet strong demand, we retain the flexibility to maintain somewhat lower inventory levels.

Walter Jankovic: Broadband gross margin was 44.5% for Q323 down 50 basis points year over year and above our guidance. Video segment gross margin was 56.9% in Q323 reflecting macro economic headwinds and projects delays noted earlier. Moving down the income statement on slide 9, Q3 operating expenses were 62.9 million down 6.4% sequentially and up 3.2% year over year. The sequential decrease reflects cost containment actions and R&D that is assigned to cost the sales for specific customer projects partially offset by an increase due to a specific bad debt expense of $1 million.

This is reflected in our lower ending inventory balances for the third quarter.

Our forward capital allocation strategy also includes our 2024 convertible notes and any stock repurchases under our stock repurchase program.

As we said previously the timing and amount of any stock repurchases will depend on a variety of factors, including the price of harmonics common stock.

Conditions corporate needs and regulatory requirements.

At the end of Q3 total backlog and deferred revenue was $627 2 million are strong backlog reflects continued demand from our large broadband customers and growing video SaaS commitments.

Just under 50% of our backlog and deferred revenue has customer request dates for shipments of products and for providing services within the next 12 months.

Walter Jankovic: Adjusted EBITDA for Q323 was 3.5 million or 2.8% of revenue comprised of 8.1 million from broadband and negative 4.6 million from video. Adjusted EBITDA for broadband came in above the high end of our expectations while video was lower due to the factors noted earlier. This all translated into Q323 EPS of 0 cents per share in line with our previous guidance and compared with 12 cents in Q223 and 13 cents per share for Q322.

Lastly, we generated $9 1 million in free cash flow in the quarter.

In summary, our Q3 results were within our expectations. The short term macroeconomic headwinds while frustrating have not impacted our market share. We continue to see strong demand for our market, leading technology solutions as customers recognize the value add that we bring to their businesses.

Before reviewing guidance I'd like to mention that given the strategic review process, We announced today, we have decided to move our analyst day, which was previously planned for late 2023 to early next year more information will be forthcoming once we finalize those details.

Walter Jankovic: We ended the third quarter of 2023 with the calculated diluted weighted average share count of 116.7 million compared to 119.3 million in Q223 and 113.2 million in Q322, the sequential decrease is primarily due to the decreased convertible debt dilution of 2.5 million shares. Turning to the order book, Q3 bookings were 96.3 million. The book to bill ratio was 0.8 for the quarter, for Q223 and Q322, our book to bill ratios were 1.2 and 1.1 respectively as we've stated previously over time as supply chain conditions improved.

Let's now review.

Our revised non-GAAP guidance for the fourth quarter, beginning on slide 11.

We expect broadband to deliver revenue between $105 million to $120 million below our prior guidance at the midpoint.

Gross margins between 44% to 45%, reflecting a similar product mix as in Q3 operating expenses between $29 million to $30 million and adjusted EBITDA between 19% to $26 million.

Walter Jankovic: We expect this ratio to normalize and approach the historical benchmark of greater than one. For Q3, we were below one after several quarters of being above one. Turning to the balance sheet on slide 10, we ended Q323 with cash of 75.6 million. The net 4.6 million sequential increase was due to a few factors. Cash from operations provided 11 million due predominantly to a decrease in both inventory and accounts receivable offset by a decrease in other current liabilities.

For broadband, we still expect to see a rebound in Q4 and the potential to hit a record quarter in revenue.

<unk> guidance and wider range reflects the current macroeconomic climate.

Walter Jankovic: We also used 1.9 million in the purchase of fixed assets. Also in addition to cash of 75.6 million, at quarter end we had short-term investments of term deposits of 6.3 million together totaling 81.9 million. Turning to accounts receivable and day sales outstanding at the end of Q323, DSL was 78 compared to 69 in Q223 and 61 in the prior year period. As we mentioned on our last earnings call, one of our larger customers informed us that they were no longer take an early pay discount in Q3 which is reflected here.

For our video segment in Q4 on Slide 12, we expect revenue in the range of $45 million to $55 million gross margin in the range of 59% to 60%.

Operating expenses in the range of $33 million to $35 million and adjusted EBITDA to range from a loss of $5 million to a loss of $1 million.

For video, we are being conservative in providing a wider range on guidance given the ongoing strategic review and other factors I mentioned earlier.

Turning to slide 13 for the fourth quarter of 2023, we expect total company revenue in the range of $150 million to $175 million gross margin in the range of 48, 5% to 49, 7% operating expenses to range from 62.

<unk> to $65 million adjusted EBITDA to range from $14 million to $25 million and effective tax rate of 20% and a weighted average diluted share count of approximately $117 1 million and.

Walter Jankovic: Days inventory on hand was 145 days at the end of Q323 compared to 145 at the end of Q223 and 116 at the end of Q322. The inventory decline in the quarter was a result of lower infeed as we continue to tighten our supply chain. Regarding capital allocation, our top priority remains driving our future growth. When appropriate, we will strategically invest in building inventory as we've done in the past to meet strong demand.

And EPS to range from a profit of seven to 14.

And cash to range from 80 million to $95 million.

We will not go through the full year 2023 guidance here since we just discussed Q4 guidance in detail for further details. Please refer to our earnings release that was issued earlier today.

In summary during the third quarter, we continued to execute on our long term strategic plans. We believe our broadband segment is well positioned for future growth. In addition, we made progress with the planned transformation of our video segment and shift to SaaS during the quarter, even as we consider strategic alternatives to maximize shareholder value.

Walter Jankovic: We retain the flexibility to maintain somewhat lower inventory levels. This is reflected in our lower ending inventory bounces for the third quarter. Our forward capital allocation strategy also includes our 2024 convertible notes and any stock repurchases under our stock repurchase program. As we said previously, the timing and amount of any stock repurchases will depend on a variety of factors including the price of harmonics, common stock, market conditions, corporate needs, and regulatory requirements, at the end of Q3 total backlog and deferred revenue was 627.2 million.

<unk>.

Thank you everyone for your attention today and now I'll turn it back to Patrick for final remarks, before we open up the call for questions.

Alright, well. Thank you Walter let me just wrap it up by emphasizing your concluding thoughts there on harmonica continues to be exceptionally well positioned to drive sustained growth and shareholder value creation.

We're focused on these objectives and confident in our ability to execute.

Walter Jankovic: Our strong backlog reflects continued demand from our large broadband customers and growing video SaaS commitments. Just under 50% of our backlog and deferred revenue has customer request dates for shipments of products and for providing services within the next 12 months. Lastly, we generated 9.1 million in free cash flow in the quarter. In summary, our Q3 results were within our expectations. The short-term macroeconomic headwinds, while frustrating, have not impacted our market share. We continue to see strong demand for our market leading technology solutions as customers recognize the value ad that we bring to their businesses.

We want to thank you for your continued support and we will open it up for questions. Thank.

Thank you so much and ladies and gentlemen asked a reminder to ask a question simply press star one one and wait for your name to be announced our first question is from Simon Leopold with Raymond James. Please proceed.

Great. Thanks, Thanks for taking the question I'd like to try to squeeze in two if I may.

The first one is on its conference call.

Charter publicly talked about some potential changes in the timing of its rollout.

And I think what they indicated was they may do some more of their <unk>.

Laurel build outs ahead of.

Some of the other upgrade activity and I wanted to see if you can share any thoughts on what that might mean for harmonic and then my second question Im sorry.

Walter Jankovic: Before reviewing guidance, I'd like to mention that given the strategic review process we announced today, we have decided to move our analyst day, which was previously planned for late 2023 to early next year. More information would be forthcoming once we have finalized those details.

Get both in.

Is base.

Basically for some of the upgrade initiatives.

Require upgrades to amplifiers, but there are carriers that have deployed fiber deep adult need amplifiers to be upgraded to deploy the DAA nodes from somebody like harmonic and what Im looking for from you is some center.

Walter Jankovic: Let's now review our revised non-gap guidance for the fourth quarter beginning on slide 11. We expect broadband to deliver revenue between 105 to 120 million below our prior guidance at the midpoint. Gross margins between 44 to 45% reflecting a similar product mix as in Q3, operating expenses between 29 to 30 million and adjusted EBITDA between 19 to 26 million. For broadband, we still expect to see a rebounding Q4 and the potential to hit a record quarter in revenue. Today's guidance and wider range reflects the current macroeconomic climate.

How much of the market can be upgraded fiber deep without waiting for the availability of the associated amplifiers hopefully those two questions makes sense and you can answer them. Thank you.

Yes, okay. Thank you. Thank you Simon first regarding charter, we don't have anything really specific to say beyond what they themselves said.

About their plan so what I would remind you and everyone else is that from the beginning we've been asked questions about charter schedule et cetera, and I think our our position from the beginning has been to take a wait and see.

Walter Jankovic: For our video segment in Q4 on slide 12, we expect revenue in the range of 45 to 55 million, gross margin in the range of 59 to 60%, operating expenses in the range of 33 to 35 million, and adjusted EBITDA to range from a loss of 5 million to a loss of 1 million. For video, we are being conservative and providing a wider range on guidance given the ongoing strategic review and other factors I mentioned earlier.

We've been through.

These onboarding ramp ups with a number of large customers I think we've seen a lot. So we've got a lot of experience and we're bringing a lot of that experience to bear.

We are.

Neither surprised nor unprepared.

Four for short term changes in schedule.

That being said, we've got our eyes on the prize, which is the big picture.

I think if you compare this to where we were a year ago. We've secured the second largest operator on the planet charter we are their partner going forward, they're going to do extensive work across their networks over the next several years and we think we're going to be a prime beneficiary, an enabler of that.

Walter Jankovic: Turning to slide 13 for the fourth quarter of 2023, we expect total company revenue in the range of 150 to 175 million, gross margin in the range of 48.5% to 49.7%, operating expenses to range from 62 to 65 million, adjusted EBITDA to range from 14 to 25 million, an effective tax rate of 20%, and a weighted average diluted share count of approximately 117.1 million, an EPS to range from a profit of 7 cents to 14 cents, and cash to range from 80 million to 95 million. We will not go through the full year 2023 guidance here since we just discussed Q4 guidance in detail.

That exciting work and nothing we have heard from them or think changes the big picture of the opportunity and the trajectory.

All of that work there.

On the second question. It's a good question on DOCSIS four indeed, what we've done on the core and the nodes is out ahead of what.

Others have done on these so called RF amplifier area, which is needed for I would say the majority of the DAA footprint. So that being said there is a significant to your question and I can't give you an exact number assignment, but there was a significant.

Opportunity, where there is no our amplifier technology needed in fact, our estimation is.

Walter Jankovic: For further details, please refer to our earnings release that was issued earlier today. In summary, during the third quarter, we continue to execute on our long-term strategic plans. We believe our broadband segment is well-positioned for future growth. In addition, we made progress with the plan transformation of our video segment and shift to SaaS during the quarter, even as we consider strategic alternatives to maximize shareholder value.

I think the industry expects <unk> to be RF amplifiers, let's say roughly a year by a year from now.

Five quarters from now and our view is that there is ample opportunity for for investments for growth productivity and DOCSIS four DAA that doesn't need amplifiers between now and then.

Patrick Harshman: Thank you, everyone, for your attention today, and now I'll turn it back to Patrick for final remarks before we open up the call for questions. All right, well, thank you, Walter. Let me just wrap it up by emphasizing your concluding thoughts there. Harmonic continues to be exceptionally well-positioned to drive sustained growth and shareholder value creation. We're focused on these objectives and confidence and our ability to execute.

That is our plan to be involved in projects and we think it mirrors.

Some of our key customers plans.

Our focus over the next year on da that doesn't involve amplifiers and.

And when the amplifier technology is available well then the playing field will expand.

Thank you.

Thank you one moment for our next question. Please.

Carmen: With that, we want to thank you for your continued support, and we will open it up for questions. Thank you so much, and ladies and gentlemen, as a reminder to ask the questions, simply press star one one and wait for your name to be announced.

And it comes from the line of Ryan <unk> with Needham <unk> Company. Please proceed.

Alright, Thanks want to follow up on Simon's question about DOCSIS four <unk>.

At a high level, what your view is of.

Simon Leopold: Our first question is from Simon Leopold with Raymond James, please proceed. Great, thanks for taking the question. I'd like to try to squeeze into if I may. The first one is on its conference call, Charter publicly talked about some potential changes in the timing of its rollouts, and I think what they indicated was they may do some more of their rural buildouts ahead of some of the other upgrade activities, and I want to see if you can share any sort of what that might mean for Harmonic, and then my second question, and sorry, I'll get both in, is basically for some of these upgrade initiatives require upgrades to amplifiers, but there are carriers that have deployed fiber deep that don't need amplifiers to be upgraded to deploy the DA nodes from somebody like Harmonic.

D a mix going forward I mean, obviously, we're in the very early stages of.

Deployments down can you share any thoughts there was a lot of buzz.

Simon Leopold: And what I'm looking for from you is some sense of how much of the market can be upgraded fiber deep without waiting for the availability of the associated amplifiers. Hopefully, those two questions make sense, and you can answer them. Thank you. Yeah, okay, thank you. Thank you, Simon. First, regarding Charter, we don't have anything really specific to say beyond what they themselves said about their plans. What I would remind you and everyone else is that from the beginning, we've been asked questions about Charter's schedule, etc.

Conference a couple weeks back about this DOCSIS three one.

<unk> model to.

You get higher speeds and if you can kind of share your thoughts about the transition to DOCSIS four hardware that you have in mind over the next few quarters would be helpful. I've got one follow up if you don't mind.

Yes.

Thank you for the question, let's separate two things one DAA architecture, where you have centralized core I think the interest if you were at the show you saw the.

The industry is Virtualized score that's it and then you've got distributed hardware at the edge.

Devices, and we're going to see that as the predominant architecture going forward for DOCSIS, three one as well as DOCSIS, four <unk> and as well as our hybrid DOCSIS and fiber.

And I think that that more than ever before it's clear that's the consensus of the industry and it is clear that harmonics leads in that area now what's the mix going to be I think is the essence of your question between three one for maybe a hybrid this what we call boosted three one.

Three one core taking advantage of some.

DOCSIS four modem technology, we're going to see a mix of all of the above and it's hard to exactly forecast but.

At the risk of being too cliched I mean, we're we're giving our customers an amazingly powerful Swiss army knife that really allows them to be to be flexible to be reactive to competitive as well.

Simon Leopold: And I think our position from the beginning has been to take a wait and see attitude. We've been through these onboarding ramp-ups with a number of large customers. I think we've seen a lot, so we've got a lot of experience, and we're bringing a lot of that experience to bear. We are neither surprised nor unprepared for short-term changes in schedule. That being said, we've got our eyes on the prize, which is the big picture.

Well as customer demand opportunity and you're going to see a mix of all of it Ryan and.

I think if you were there in Denver, you saw we're way out in front on DOCSIS three one now on this our hybrid boosted three one stuff on <unk> as well as the overlay of fiber on top of that.

So what's the exact mix not sure but the key thing is for us is.

Is getting the customers to go with the harmonic platform. So they've got that Optionality and I think more than ever before were positioned to take advantage of this.

Simon Leopold: I think if you compare this to where we were a year ago, we've secured the second largest operator on the planet, Charter. We are their partner going forward. They're going to do extensive work across their network over the next several years, and we think we're going to be a prime beneficiary and enabler of that exciting work. And nothing we have heard from them or think changes the big picture of the opportunity and the trajectory of that work there.

Yes, certainly the software platform you guys had this huge huge differentiator that can do all that.

And a quick question on the video side, you talked about the <unk>.

Growth in streaming at SAS and.

The headwinds in appliance or are you seeing a direct cannibalization of the appliance business or these two separate customer business is going in different directions, and maybe you can just give us a little late.

Patrick Harshman: On the second question, it's a good question on DOCSIS 4. Indeed, what we've done on the core and in the nodes is out ahead of what others have done on the so-called RF amplifier area, which is needed for, I would say, the majority of the DAA footprint. That being said, there is a significant to your question. I can't give you an exact number assignment, but there is a significant DAA opportunity where there is no amplifier technology needed.

On that side of the world.

Yes.

It's a great question, but basically there is overlap.

As we pieced apart and we had a record quarter for new SaaS add so as we dug into it.

We found about it was about 50 50, new new customers.

Kind of new business models, but the other half was actually historic appliance customers moving to a SaaS model. So the SaaS is transformation is partly responsible.

Patrick Harshman: In fact, our estimation is, I think the industry expects there to be RF amplifiers, let's say roughly a year from now, five quarters from now. And our view is that there is ample opportunity for investment, for growth, for activity in DOCSIS for DAA, but doesn't need amplifiers between now and then. So that is our plan to be involved in projects. And we think it mirrors some of our key customers' plans. We'll focus over the next year on a DA that doesn't involve amplifiers. And when the amplifier technology is available, well then the playing field will expand.

And this past quarter, let's say, 50% responsible for.

The weakness we saw in appliance now the other part is there's really no different than youre seeing across the broader carrier landscape, it's inventory its cost of capital et cetera.

Unknown Executive: Thank you.

Maybe a little bit more headwinds internationally. So it's both Ryan.

Or a mix of the two.

Ryan Koontz: Thank you, one moment for our next question please.

Thanks, Patrick.

Alright, thank you.

Thank you one moment.

Our next question please.

Okay.

And it comes from the line of Steve Frankel with <unk>. Please proceed.

Good afternoon, Patrick back on Ford Auto I know Theres been a lot of discussion about the broadcom chip availability and how it's impacting the amplifier side.

Is there a similar supply chain concern around four O nodes or do you have visibility into the chip supply you need to get those Ford auto now to enter the market.

Ryan Koontz: Any comments from the line of Ryan Koontz with Needham and Company, please proceed. Hi, thanks. I want to follow up on Simon's question about Doxas 4 and, you know, just at a high level, what your view is of DAA mix going forward. I mean, obviously we're in the very early stages of deployments now and can you kind of share any thoughts. You know, there was a lot of buzz at the conference a couple weeks back about this Doxas 3-1, kind of plus model to get higher speeds.

There was a high level, there's a lot of complexity there are a lot of moving parts.

But the high level answer is we're in good shape.

That extra relationship with with Broadcom and we're grateful for.

Excellent alignment with our customers and.

We think we're in good shape there.

Okay, and then in terms of.

Ryan Koontz: And if you can kind of share any thoughts about the transition to Doxas 4 hardware that you have in mind over the next few quarters, it'd be helpful. I've got one fall up, you don't mind. Yeah, look, let's thank you for the question.

The new <unk>.

The new tier you got a new tier one that's ramping thats great news, there's been this other group of tier ones that kind of had been.

Stuck in neutral or first year.

Patrick Harshman: Let's separate two things. One, DAA, the architecture where you have centralized core. I think the industry, if you were at the show, you saw the industry is virtualized core. That's it. And then you've got distributed hardware at the edge devices. And we're going to see that as the predominant architecture going forward for Doxas 3-1 as well as Doxas 4-0. And as well as a hybrid Doxas and fiber. And I think that, more than ever before, it's clear that's the consensus of the industry and it's clear that harmonics leads in that area.

What can you do to get that group of customers accelerated and moving forward.

Well.

<unk>.

We come out of this recent event in Denver extremes.

Extremely encouraged exactly on that question. If you roll back 12 months ago think about it there was uncertainty about remote phy versus remote Mac Phy. The result of stress about fts versus ESD.

A lot of.

Uncertainty and confusion.

We come out of a year later, we come out of <unk> with those questions essentially being answered.

Patrick Harshman: Now, what's the next going to be, I think, is the essence of your question between 3-1, 4-0, maybe a hybrid, this what we call boosted 3-1, a 3-1 core, taking advantage of some Doxas 4-0 modem technology. We're going to see a mix of all of the above. And it's hard to exactly forecast. But, you know, our, it's just being too cliché. I mean, we're giving our customers an amazingly powerful Swiss Army knife that really allows them to be flexible, to be reactive, to competitive, as well as customer demand opportunity.

It's remote phy.

On <unk>, it's a unified product so I think.

Things that were holding back customers from from having clarity on their plans have.

The fog is really clearing.

The substance of the specific <unk> of discussions we're now having with.

With leading tier ones, who have yet to get on board as well as tier twos.

It's we're quite encouraged now look it doesn't mean, we're going to be deploying with them next week, but as we look at the continued trajectory of this business.

Patrick Harshman: And you're going to see a mix of all of it, Ryan. And I think if you were there in Denver, you saw we're way out in front of Doxas 3-1 now on this hybrid boosted 3-1 stuff on 4-0 as well as the overlay of fiber on top of that. So what's the exact mix, not sure, but the key thing for us is getting the customers to go with the harmonic platform so they've got that optionality.

We are.

We're feeling that the industry and we with our product and technology are in a very good place.

Okay, and then one last one would you characterize what the.

Book to Bill looks like on the broadband side, we talked about the weakness in video but.

Patrick Harshman: And I think more than ever before we're positioned to take advantage of this. Yeah, I mean, certainly the software platform you guys have is a huge, huge difference here that can do all that. And quick question on the video side, you talked about the growth in streaming and SaaS and the headwinds in appliance. Are you seeing a direct cannibalization of the appliance business or these two separate customer businesses going in different directions and maybe you can give some light on that side of the world.

Where were we on the broadband side in the quarter.

Both of our businesses, Steve It's Walter here.

Below 1% in the quarter.

Great. Thank you.

Okay welcome.

Thank you.

A moment for our next question please.

It comes from the line of Steve Frank I'm, Sorry, George Notter with Jefferies. Please proceed.

Patrick Harshman: Thanks. Yeah, look, so it's a great question. Basically, there's overlap. As we pieced apart and we had a record quarter from new SaaS ads, so as we dug into it, we found about it was about 50, 50 new customers or kind of new business models. But the other half was actually historic appliance customers moving to a SaaS model. So the SaaS transformation is partly responsible in this past quarter, let's say 50% responsible for the weakness we saw on appliance.

Hi, guys. Thanks, a lot I guess I.

I wanted to ask about just the integration of cable OS.

Into customer networks.

I think you referenced charter earlier, but I'm just wondering.

I know there is some integration that has to be done.

To get a big MSR like that up and running on <unk> I'm. Just curious on where you are in that integration process. As it is done is there more work to do what is what is the timing of that look like thanks.

Patrick Harshman: Now, the other part is there's really no different than you're seeing across the broader carrier landscape. It's inventory, it's cost of capital, et cetera. Maybe a little bit more headwinds internationally. So it's both Ryan or a mix of the two. Thanks, Patrick. All right, thank you. Thank you. One moment for our next question, please.

Well thank.

Thank you for the question.

Indeed.

Our cable OS as.

As a change in a couple of dimensions, we are a new company than historic CMT is provider.

And it's a different technology approach.

As software it's cloud native.

Our amazing telemetry tools.

If you or others, where at the recent broadband event you heard Comcast speak very publicly about the massive operational advantages. They are driving now from the system.

Steven Frankel: Any comments from the line of Steve Frankel with a Rosenblatt, please proceed. Good afternoon, Patrick. Back on 4.0, and there's been a lot of discussion about the Broadcom chip availability and how it's impacting the amplifier side. Is there a similar supply chain concern around 4.0 nodes, or do you have visibility into the chips supply you need to get those 4.0 nodes into the market? There's a lot of complexity, a lot of moving parts, but the high level answer is we're in good shape.

All of those come after.

A number of transformations on the backend.

Cable OS is really at the core of.

So yes with every customer coming on board. There is integration work there is training in terms of adopting of new tools and approaches.

And we've seen George with different customers that.

That process take varying amounts of time and I can't give you a specific answer on where we are on.

On charter except for to say that we're making good progress there as we are with other customers who are in the midst of onboarding.

Steven Frankel: We've got excellent relationship with Broadcom that we're grateful for, excellent alignment with our customers, and we think we're in good shape there. Okay, and then in terms of the new tier, you've got a new tier one, this ramping, that's great news. There's been this other group of tier ones that kind of had been stuck in neutral or first year. What can you do to get that group of customers accelerated and moving forward?

The question is.

It is not one of if but it's of exact timing and.

We think we're making good progress with with leading customers who are on boarding with cable Louis pass excuse me at this time.

Is there a.

Is there a sort of minimum and maximum that you guys have seen from your experience just in terms of the time it takes to integrate it.

I guess on one hand, I look at Comcast It seemed like it took a number of years certainly for Comcast.

Steven Frankel: Well, we come out of this recent event in Denver, extremely encouraged, exactly on that question. If you roll back 12 months ago, think about it. There was uncertainty about remote five versus remote Mac five. There was all this stress about FDX versus ESD. A lot of uncertainty and confusion. We come out of a year later, we come out of SCT with those questions essentially being answered. It's remote five. On Doxas 4.0, it's a unified product.

Steve.

Sort of full velocity in terms of the deployment of the network there.

Maybe there's other smaller customers that move much more more quickly, but I guess I'm just wondering if there's kind of a range of timing that we should think about in terms of that integration process.

But you're right. If we go back to the very first and massive process with Comcast. So that took years for a variety of reasons and it wasn't just a back office. There was a lot of learning a lot of innovation all over the network that was happening at that time.

Undoubtedly times have improved dramatically since then.

Steven Frankel: So I think things that we're holding back customers from having clarity on their plans have, I mean, the fog is really clearing. And the substance, the specificity of discussions we're now having with leading tier ones who have yet to get on board, as well as tier two, it's we're quite encouraged. Now look, doesn't mean we're going to be deploying with them next week, but as we look at the continued trajectory of this business, we're feeling that the industry, and we with our product and technology are in a very good place.

But we're still in the range of months two year kind of a thing depending on.

Depending on a lot of factors concerning the historic legacy network.

And the orientation and the priorities of the of the customer working with.

We've seen in deployments happen in less than two months.

And we are involved with the processes that the.

The take closer to a year and it's everything in between although the median time is definitely shortening of Georges.

We all continue to to.

Again more experience great.

Great Super Thank you very much I appreciate it.

Steven Frankel: Okay, and then one last one, would you characterize what the book to bill looked like on the broadband side? We talked about the weakness and video, but where were we on the broadband side in the quarter? Both of our businesses, Steve, it's Walter here. We're below one in the quarter. Right, thank you. Okay, welcome. Thank you.

Thank you thank.

Thank you and one moment for our last question. Please.

And it comes from the line of Teen Savage with Northland Capital markets. Please proceed.

Hey, good afternoon.

A question about the.

I guess, the overall topic would be gross margins on the broadband side.

You're guiding to a pretty sharp increase in congrats on that.

Walter Jankovic: One moment for our next question, please.

And rebound in Q4 revenue and broadband.

And I might have expected a pickup in gross margins. There. If you look at the first half when you were kind of around the $100 million a quarter level you are around 50% gross.

George Notter: It comes from the line of Steve Frank, I'm sorry, Georgia Nauter, with a deffery's, please, please proceed. Hi, guys. Thanks a lot. I guess I wanted to ask about just the integration of cable OS into customer network. You know, I think you referenced Charter earlier, but I'm just wondering, you know, I know there's some integration that has to be done to get a big MSO like that up and running on cable OS. I'm curious on, you know, where you are in that integration process if it's done, if they're more to do, you know, what is what is the timing of that look like? Thanks.

So it does look like the mix is changing a bit you mentioned a tier one win ramping might that be more hardware heavy.

So what sort of factors.

Alright affecting that guide not just relative to what you saw in Q3 relative to what you saw in the first half.

And then maybe more broadly.

As you look at some of these <unk>.

Bigger ramps.

Where do you think a reasonable expectation for broadband gross margins as in <unk>.

Mix to settle out.

Patrick Harshman: Well, thank you for the question. You know, indeed, cable OS is a change in a couple of dimensions. We're a new company, then historic CMTS provider, and it's a different technology approach. It's software, it's cloud native, it's with amazing telemetry tools. If your others were at the recent broadband event, you heard concasts speak very publicly about the massive operational advantages they are driving now from the system. All of those come after a number of transformations on the backend, the cable OS is really at the core of.

Hey, Tim Thanks for the question, it's Walter here, So just with regards to the gross margins for for Q4.

Your inclination in terms of the product mix that we're seeing in Q4, specifically as we ramp up in initial stages of a tier one is is definitely impacting that that margin in terms of it being more centric towards the nodes and so thats a big part.

Art of the gross margin guide that we've provided for for Q4.

And then more broadly in terms of the question as we look forward over a longer period of time.

Patrick Harshman: So yes, with every customer coming on board, there is integration work, there is training in terms of adopting of new tools and approaches. And we've seen, George, with different customers, that process take varying amounts of time. I can't give you a specific answer on where we are on charter, except to say that we're making good progress there, as we are with other customers in the midst of onboarding. You know, the question is not one of if, but it's of exact timing.

Product mix will shift as you get more ramp up and you get more into a steady state with with certain customers you'll have the mix between the nodes as well as the <unk> and that will bring the margins to a higher level and so when we've guided before in our prior comments, we said we kind of look at.

At it over a four quarter rolling period, and that would give you a more representative view of what we should expect our margins to look like over the longer period.

Patrick Harshman: And we think we're making good progress with leading customers who are onboarding with cable OS, COS, excuse me, at this time. Is there a sort of minimum and maximum that you guys have seen from your experience in terms of the time it takes to integrate it? I guess on one hand, I look at concasts, it seemed like it took a number of years certainly for concasts, which you've had sort of full velocity in terms of the deployment of the network there, and maybe just other smaller customers that move much more quickly.

Great Thanks and.

My follow up.

It doesn't sound like.

Youre expecting a big recovery with Comcast into Q4, and instead, maybe additional tier one <unk>.

Wrapping.

Well first of all is that a fair statement and.

As you look at this strong Q4.

Yes.

Do you think your concentration with Comcast will come down.

Prior year, obviously, we expect it to come down with charter ramping in 'twenty, four but just talking about Q4 'twenty three by itself.

Patrick Harshman: But I guess I'm just wondering if there's kind of a range of timing that we should think about in terms of that integration process. You're right. If we go back to the very first and massive process with concasts, that took years for a variety of reasons and it wasn't just a back office. There was a lot of learning, a lot of innovation all over the network that was happening at that time.

Thanks, Yes, just 10 months.

Q4, 'twenty three specifically.

Very similar to what we mentioned back a quarter ago, our expectations in Q4 and continue to be in our guide for Q4 is a ramp up of another another tier one so that by nature will reduce concentration across the largest customer in terms of the <unk>.

Patrick Harshman: Undoubtedly times have improved dramatically since then. But we're still in the range of months, a two-year kind of a thing, depending on a lot of factors concerning the historic legacy network. And the orientation and the priorities of the customer working with. We've seen deployments happen in less than two months, and we are involved with processes that take closer to a year. And it's everything in between, although the median time is definitely shortening on George as we all continue to gain more experience. Thanks. Thank you very much. Appreciate it. Thank you.

Unknown Executive: The one moment for our last question, please.

<unk> concentration and so and we expect that concentration will continue to move in a direction of less concentration as we bring on more more customers, including the tier one as well as other customers as we move on through 2024.

Okay. Thanks, a lot.

Yes, Thanks, Tim. Thank you and this concludes stickier and answer period, I will turn the call over to Patrick Harshman for final comments.

Okay, well. Thank you all again for joining us today.

We appreciate the dialogue and your support.

Timothy Savageaux: Any contender line of teen Savageaux with Northland capital markets, please proceed. Hey, good afternoon. The question about the overall topic would be gross margins on the broad side. You're guiding to, you know, a pretty sharp increase and congrats on that and rebound in Q4 revenue and broad band. And I might have expected a pickup and gross margins there. If you look at the first half, when you were kind of around the $100 million a quarter level, you were around 50% gross.

We remain focused on driving the growth objectives that we've discussed here today.

And creating shareholder value.

We look forward to our next opportunity to speak with you.

Thank you, ladies and gentlemen, with that we thank you for your participation and you may now disconnect.

Yeah.

Okay.

[music].

Timothy Savageaux: So it does look like the mix is changing a bit. You know, tend to a cure one when ramping, you know, might that be more hardware heavy. So, you know, what sort of factors are affecting that guy, not just relative to what you saw in Q3, but relative to what you saw in the first half. And then maybe more broadly, you know, as you look at some of these bigger ramps, you know, where do you think of a reasonable expectation for broad side.

Okay.

Yes.

[music].

Yes.

Okay.

[music].

Yes.

[music].

Yeah.

Timothy Savageaux: Hey, Tim. Thanks for the question. It's Walter here. So just with regards to the gross margins for Q4, your inclination in terms of, you know, the product mix that we're seeing in Q4 specifically, as we ramp up in initial stages of tier one is definitely impacting that margin in terms of it being more centric towards the nodes. And so that's a big part of the gross margin guide that we've provided for Q4.

[music].

Okay.

Sure.

Yes.

Sure.

Okay.

[music].

Yes.

Okay.

Timothy Savageaux: And then more broadly, in terms of the question as we look forward over a longer period of time, the product mix will shift as you get more ramp up and you get more into steady state with with certain customers. You'll have the mix between the nodes as well as the COS. And that will bring the margins to a higher level. And so when we've guided before in our prior comments, we said, we kind of look at it over a four quarter role in period. And that would give you a more representative view of what we should expect our margins to look like over the longer period.

Walter Jankovic: Great, thanks. And my follow-up, you know, it doesn't sound like you're expecting a big recovery with contests into Q4 and instead maybe this additional tier one ramping. Well, first of all, is that a fair statement? And as you look at this strong Q4, you know, do you think your concentration with contests will come down, you know, prior to, obviously, we expected to come down with charter ramping in 24, but just talking about Q4 23 by itself.

Walter Jankovic: Thanks. Yeah, just Tim, on Q4 23 specifically, very similar to what we mentioned back a quarter ago, our expectations in Q4 and continue to be in our guide for Q4 is a ramp up of another tier one. So that by nature will reduce concentration across the largest customer in terms of the the percent concentration. And so and we expect that concentration will will continue to move in a direction of less concentration as we bring on more more customers including the tier one, as well as other customers as we move on through 2020, for.

[music].

Timothy Savageaux: Okay, thanks a lot. Thanks, Dan. Thank you.

[music].

Welcome to the third quarter 2023 harmonic earnings Conference call. My name is Carmen and I'll be your operator for today's call.

All participants are in a listen only mode. After the presentation. There will be a question and answer session to ask a question simply press star one on your telephone you will hear and message advising your hand. This race to withdraw the question simply press Star. One again. Please note that today's conference is being recorded I will now turn to.

Call over to David Burke Investor Relations, David you May begin.

Thank you operator, Hello, everyone and thank you for joining us today for harmonics third quarter 2023 financial results Conference call with me today are Patrick Harshman, President and Chief Executive Officer, and Walter Jankovic, Chief Financial Officer.

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.

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've posted on our website and filed with the SEC on form 8-K.

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

The remainder of the information will be available on a recorded version of this call or on our website.

And now I'll turn the call over to our CEO Patrick Harshman Patrick.

Well, thanks, David and welcome everyone to our third quarter call.

We ended the quarter with strong backlog and deferred revenue showing our alignment with our customers' growth plans and giving us further confidence in our long range growth prospects.

Before diving into the details of the quarter, you mentioned three overarching points.

First regarding our broadband business, we're financially healthy our technology execution and differentiation remains very strong.

We're uniquely positioned for sustained period of network investment and we therefore remain fully on track to deliver strong multiyear growth.

Second.

SaaS business continues to deliver strong recurring revenue growth of 42% in the third quarter on a year over year basis with several new customers recently won and being on boarded.

With live sports is still in the early innings of migrating to streaming platforms. We believe there is substantial runway for growth in our video SaaS.

And third we are announcing that we have commenced a formal strategic review process for our video business.

Changes in the marketplace and our customer strategies synergies between our broadband and video businesses are now less compelling.

Additionally, we have received interest from several external parties for our video business.

These factors coupled with capital allocation planning led us to initiate the strategic review.

Together with financial and legal advisors, we're assessing a range of alternatives for the video business with a clear goal of optimizing long term value.

Walter will provide additional color momentarily.

So moving now to our broadband segment highlights we delivered segment revenue of $75 $8 million down from $91 $9 million a year ago largely as expected.

A number of global customers deploying our solution reached 104 of 21% year over year with a corresponding $23 5 million DOCSIS cable modems now served worldwide approximately 13% of cable modems to play globally.

Patrick Harshman: And this concludes the Q&N serve period. I will turn the call over to Patrick Harshman for final comments. Okay, well, thank you all again for joining us today. We appreciate the dialogue and your support. We remain focused on driving the growth objectives that we've discussed here today and creating shareholder value. We look forward to your next opportunity to speak with you.

Delighting, our significant footprint expansion opportunity still in front of us.

You will recall last quarter, we anticipated this third quarter revenue decline for two related reasons.

Some customers were bleeding down inventory positions established during the pandemic.

Better than anticipated progress on DOCSIS, four <unk> technology with leading to a slowdown in DOCSIS three one deployment plans in anticipation of DOCSIS four <unk> rollout.

Carmen: Good day. Thank you, ladies and gentlemen.

This is all playing out largely as we had anticipated.

Carmen: With that, we thank you for your participation and you may now disconnect, you you you you you you you George Notter, Patrick Harshman, Timothy Savageaux George Notter, Patrick Harshman, Timothy Savageaux, Simon Leopold, George Notter, Patrick Harshman, Timothy Savageaux, Simon Leopold, George Notter, Patrick Harshman, Timothy Savageaux, Simon Leopold, George Notter, Patrick Harshman, Timothy Savageaux, Simon Leopold, George Notter, Patrick Harshman, Timothy Savageaux, Simon Leopold, George Notter, Patrick Welcome to the third quarter 2023 harmonic earnings conference call. My name is Carmen and I'll be your operator for today's call.

Regarding <unk> four that the progress has been stunning.

A powerful CLS cloud native software is way out front of the rest of the industry handling both variance. So the doctors for Dido specification full duplex and extended spectrum, along with <unk> fiber in a unified way that simply isn't possible with legacy <unk> solutions that we compete against.

Carmen: All participants are in a listen on a mode. After the presentation, there will be a question and answer session. To ask the question, simply press star 1-1 on your telephone. You will hear a message advising your hand is raised. To withdraw the question, simply press star 1-1 again. Please note that today's conference is being recorded. I will now turn the call over to David Hanover, investor relations. David, you may begin. Thank you, operator.

Carmen: Hello, everyone, and thank you for joining us today for our Monix Third Quarter 2020 Financial Results Conference call. With me today, our Patrick Harshman, President and Chief Executive Officer, and Walter Jankovic, 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.

Equally impressive has been the edge device work, we've done to enable unified support of Mdx CSD and fiber.

Providing deployment Optionality, that's a game changer for the industry.

Carmen: Now turning to slide 2, 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 made different materially. We refer you to Documents Harmonic Cloud with the SEC, including our most recent 10Q and 10K reports, and the forward-looking statement 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.

In anticipation of DOCSIS, four <unk> rollout may impact certain customers near term deployment plans.

The mid to long term story for harmonic is quite positive.

Technology lead is extended we have an opportunity to sell this DOCSIS four nanotechnology into already deployed DOCSIS three one networks.

And our customers have a new tool to deliver their consumers highly competitive multi gigabit services.

Carmen: And 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 gap numbers and a reconciliation gap, are contained in today's press release, which we have posted on our website and trials at the SEC on Form AK. 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.

In parallel with this advanced DOCSIS work, we've also been making impressive progress in the fiber to the home area.

We've secured 14, new fiber wins, including 10 in our existing customer base and for net new with fiber focused or fiber only providers.

Carmen: 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 Harsman. Patrick? Thanks, David, and welcome everyone to our third quarter call. Today, we reported third quarter results, which were within our guidance range and expectations, as we continue to make substantial progress in a number of key areas, including Ducksis4.0, Fiber of the Home, and Video SAS.

We expect fiber penetration within our existing accounts to grow with cable operators increasingly deploy complementary fiber based broadband to new and existing subscribers.

And then that new wins outside of our traditional cable operator footprint demonstrate our expanding fiber sales focus and success.

The recently announced <unk> shelf, which supports <unk> combo upon energy plan will further empower our sales force to engage with a variety of customer profiles domestically and internationally.

Carmen: We ended the quarter with strong backlog and a forward revenue, showing our alignment with our customers' growth plans and giving us further confidence in our long-range growth prospects. Before diving into the details of the quarter, we mentioned three overarching points. First, regarding our broadband business, where financially healthy, our technology execution and differentiation remains very strong, where uniquely positioned for a sustained period of network investment, and we therefore remain fully on track to deliver strong multi-year growth.

In summary, we remain confident in our technology, our market position and in our growth opportunities for our broadband business spanning broadband cable and fiber.

With continuing strong backlog and deferred revenue very strong customer <unk> for example, the recent S&P Expo in Denver.

The new design wins in every geography.

Well positioned for sustained growth.

So turning now to our video segment the highlight of the quarter was again SaaS revenue $12 $5 million up 42% year over year.

Carmen: Second, the Video SAS business continues to deliver strong recurring revenue growth, a 42% and a third quarter on a year-of-year basis, with several new customers recently won and being onboarded. With live sports still in the early innings of migrating to streaming platforms, we believe there is substantial runway for growth in our Video SAS.

Total revenue was $51 4 million down from $63 8 million a year ago, reflecting our intentional SaaS transformation and several video clients project delays, a select customers contend with macro economic headwinds.

Patrick Harshman: Third, we're announcing that we have commenced a formal strategic review process for our video business. Through the changes in the marketplace and our customer strategies, synergies between our broadband and video businesses are now less compelling. Additionally, we have received interest from several external parties for a video business. These factors, coupled with capital allocation planning, led us to initiate the strategic review. Together with financial and legal advisors, we're assessing a range of alternatives for the video business with a clear goal of optimizing long term value.

Highlighting the accelerating transition to streaming SaaS, new wins happened at a record pace as our total SaaS customer base grew by 20%.

Approximately half of these new SaaS wins were with historic appliance customers. So to be clear. In addition to some appliance deal delays. We're also seeing more appliance customers starting to transition to SaaS.

Only a few of these new SaaS engagements came online during the quarter, meaning a recurring SaaS revenue funnel continues to grow.

Live sports remains the primary driver of these new sales wins. This exceptional video quality low latency flexible target that AD insertion and a broad array of quality related benefits continue to differentiate us in the market.

Patrick Harshman: Walter will provide additional color momentarily. The moving now to our broadband segment highlights, we delivered segment revenue of 75.8 million million dollars, down from 91.9 million dollars a year ago, largely as expected. The number of global customers deploying our solution reached 104, but 21% year over year, with corresponding 23.5 million doses, cable modems now served worldwide. Approximately 13% of cable modems deployed globally, highlighting the significant footprint expansion opportunity still in front of us.

Among our latest sports streaming customers are global player view lift and WRC promoter in Germany, with whom we recently issued press releases.

Patrick Harshman: We'll recall last quarter, we anticipated this third quarter revenue decline for two related reasons. First, some customers were bleeding down inventory positions established during the pandemic. In second, better than anticipated progress in doxas 4.0 technology, we've leading to a slowdown in doxas 3.1 deployment plans and anticipation of doxas 4.0 low lap. This is all playing out largely as we had anticipated. Regarding doxas 4.0, the progress has been stunning. A powerful COS cloud native software is way out front of the rest of the industry, handling both variants of the doxas 4.0 specification, full-dueplex and extended spectrum, along with 5G fiber and a unified way that simply isn't possible with legacy CMTS solutions that we compete against.

And we're starting to see encouraging signs of pent up demand and a resumption of activity.

So finally before I hand, you over to Walter I'd like to briefly comment on the situation in Israel.

Like many we were outraged by the horrible events that have taken place there in recent weeks.

Our colleagues in Israel and their families.

Note that our hearts are with you during this extremely trying time.

As a company are first and utmost priority is the safety of our people.

The majority of our people are secure.

We're taking the appropriate measures to ensure their continued safety and.

In support.

And with that let me hand, it over to Walter for a deeper discussion of our results and outlook.

Patrick Harshman: Equally impressive has been the edge device work we've done to enable unified support of FDX, CSD and fiber, providing deployment optionality that's a game changer for the industry. Well, anticipation of doxas 4.0 roll out may impact certain customers near term deployment plans. The mid to long term story for harmonics is quite positive. As our technology leaders extended, we have an opportunity to sell this doxas 4.0 technology into already deployed doxas 3.1 networks.

Patrick Harshman: Our customers have a new tool to deliver their consumers highly competitive multi gigabit services. In parallel with this advanced doxas work, we've also been making impressive progress in the fiber of the home area. We've secured 14 new fiber wins including 10 in our existing customer base and 4 net new with fiber focused or fiber only providers. The growing fiber success with existing doxas customers highlights the value cable operator C in our unique COS core with its flexibility to simultaneously power doxas and fiber edge devices.

Before reviewing our Q3 2023 financials in detail all called out the highlights here on slide seven.

For the quarter, we reported revenue of $127 2 million with EPS of zero cents.

Bookings of $96 3 million and near record backlog and deferred revenue of $627 2 million in a few moments I'll provide Q4 guidance.

Patrick Harshman: We expect fiber penetration within our existing accounts to grow if cable operators increasingly deployed complimentary fiber based broadband to new and existing subscribers. And then at new wins outside of our traditional cable operator footprint demonstrate our expanding fiber sales focus and success. The recently announced new peer OOT self with supports 10G combo upon Angie pond will further empower our sales force to engage with a variety of customer profiles domestically and internationally.

Turning to slide eight total Q3 revenue was down 18, 3% year over year, mainly due to the factors I mentioned earlier.

Looking at broadband Q3 revenue was $75 8 million the year over year decline was due largely de inventory adjustments by our broadband customers.

I want to note that during the third quarter, we were in the initial ramp stage of another tier one customer we.

Patrick Harshman: Consumery remain confident in our technology our market position and in our growth opportunities for broadband business spanning broadband cable and fiber. With continuing strong backlog and deferred revenue, very strong customer endorsements, for example, the recent SET expo in Denver and new design wins in every geography well positioned for sustain. Growth. So turning that over our video segment, the highlight of the quarter was again SaaS Revenue, $12.5 million, a 42% year-over-year. Total revenue was $51.4 million, down from $63.8 million a year ago, reflecting our intentional SaaS transformation and several video-planes project delays, as select customers contend with macroeconomic headwinds.

We expect to see the benefit of this ramp in Q4 as reflected in our revised guidance.

We continue to execute on the strategic transformation of our video business with the continued growth of SaaS, while also focusing on maximizing profitability in the appliance business.

As Patrick mentioned, we are evaluating strategic alternatives for our video business to be clear, we still consider both broadband and video SaaS to be high growth areas.

Patrick Harshman: Highlighting the accelerating transition to streaming SaaS, new wins happened at a record pace, as our total SaaS customer base grew by 20%. Approximately half of these new SaaS wins were with historic appliance customers. So to be clear, in addition to some appliance deal delays, we're also seeing more appliance customers starting to transition to SaaS. Only a few of these new SaaS engagements came online during the quarter, meaning our recurring SaaS revenue funnel continues to grow.

This decision was also made partly due to the indications of interest in our video business from a number of parties over the past several months.

Patrick Harshman: LifeSports remains the primary driver of these new SaaS wins. There's exceptional video quality, low latency, flexible target that ad insertion, and a broad array of quality related benefits continue to differentiate this in the market. Among our latest sports streaming customers, or global player view lift, and WRC promoter in Germany, with whom we recently issued press releases. When the appliance out of the business, which is more capital intensive for our customers, we saw several instances of extended project delays. However, our domestic and international sales pipelines for the coming periods has actually grown, and we're starting to see encouraging signs of pent-up demand and resumption of activity.

Turning back to our third quarter results, we had one customer representing greater than 10% of total revenue during the quarter with Comcast representing 41% of total revenue.

Total company gross margin was 49, 5% for Q3 23, reflecting decreased gross margins in both of our business segments sequentially.

Broadband gross margin was 44, 5% for Q3, 23 down 50 basis points year over year and above our guidance.

Patrick Harshman: So finally, before I hand you over to Walter, I'd like to briefly comment on the situation in Israel. Like many, we were outraged by the horrible events that have taken place during recent weeks. To our colleagues in Israel and their families, please know that our hearts are with you during this extremely trying time. As a company, our first and utmost priority is the safety of our people. The majority of our people are secure, and we're taking the appropriate measures to ensure their continued safety and support.

Video segment gross margin was 56, 9% in Q3, 23%, reflecting macroeconomic headwinds and projects delays noted earlier.

Moving down the income statement on slide nine.

Q3, operating expenses were $62 9 million down six 4% sequentially and up three 2% year over year.

The sequential decrease reflects cost containment actions and R&D that is assigned to cost of sales for specific customer projects, partially offset by an increase due to a specific bad debt expense of $1 million.

Walter Jankovic: Both of these are available on our website. Our third quarter results were within our guidance range, taking into account customer demand pushouts related to the larger macroeconomic environment that we referred to on our last earnings conference call. Before reviewing our Q3 2023 financials in detail, I'll call out the highlights here on slide seven. For the quarter, we reported revenue of 127.2 million with EPS of 0 cents, bookings of 96.3 million, a near-record backlog and deferred revenue of 627.2 million.

Due to the factors noted earlier.

This all translated into Q3, 'twenty three EPS of zero cents per share in line with our previous guidance and compared with 12 <unk>.

In Q2, 23, and <unk> 13 per share for Q3 'twenty two.

Walter Jankovic: In a few moments, I'll provide Q4 guidance. Turning to slide eight, total Q3 revenue was down 18.3% year-over-year, mainly due to the factors I mentioned earlier. Looking at broadband, Q3 revenue was 75.8 million. The year over year decline was due largely to inventory adjustments by our broadband customers. I want to note that during the third quarter we were in the initial ramp stage of another tier one customer. We expect to see the benefit of this ramp in Q4 as reflected in our revised guidance.

The decreased convertible debt dilution of two 5 million shares.

Turning to the order book Q3 bookings were $96 3 million.

Book to Bill ratio was <unk> eight for the quarter.

Walter Jankovic: In video, Q3 revenue was 51.4 million, while video appliance sales were lower due to the factors I noted earlier, video revenue included SaaS revenue of 12.5 million or 24 percent of segment revenue for the quarter, up 42 percent from the prior year. We continue to execute on the strategic transformation of our video business with the continued growth of SaaS while also focusing on maximizing profitability in the appliance business. As Patrick mentioned, we are evaluating strategic alternatives for our video business.

For Q3, we were below one after several quarters of being above one.

Turning to the balance sheet on slide 10.

We ended Q3, 'twenty three with cash of $75 6 million.

We also used $1 9 million in the purchase of fixed assets.

So in addition to cash of $75 6 million at quarter end, we had short term investments of term deposits of $6 3 million together totaling $81 9 million.

Turning to accounts receivable and days sales outstanding at the end of Q3 dollars 23, DSO was 78 compared to 69 in Q2, 'twenty three and <unk> 61 in the prior year period.

As we mentioned on our last earnings call one of our larger customers informed us that they will no longer take an early pay discount in Q3, which is reflected here.

Walter Jankovic: Please note, no timetable has been established for the completion of the strategic review and the review may not result in any transaction. We do not intend to disclose further developments with respect to this review process unless and until our board approves a specific action or otherwise concludes the review. Turning back to our third quarter results, we have one customer representing greater than 10 percent of total revenue during the quarter with concast representing 41 percent of total revenue.

Days inventory on hand was 145 days at the end of Q3 dollars 23 compared to 145 at the end of Q2 23 and 116 at the end of Q3 2002.

The inventory declined in the quarter was a result of lower in feed as we continue to tighten our supply chain.

Walter Jankovic: Total company gross margin was 49.5 percent for Q323 reflecting decreased gross margins in both of our business segments sequentially. Broadband gross margin was 44.5 percent for Q323 down 50 basis points year over year and above our guidance. Video segment gross margin was 56.9 percenting Q323 reflecting macroeconomic headwinds and projects delays noted earlier. Moving down the income statement on slide 9, Q3 operating expenses were 62.9 million down 6.4 percent sequentially and up 3.2 percent year over year.

This is reflected in our lower ending inventory balances for the third quarter.

Our forward capital allocation strategy also includes our 2024 convertible notes and any stock repurchases under our stock repurchase program.

As we said previously the timing and amount of any stock repurchases will depend on a variety of factors, including the price of harmonics common stock.

Conditions corporate needs and regulatory requirements.

Walter Jankovic: The sequential decrease reflects cost containment actions and R&D that is assigned to cost the sales for specific customer projects partially offset by an increase due to a specific bad debt expense of $1 million. Adjusted EBITDA for Q323 was 3.5 million or 2.8 percent of revenue comprised of 8.1 million from broadband and negative 4.6 million from video. Adjusted EBITDA for broadband came in above the high end of our expectations while video was lower due to the factors noted earlier.

At the end of Q3 total backlog and deferred revenue was $627 2 million are strong backlog reflects continued demand from our large broadband customers and growing video SaaS commitments.

Just under 50% of our backlog and deferred revenue has customer request dates for shipments of products and for providing services within the next 12 months.

Lastly, we generated $9 1 million in free cash flow in the quarter.

Walter Jankovic: This all translated into Q323 EPS of 0 cents per share in line with our previous guidance and compared with 12 cents in Q223 and 13 cents per share for Q322. We ended the third quarter of 2023 with a calculated diluted weighted average share count of 116.7 million compared to 119.3 million in Q223 and 113.2 million in Q322. The sequential decreases primarily due to the decreased convertible debt dilution of 2.5 million shares.

Let's now review.

Our revised non-GAAP guidance for the fourth quarter, beginning on slide 11.

We expect broadband to deliver revenue between $105 million to $120 million below our prior guidance at the midpoint.

Walter Jankovic: Turning to the order book, Q3 bookings were 96.3 million. The book to bill ratio was 0.8 for the quarter. For Q223 and Q322, our book to bill ratios were 1.2 and 1.1 respectively as we've stated previously over time as supply chain conditions improve, we expect this ratio to normalize and approach the historical benchmark of greater than 1. For Q3, we were below 1 after several quarters of being above 1. Turning to the balance sheet on slide 10, we ended Q323 with cash of 75.6 million.

Most margins between 44% to 45%, reflecting a similar product mix as in Q3 operating expenses between $29 million to $30 million and adjusted EBITDA between 19% to $26 million.

For broadband, we still expect to see a rebound in Q4 and the potential to hit a record quarter in revenue.

<unk> guidance and wider range reflects the current macroeconomic climate.

For our video segment in Q4 on Slide 12, we expect revenue in the range of $45 million to $55 million gross margin in the range of 59% to 60%.

Walter Jankovic: The net 4.6 million sequential increase was due to a few factors. Cash from operations provided 11 million do predominantly to a decrease in both inventory and accounts receivable offset by a decrease in other current liabilities. We also used 1.9 million in the purchase of fixed assets. Also in addition to cash of 75.6 million at quarter end, we had short-term investments of term deposits of 6.3 million together totally 81.9 million. Turning to accounts receivable and day sales outstanding at the end of Q323, DSL was 78 compared to 69 and Q223 and 61 in the prior year period.

Operating expenses in the range of $33 million to $35 million and adjusted EBITDA to range from a loss of $5 million to a loss of $1 million.

For video, we are being conservative in providing a wider range on guidance given the ongoing strategic review and other factors I mentioned earlier.

Walter Jankovic: As we mentioned on our last earnings call, one of our larger customers informed us that they were no longer take an early pay discount in Q3, which is reflected here. Days inventory on hand was 145 days at the end of Q323 compared to 145 at the end of Q223 and 116 at the end of Q322. The inventory decline in the quarter was a result of lower in feed as we continued to tighten our supply chain.

$2 million to $65 million adjusted EBITDA to range from $14 million to $25 million and effective tax rate of 20% and a weighted average diluted share count of approximately $117 1 million and.

And EPS to range from a profit of seven to 14.

And cash to range from 80 million to $95 million.

We will not go through the full year 2023 guidance here since we just discussed Q4 guidance in detail for further details. Please refer to our earnings release that was issued earlier today.

Walter Jankovic: Regarding capital allocation, our top priority remains driving our future growth. When appropriate, we will strategically invest in building inventory as we've done in the past to meet strong demand. We retained the flexibility to maintain somewhat lower inventory levels. This is reflected in our lower ending inventory bounces for the third quarter. Our forward capital allocation strategy also includes our 2024 convertible notes and any stock repurchases under our stock repurchase program. As we said previously, the timing and amount of any stock repurchases will depend on a variety of factors, including the price of harmonics, common stock, market conditions, corporate needs, and regulatory at the end of Q3 total backlog and deferred revenue was 627.2 million.

Thank you everyone for your attention today and now I'll turn it back to Patrick for final remarks, before we open up the call for questions.

We're focused on these objectives.

<unk> and our ability to execute.

And with that we want to thank you for your continued support and we will open it up for questions. Thank.

Great. Thanks, Thanks for taking the question I'd like to try to squeeze in two if I may.

The first one is on its conference call.

Charter publicly talked about some potential changes in the timing of its rollout.

And I think what they indicated was they may do some more of their <unk>.

Laurel build outs ahead of.

Some of the other upgrade activity and I wanted to see if you can share any thoughts on what that might mean for harmonic and then my second question Im sorry.

Walter Jankovic: Before reviewing guidance, I'd like to mention that given the strategic review process we announced today, we have decided to move our analyst day, which was previously planned for late 2023 to early next year. More information will be forthcoming once we have finalized those details.

Both in.

Is base.

Basically for some of the upgrade initiatives.

Without waiting for the availability of the associated amplifiers hopefully those two questions makes sense. When you can answer them. Thank you.

Yes, okay. Thank you. Thank you Simon first regarding charter, we don't have anything really specific to say beyond what they themselves said.

About their plans so what I would remind you and everyone else is that from the beginning we've been asked questions about charter schedule et cetera, and I think our our position from the beginning has spent to take a wait and see.

We've been through.

These onboarding ramp ups with a number of large customers I think we've seen a lot. So we've got a lot of experience and we're bringing a lot of that experience to bear.

We are.

Neither surprised nor unprepared for.

Four for short term changes in schedule.

That being said, we've got our eyes on the prize, which is the big picture.

I think if you compare this to where we were a year ago.

Walter Jankovic: Turning to slide 13, for the fourth quarter of 2023, we expect total company revenue in the range of 150 to 175 million, gross margin in the range of 48.5% to 49.7%, operating expenses to range from 62 to 65 million, adjusted EBITDA to range from 14 to 25 million, an effective tax rate of 20% and a weighted average diluted share count of approximately 117.1 million, an EPS to range from a profit of 7 cents to 14 cents, and cash to range from 80 million to 95 million.

Secured the second largest operator on the planet charter we are their partner going forward, they're going to do extensive work across their networks over the next several years.

And we think we're going to be a prime beneficiary, an enabler of that.

That exciting work.

Nothing we have heard from them or think changes the big picture of the opportunity and the trajectory.

All of that work there.

On the second question. It's a good question on DOCSIS four indeed, what we've done on the core and the nodes is out ahead of what.

Walter Jankovic: We will not go through the four-year 2023 guidance here since we just discussed Q4 guidance in detail. For further details, please refer to our earnings release that was issued earlier today. In summary, during the third quarter, we continue to execute on our long-term strategic plans. We believe our broadband segment is well-positioned for future growth. In addition, we made progress with the plan transformation of our video segment and shift to SAS during the quarter, even as we consider strategic alternatives to maximize shareholder value.

Fact.

Our estimation is.

I think the industry expects there to be RF amplifiers, let's say roughly a year by a year from now.

Five quarters from now and our view is that there is ample opportunity for for investment for growth productivity and DOCSIS four DAA that doesn't need amplifiers between now and then.

So our.

Walter Jankovic: Thank you, everyone for your attention today, and now I'll turn it back to Patrick for final remarks before we open up the call for questions. All right, well, thank you, Walter. Let me just wrap it up by emphasizing your concluding thoughts there. Harmonic continues to be exceptionally well-positioned to drive sustained growth and shareholder value creation. We're focused on these objectives and confidence and our ability to execute. With that, we want to thank you for your continued support, and we will open it up for questions. Thank you so much, and ladies and gentlemen, as a reminder to ask the questions, simply press star one one and wait for your name to be announced.

That is our plan to be involved in projects and we think it mirrors.

Some of our key customers plans.

Our focus over the next year on DAA that doesn't involve amplifiers and.

And when the amplifier technology is available. We'll then the playing field will expand.

Thank you.

Thank you one moment for our next question. Please.

And it comes from the line of Ryan <unk> with Needham <unk> Company. Please proceed.

Alright, thanks for the follow up on Simon's question about DOCSIS four <unk>.

At a high level, what your view is of.

Simon Leopold: Our first question is from Simon Leopold with Raymond James, please proceed. Great, thanks for taking the question. I'd like to try to squeeze into if I may.

D a mix going forward I mean, obviously, we're in the very early stages.

Of deployments now and can you kind of sharing thoughts that there was a lot of buzz at the conference.

Patrick Harshman: The first one is on its conference call, Charter publicly talked about some potential changes in the timing of its rollouts. And I think what they indicated was they may do some more of their rural buildouts ahead of some of the other upgrade activity. And I want to see if you can share any sort of what that might mean for Harmonic. And then my second question, and sorry, I'll get both in, is basically for some of the these upgrade initiatives require upgrades to amplifiers, but there are carriers that have deployed fiber deep that don't need amplifiers to be upgraded to deploy the DA notes from somebody like Harmonic.

Couple of weeks back about this deal.

<unk> three one.

Plus model to get higher speeds and if you can kind of share your thoughts about the transition to DOCSIS four hardware that you have in mind over the next few quarters would be helpful.

Patrick Harshman: And what I'm looking for from you is some sense of how much of the market can be upgraded fiber deep without waiting for the availability of the associated amplifiers. Hopefully those two questions make sense, and you can answer them. Thank you. Yeah, okay. Thank you. Thank you, Simon. You know, first regarding Charter, we don't have anything really specific to say beyond what they themselves said about their plans. What I would remind you and everyone else is that from the beginning, we've been asked questions about charter schedule, et cetera.

One follow up you don't mind.

Yes.

Let's let's thank you for the question, let's separate two things one DAA architecture, where you have centralized core I think the interest if you were to show you saw.

The industry is Virtualized score that's it and then <unk> got distributed hardware at the edge devices, and we're going to see that as the predominant architecture going forward for DOCSIS three one as well as DOCSIS, four <unk> and as well as our hybrid DOCSIS and fiber.

And I think that that more.

More than ever before it's clear that's the consensus of the industry and it's clear that harmonics leads in that area now what's the mix going to be I think is the essence of your question between 3140, maybe a hybrid this what we call boosted three one.

Three one core taking advantage of some.

DOCSIS four modem technology, we're going to see a mix of all of the above and it's hard to exactly forecast but.

The risk of being too cliched, I mean, we're giving our customers an amazingly powerful Swiss army knife that really allows them to be to be flexible to be reactive to competitive as.

Patrick Harshman: And I think our our position from the beginning has been to take a wait and see attitude. You know, we've been through these onboarding ramp ups with a number of large customers. I think we've seen a lot, so we've got a lot of experience and we're bringing a lot of that experience to bear. We are neither surprised nor unprepared for short term changes in schedule. That being said, we've we've got our eyes on the prize, which is the big picture.

As well as customer demand opportunity and you're going to see a mix of all of it Ryan and.

I think if you were there in Denver, you saw we're way out in front on DOCSIS three one now on this our hybrid boosted three one stuff on <unk> as well as the overlay of fiber on top of that.

So what's the exact mix not sure but the key thing is for us is.

Is getting.

The customers to go with the harmonic platform. So they've got that Optionality and I think more than ever before were positioned to take advantage of this.

Patrick Harshman: I think if you compare this to where we were a year ago, we've secured the second largest operator on the planet charter. We are their partner going forward. They're going to do extensive work across their network over the next several years. And we think we're going to be a prime beneficiary and enabler of that exciting work. And nothing we have heard from them or think of changes, the the big picture of the opportunity and the trajectory of that work there.

Yes, I mean, certainly the software platform you guys had this huge huge differentiator that can do all that and.

And a quick question on the video side, you talked about the <unk>.

And streaming at SAS and.

Headwinds in appliance or are you seeing a direct cannibalization of the appliance business or are these two separate customer business is going in different directions, and maybe you can just give us a little late.

Patrick Harshman: On the second question, it's a good question on doctors for indeed, what we've done on the core and the nodes is out ahead of what others have done on the so called RF amplifier area, which is needed. I would say the majority of the DAA footprint, that being said, there is a significant to your question. I can't give you an exact number assignment, but there is a significant DAA opportunity where there is no amplifier technology needed.

On that side of the world.

Yes.

It's a great question, but basically there is overlap.

As we pieced apart and we had a record quarter for new SaaS ads. So we as we dug into it.

We found about it was about 50 50, new new customers.

Kind of new business models, but the other half was actually historic appliance customers moving to a SaaS model. So the SaaS is transformation is partly responsible.

Patrick Harshman: In fact, our estimation is, I think the industry expects there to be RF amplifiers. Let's say roughly a year by, you know, a year from now, five quarters from now. And our view is that there is ample opportunity for investment, for growth, for activity and access for DAA that doesn't need amplifiers between now and then. So our, that is our plan to be involved in projects. And we think it mirrors some of our key customers plans, focus over the next year on DA that doesn't involve amplifiers and. And when the amplifier technology is available, well, then the playing field will expand. Thank you. Thank you, one moment for our next question please.

And this past quarter, let's say, 50% responsible for.

The weakness we saw in appliance now the other part is there's really no different than youre seeing across the broader carrier landscape.

It's inventory its cost of capital et cetera.

Maybe a little bit more headwinds internationally. So it's both Ryan.

Or a mix of the two.

Thanks, Patrick.

Alright, thank you.

Thank you one moment.

For our next question please.

Okay.

And it comes from the line of Steve Frankel with <unk>. Please proceed.

Good afternoon, Patrick back on Ford Auto and Theres been a lot of discussion about the broadcom chip availability and how it's impacting the amplifier side.

Is there a similar supply chain concern around four O nodes or do you have visibility into the chip supply you need to get those Ford auto now to enter the market.

Ryan Koontz: Any comments from the line of Ryan Koontz with Needham and Company? Please proceed. Hi, thanks. I want to follow up on Simon's question about Doxas 4 and just at a high level what your view is of DA mix going forward. I mean obviously we're in the very early stages of deployments now and can you kind of share any thoughts. There was a lot of buzz at the conference a couple weeks back about this Doxas 3-1 kind of plus model to get higher speeds and if you can kind of share any thoughts about the transition to Doxas 4 hardware that you have in mind over the next few quarters will be helpful.

There was a high level, there's a lot of complexity there are a lot of moving parts.

But the high level answer is we're in good shape, we've got extra relationship with with Broadcom and we're grateful for.

Excellent alignment with our customers and.

We think we're in good shape there.

Okay, and then in terms of.

The new debt.

The new tier you got a new tier one that's ramping thats great news.

Ryan Koontz: I've got one follow up if you don't mind. Yeah, look, let's thank you for the question. Let's separate two things. One, DAA, the architecture where you have centralized core, I think if you were at the show, the industry is virtualized core, that's it. And then you've got distributed hardware at the edge devices. And we're going to see that as the predominant architecture going forward for Doxas 3-1 as well as Doxas 4-0.

Theres been this other group of tier ones that kind of had been.

Stuck in neutral or first year.

What can you do to get that group of customers accelerated and moving forward.

Well.

<unk>.

We come out of this recent event in Denver extremely.

Extremely encouraged exactly on that question. If you roll back 12 months ago think about it there was uncertainty about remote phy versus remote Mac Phy. There was all the stress about fts versus ESD.

Ryan Koontz: And as well as a hybrid Doxas and fiber. And I think that that more than ever before, it's clear that's the consensus of the industry and it's clear that harmonics leads in that area. Now, what's the mix going to be? I think is the essence of your question between 3-1, 4-0, maybe a hybrid, this what we call boosted 3-1, a 3-1 core taking advantage of some Doxas 4-Motum technology. We're just being too cliché.

A lot of.

Uncertainty and confusion.

We come out of a year later, we come out of <unk> with those questions essentially being answered.

It's remote phy.

On <unk>, it's a unified product so I think things that were holding back customers.

From from having clarity on their plans have.

I mean.

The fog is really clearing and the substance of the specific <unk> of discussions we're now having with.

Ryan Koontz: I mean, we're giving our customers an amazingly powerful Swiss army knife that really allows them to be flexible, to be reactive, to competitive as well as customer demand opportunity. And you're going to see a mix of all of it, Ryan. And I think if you were there in Denver, you saw we're way out in front of Doxas 3-1 now on this hybrid boosted 3-1 stuff on 4-0 as well as the overlay of fiber on top of that.

With leading tier ones, who have yet to get on board as well as tier twos.

It's we're quite encouraged now look it doesn't mean, we're going to be deploying with them next week, but as we look at the continued trajectory of this business.

Sure.

We're feeling that the industry and we with our product and technology are in a very good place.

Ryan Koontz: So what's the exact mix, not sure, but the key thing for us is getting the customers to go with the harmonic platform so they've got that optionality. And I think more than ever before, we're positioned to take advantage of this. Yeah, I mean, certainly the software platform you guys have is a huge, huge difference here that you can do all that. And quick question on the video side, you talked about the growth in streaming in SaaS and the headwinds and appliance.

Okay, and then one last one would you characterize what the.

Book to Bill looks like on the broadband side, we talked about the weakness in video but.

Where were we on the broadband side in the quarter.

Both of our businesses, Steve It's Walter here.

We are below 1% in the quarter.

Great. Thank you.

Okay welcome.

Thank you.

Ryan Koontz: Are you seeing a direct cannibalization of the appliance business or these two separate customer businesses going in different directions and maybe you can skip some light on that side of the world, thanks. Yeah, look, so it's a great question. Basically, there's overlap. As we pieced apart and we had a record quarter from new SaaS ads, so we as we dug into it, we found about it was about 50-50 new customers or new business models.

For our next question please.

It comes from the line of Steve Frank I'm, Sorry, George Notter with Jefferies. Please proceed.

Ryan Koontz: But the other half was actually historic appliance customers moving to a SaaS model. So the SaaS transformation is partly responsible in this past quarter, let's say 50% responsible for the weakness we saw on appliance. Now, the other part is really no different than you're seeing across the broader carrier landscape. It's inventory, it's cost of capital, et cetera. Maybe a little bit more headwinds internationally. So it's both Ryan or a mix of the two. Thanks, Patrick. All right, thank you. Thank you. One moment for our next question, please.

Hi, guys. Thanks, a lot I guess.

I wanted to ask about just the integration of cable OS.

Into customer networks.

Okay.

Think you referenced charter earlier, but I'm just wondering.

I know there is some integration that has to be done.

To get a big MSL like that up and running on <unk> I'm. Just curious on where you are in that integration process. As it is done is there more work to do what is what does the timing of that look like thanks.

Well.

Thank you for the question.

Indeed.

Our cable OS as.

Has it changed in a couple of dimensions, we are a new company than historic CMT is provider and it is a different technology approach.

As software, it's cloud native it's with amazing telemetry tools.

If you or others, where at the recent broadband event you heard Comcast speak very publicly about the massive operational advantages. They are driving now from the system.

Steven Frankel: Any comments from the line of Steve Frankel with a Russian Blat, please proceed. Good afternoon, Patrick. Back on 4.0, and there's been a lot of discussion about the Broadcom chip availability and how it's impacting the amplifier side. Is there a similar supply chain concern around 4.0 nodes, or do you have visibility into the chip supply you need to get those 4.0 nodes into the market? The high-level, there's a lot of complexity, a lot of moving parts, but the high-level answer is we're in good shape.

All of those come after.

A number of transformations on the backend.

<unk> is really at the core of.

So yes with every customer coming on board. There is integration work there is training in terms of adopting of new tools and approaches.

And we've seen George with different customers that.

That process take varying amounts of time and I can't give you a specific answer on where we are on.

On charter except for to say that we're making good progress there as we are with other customers who are in the midst of onboarding.

Steven Frankel: We've got an excellent relationship with Broadcom that we're grateful for, an excellent alignment with our customers, and we think we're in good shape there. Okay, and then in terms of the new tier, you've got a new tier one that's ramping. That's great news. There's been this other group of tier ones that kind of had been stuck in neutral or first year. What can you do to get that group of customers accelerated and move them forward?

The question is is not one of if but it's of exact timing and.

We think we're making good progress with with leading customers who are on boarding with cable Louis pass excuse me at this time.

Is there a.

Is there a sort of minimum and maximum that you guys have seen from your experience just in terms of the time it takes to integrate it.

I guess on one hand, I look at Comcast It seemed like it took a number of years certainly for Comcast.

The sort.

Steven Frankel: We come out of this recent event in Denver, extremely encouraged, exactly on that question. If you roll back 12 months ago, think about it. There was uncertainty about remote five versus remote Mac five. There was all this stress about FDX versus ESD. A lot of uncertainty and confusion. We come out of a year later. We come out of S&T with those questions essentially being answered. It's remote five. On Doxas 4.0, it's a unified product.

Full velocity in terms of the deployment of the network there.

Maybe there's other smaller customers that move much more quickly, but I guess I'm just wondering if there's kind of a range of timing that we should think about in terms of that integration process.

Well.

If we go back to the very first and massive process with Comcast. So that took years for a variety of reasons and it wasn't just a back office. There was a lot of learning a lot of innovation all over the network that was happening at that time.

Undoubtedly times have improved dramatically since then.

Steven Frankel: I think things that we're holding back customers from having clarity on their plans have, I mean, the fog is really clearing. The substance of the specificity of discussions we're now having with leading tier ones who have yet to get on board, as well as tier two, we're quite encouraged. Now, look, doesn't mean we're going to be deploying with them next week, but as we look at the continued trajectory of this business, we're feeling that the industry and we with our product and technology are in a very good place.

But we're still in the range of months two year kind of a thing depending on.

Depending on a lot of factors concerning the historic legacy network.

And the orientation and the priorities of the of the customer working with.

We've seen in deployments happen in less than two months.

And we are involved with the processes that the.

Take closer to a year and it's everything in between although the median time is definitely shortening George as we as we all continue to to.

You gain more experience.

Super Thank you very much I appreciate it.

Steven Frankel: Okay, and then one last one. Would you characterize what the book to Bill looked like on the broadband side? We talked about the weakness and video, but where were we on the broadband side in the quarter? Both of our businesses, Steve and Walter here, were below one in the quarter. Right, thank you. Okay, welcome. Thank you.

Thank you.

Thank you one moment for our last question. Please.

Walter Jankovic: One moment for our next question, please.

Any commentary on the line of teen Savage with Northland Capital markets. Please proceed.

Hey, good afternoon.

A question about the.

I guess, the overall topic would be gross margins on the broadband side.

You're guiding to a pretty sharp increase in congrats on that.

And rebound in Q4 revenue and broadband.

And I might have expected a pickup in gross margins. There. If you look at the first half when you were kind of around $100 million a quarter level you are around 50% gross.

George Notter: It comes from the line of Steve Frank, I'm sorry, Georgia Nauter, with a deferious police Hi, guys. Thanks a lot. I guess I wanted to ask about just the integration of Cable OS into customer network. You know, I think you referenced Charter earlier, but I'm just wondering, you know, I know there's some integration that has to be done to get a big MSO like that up and running on Cable OS. I'm curious on, you know, where you are in that integration process is that if it's done, is there more to do? You know, what is what is the timing of that look like? Thanks.

So it does looks like the mix is changing a bit you mentioned a tier one win ramping might that be more hardware heavy.

So what sort of factors.

Alright affecting that guide not just relative to what you saw in Q3 relative to what you saw in the first half.

And then maybe more broadly.

As you look at some of these <unk>.

Bigger ramps.

Where do you think a reasonable expectation for broadband gross margins as in <unk>.

Mix to settle out.

Patrick Harshman: Well, thank you for the question. You know, indeed. Cable OS is a change in a couple of dimensions. We're a new company than historic CMS provider and it's a different technology approach. It's software. It's cloud native. It's with amazing telemetry tools. If your others were at the recent broadband event, you heard Comcast speak very publicly about the massive operational advantages they are driving now from the system. All of those come after a number of transformations on the back end.

Yes.

Hey, Tim Thanks for the question, it's Walter here, So just with regards to the gross margins for for Q4.

The gross margin guide that we've provided for for Q4, and then more broadly in terms of the question as we look forward over a longer period of time.

Patrick Harshman: The Cable OS is really at the core of. So yes, with every customer coming on board, there is integration work. There is training in terms of adopting new tools and approaches. And we've seen George with different customers that process take varying amounts of time. I can't give you a specific answer on where we are on charter except to say that we're making good progress there as we are with other customers in the midst of onboarding.

At it over a four quarter rolling period, and that would give you a more representative view of what we should expect our margins to look like over the longer period.

Patrick Harshman: You know, the question is not one of if, but it's of exact timing. And we think we're making good progress with leading customers who are onboarding with Cable OS, C-O-S. Excuse me at this time. Is there a sort of minimum and maximum that you guys have seen from your experience in terms of the time it takes to integrate it? I guess on one hand, I look at Comcast. It seemed like it took a number of years certainly for Comcast to achieve a full velocity in terms of the deployment of the network there and maybe just other smaller customers that move much more quickly.

Great. Thanks.

My follow up.

It doesn't sound like.

Patrick Harshman: But I I guess I'm just wondering if there's kind of a range of timing that we should think about in terms of that integration process. You're right. If we go back to the very first and massive process with Comcast, that took years for a variety of reasons and it wasn't just a back office. There was a lot of learning, a lot of innovation all over the network that was happening at that time.

Youre expecting a big recovery with Comcast into Q4, and instead, maybe additional tier one.

Ramping.

Well first of all is that a fair statement and as.

As you look at the strong Q4.

Yes.

Do you think your concentration with Comcast will come down.

Prior to obviously, we expect it to come down with charter ramping in 'twenty, four but just talking about Q4 'twenty three by itself.

Thanks, Yes, just 10 months.

Q4, 'twenty three specifically.

Patrick Harshman: Undoubtedly, times have improved dramatically since then. But we're still in the range of months to year kind of a thing depending on a lot of factors concerning the historic legacy network. And the orientation and the priorities of the customer working with. We've seen deployments happen in less than two months and we are involved with processes that take closer to a year. And it's everything in between, although the median time is definitely shortening on George's. As we all continue to gain more experience. Thanks. Thank you very much. Appreciate it. Thank you.

Percent concentration and so and we expect that concentration will will continue to move in a direction of less concentration as we bring on more and more customers, including the tier one as well as other customers as we move on through 2024.

Okay. Thanks, a lot.

Okay. Thanks, Tim. Thank you and this concludes stickier and answer period, I will turn the call over to Patrick Harshman for final comments.

Okay, well. Thank you all again for joining us today.

Timothy Savageaux: The one moment for our last question, please. Any comments from the line of teen Savageaux with Northland capital markets, please proceed. Hey, good afternoon. The question about the overall topic would be gross margins on the broadband side. You're guiding to pretty sharp increase and congrats on that and rebound in Q4 revenue and broadband. And I might have expected a pickup and gross margins there. If you look at the first half, when you were kind of around $100 million, a quarter level, you were around 50% gross.

We appreciate the dialogue and your support.

We remain focused on driving the growth objectives that we've discussed here today.

And creating shareholder value.

We look forward to our next opportunity to speak with you good day.

Timothy Savageaux: So it does look like the mix is changing a bit. You mentioned a cure one wind ramping. You know, might that be more hardware heavy. So, you know, what sort of factors are affecting that guide? Not just relative to what you saw in Q3, but relative to what you saw in the first half. And then maybe more broadly, you know, as you look at some of these bigger ramps, you know, where do you think of a reasonable expectation for broadband gross margins and mix to settle out?

Sure.

Okay.

Thank you, ladies and gentlemen, with that we thank you for your participation and you may now disconnect.

Timothy Savageaux: Hey, Tim. Thanks for the question that's Walter here. So just with regards to the gross margins for Q4, your inclination in terms of, you know, the product mix that we're seeing in Q4 specifically as we ramp up in initial stages of of a tier one is definitely impacting that that margin in terms of it being more centric towards the nodes. And so that's a big part of the gross margin guide that we've provided for Q4 and then more broadly in terms of the question as we look forward over a longer period of time, the product mix will shift as you get more ramp up and you get more into steady state with with certain customers.

Timothy Savageaux: You'll have the mix between the nodes as well as the COS and that will bring the margins to a higher level. And so when we've guided before in our prior comments, we said, we kind of look at it over a four quarter roll in period, and that would give you a more representative view of what we should expect our margins to look like over the longer period. Great. Thanks. And my follow up, you know, it doesn't sound like you're expecting a big recovery with concuss into Q4 and instead maybe this additional tier one ramping.

Timothy Savageaux: Well, first of all, is that a fair statement? And you know, as you look at this strong Q4, you know, do you think your concentration with concuss will come down, you know, prior to obviously expected to come down with charter ramping in 24, but just talking about Q423 by itself. Thanks. Yeah, just Tim, on Q423 specifically, very similar to what we mentioned back a quarter ago, our expectations in Q4 and continue to be in our guide for Q4 is a ramp up of another tier one.

Timothy Savageaux: So that by nature will reduce concentration across the largest customer in terms of the percent concentration. And so and we expect that concentration will will continue to move in a direction of less concentration as we bring on more more customers, including the tier one, as well as other customers as we move on through 2020.

Patrick Harshman: Thank you all again for joining us today. We appreciate the dialogue and your support. We remain focused on driving the growth objectives that we've discussed here today and creating shareholder value. We look forward to your next opportunity to speak with you. Good day.

Carmen: Thank you, ladies and gentlemen. With that, we thank you for your participation and you may now disconnect.

Q3 2023 Harmonic Inc Earnings Call

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