Q4 2024 Harmonic Inc Earnings Call
Okay.
Victor: Welcome to the fourth quarter and full year 2020 for harmonic earnings Conference call. My name is Victor and I'll be your operator for today's call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one.
Speaker Change: One on your telephone you will then hear an automated message advising your hand is race to withdraw your question. Please press star. One again. Please note that this conference is being recorded I will now turn the call over to David Hangover Investor Relations, David you may begin.
David Hangover: Thank you operator, Hello, everyone and thank you for joining us today for harmonics fourth quarter and full year 2024 financial results Conference call with me today are never been a time, president and CEO and Walter Jankovic, Chief Financial Officer.
David Hangover: 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.
David Hangover: Now turning to slide two.
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.
David Hangover: We refer you to the documents filed with the SEC, including our most recent 10-Q and 10-K reports and the forward looking statements section of today's preliminary results press release.
David Hangover: Documents identify important risk factors, which can cause actual results to differ materially from those contained in our projections or forward looking statements.
David Hangover: And please note that unless.
David Hangover: Otherwise indicated the financial metrics, we provide you on this call are determined on a non-GAAP basis.
David Hangover: 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.
David Hangover: We will also discuss historical financial and other statistical information regarding our business operation and some of this information is included in the press release, the remainder of the information will be available on a recorded version of this call or on our website.
Speaker Change: And now I'll turn the call over to our CEO Nimrod Benetton Nimrod.
Nimrod Benetton: Thanks, David and welcome everyone to our fourth quarter earnings call.
Nimrod Benetton: To start today with an update on how we're executing on our long term growth plans.
Nimrod Benetton: Regarding our 2024 commitments, we delivered all time record fourth quarter and full year 2024 results with strong growth in our broadband segment.
Nimrod Benetton: Driven by our growing leadership in DOCSIS, four O technology, and our increasing market share.
Nimrod Benetton: At the same time, we return our video segment to profitability underscoring our operational focus.
Nimrod Benetton: Next as we look into 2025, we're navigating an industry wide transition to a unified DOCSIS four O. While this change is expected to result in a below trend ear for broadband revenue due to the timing of the rollout and ecosystem dependencies, our technology leadership position in unified DOCSIS four O remains clear.
Nimrod Benetton: <unk>.
Nimrod Benetton: Despite the anticipated short term headwinds in broadband during 2025, we expect our robust operating model to continue to generate strong cash flow.
Nimrod Benetton: At the same time, we've also set the stage for enhanced shareholder returns with a new $200 million three year share repurchase program.
Nimrod Benetton: Looking ahead to 2026 and beyond we anticipate a return to above trend growth driven by the full implementation of unified DOCSIS, four O and ongoing customer ramp ups.
Nimrod Benetton: This trend has also been note that recently in an analyst report from the Laurel reinforcing our positive long term outlook.
Nimrod Benetton: Outlook and I will expand on that shortly.
Nimrod Benetton: Let's now move to slide number five our 2024 highlights 2024 was a record year and I would like to highlight four key achievements that set the stage for our future success.
Nimrod Benetton: First we demonstrated a strong ability to ramp up our operations in both the third and the fourth quarter positioning us very well for future growth.
Nimrod Benetton: Second we successfully delivered on our expectation for both the fourth quarter and full year of <unk> 24, with a growing footprint of DOCSIS, four <unk> and fiber deployments.
Nimrod Benetton: Third in the fourth quarter, we saw strong revenue growth in our broadband rest of world customer base exceeding 50% compare to the prior quarter.
Nimrod Benetton: And we also added five new customers during the quarter.
Nimrod Benetton: And finally, our video streaming SaaS segment is poised poised for growth. Thanks in part to the momentum provided by our collaboration with Akamai that we announced earlier today.
Nimrod Benetton: These highlights from 2024 underscore our strong performance and show how we have built a solid foundation for the next phase of our journey.
Nimrod Benetton: Before we dive into our broadband update I would like to start today with a big picture view of this business.
Nimrod Benetton: We are recognized as the clear leader in next generation cable access technologies, driven by a proven track record of innovation and successful execution over multiple years, serving the world's largest operators has helped us secure our leading market share underscoring that trust and confidence our customers demonstrate.
Nimrod Benetton: Our innovative solutions.
Nimrod Benetton: So even with a near term industry wide challenges in 2025, the overall growth trajectory for broadband.
Nimrod Benetton: It remains positive.
Nimrod Benetton: We're guiding $2025 forecast prudently taking into account these near term factors and positioning ourselves to capitalize on market momentum in 2026 and beyond.
Nimrod Benetton: Ultimately our expertise track record.
Nimrod Benetton: Strategic approach reinforce why we are well prepared to remain a leader in the evolving broadband landscape.
Nimrod Benetton: The broadband industry is at a pivotal turning point service providers are facing increasing competition from telco and fixed wireless access providers challenging both their market share and convergence opportunities to stay ahead operators must modernize their networks with DAA and virtual <unk> CMT.
Nimrod Benetton: This technology is drive business growth by improving network reliability, enhancing downstream and upstream speeds lowering operating costs, reducing latency and ensuring fiber optionality harmonic is at the forefront of this transition, helping our customers future proof their net.
Nimrod Benetton: Work.
Nimrod Benetton: For a constantly changing consumer demands.
Nimrod Benetton: Beyond competition from other service providers cable operators must also contend with an ever growing demand for bandwidth and higher expectations for subscribers quality of experience.
Nimrod Benetton: The surge in live sports screaming major gaming releases, and AI driven applications and agents are prompting operators to accelerate network evolution towards a modern virtualized platform.
Nimrod Benetton: Combining advanced DOCSIS with targeted fiber optionality where necessary.
Nimrod Benetton: Unified DOCSIS four O offers a major upgrade opportunity for cable broadband networks unlocking a range of symmetrical speeds boost that put cable on par with fiber operators.
Nimrod Benetton: In addition, advanced capabilities like low latency and AI powered by <unk>.
Nimrod Benetton: Unified Silicon help operators stay one step ahead in.
Nimrod Benetton: In an increasingly competitive market at harmonic we're collaborating closely with our customers to optimize migration strategies tailored for each network's unique requirements and service goes.
Nimrod Benetton: Fiber Optionality has always been a core element of our platform strategy. We design our broadband solution. So that operators can easily add fiber services no matter their network topology or architecture by leveraging the Pos platform in remote devices.
Nimrod Benetton: This approach not only ensures flexibility, but also deliver significant financial and operational benefits are.
Nimrod Benetton: A key differentiator of Pos.
Nimrod Benetton: Is its ability to power, both fiber and DOCSIS technologies simultaneously within the same network. This capability accelerates the evolution to fiber in existing footprints, while enabling a smooth shift to fiber focused expansion our customers are finding it a highly effective way to modernize and future proof.
Nimrod Benetton: Their broadband networks.
Nimrod Benetton: Let's now move to slide 11, our broadband vision, which is centered on accelerating the adoption of next generation Virtualized broadband networks by leveraging both DOCSIS and fiber technologies, we aim to deliver unparalleled speed reliability and operational simplicity.
Nimrod Benetton: This vision is perfectly aligned with our customers' priorities.
Nimrod Benetton: Equipping them with the services and tools they need to better drive growth and stay ahead in an ever evolving competitive market landscape.
Speaker Change: Now I would like to review the outlook for the cable broadband market. According to a recent analyst report from the Laurel.
Speaker Change: First let's look at the dark Blue line, which represents the virtual <unk> and DAA market.
Speaker Change: You will see it climb steadily over time and captures nearly the majority of the total broadband cable market by 2028, when it reaches nearly $1 2 billion.
Speaker Change: This clearly shows the industry's shift towards virtualize and distributed access architecture.
Speaker Change: Second even with the strong long term outlook. This report recognizes that there are some headwinds in 2025. These are driven primarily by operator readiness and the transition to unified DOCSIS four <unk> as a result, we see a slight deep or plateau is spending while providers prepare for.
Speaker Change: The next major technology upgrade.
Speaker Change: Ed.
Speaker Change: These short term ups and downs are not unusual the chart highlights similar cycles in the past, especially during previous DOCSIS technology transitions, while clearly illustrating the market's long term growth trajectory.
Speaker Change: Finally, even though was the expected 2025 pause the overall average CAGR for the virtual <unk> DAA market from 23 to 2028 is around 13% a solid double digit growth rate that that underscores the growth opportunity.
Speaker Change: <unk> and distributed access solutions.
Speaker Change: Turning to slide 13, the broadband strategic.
Speaker Change: Our strategic imperatives are built around four key areas customer diversification technology leadership fiber growth in cloud services.
Speaker Change: Let's start with.
Speaker Change: Customer diversification our focus here is on expanding revenue beyond our top two customers in the rest of the world market. We so our fourth quarter revenue grow by over 50% compared to the previous quarter. We also secured five new wins, including significant deals with blue screen fiber.
Speaker Change: In the U S and eco in the EMEA region to.
Speaker Change: To help our customers' speed up the rollout of the new DOCSIS technology. We are now offering our customers expanded professional services to help them more quickly operationalize their next generation broadband infrastructure.
Speaker Change: Looking ahead, we expect the rest of world segment to deliver even more substantial growth in 2025, as we win new accounts and see them expand the scope of their engagement with her money.
Speaker Change: Now, let's talk about technology leadership we're.
Speaker Change: We're making significant strides with the rollout of DOCSIS four O, which features a unified core and supports.
Both full duplex in sdd through our new unified remote devices. Our cross platform plays a critical role by seamlessly orchestrating all four months of DOCSIS and fiber plus our differentiated fiber offering, including our open our new high density and versatile royalties and beer trial platform.
Speaker Change: Ensures we remain ahead of the curve in innovation and market demand.
Speaker Change: Moving onto fiber growth our strategy is to help our cable customers migrate cost effectively and expand into fiber.
Speaker Change: Over 30% of our current DOCSIS customers are now purchasing our fiber solution.
Speaker Change: Which validates our fiber optionality product strategy and positions us for future growth as they expand their fiber footprint.
Speaker Change: Looking forward, we see significant opportunity from our second generation remote switch that Jared too, which is forward compatible was 25, <unk> pone and is now available and shipping imminently.
Speaker Change: This module is compatible with our deployed base of nodes as well as a wide range of third party nodes.
Speaker Change: <unk> previously announced Latam tier one operator launched our high density pill remote oil T into production leveraging their existing DOCSIS network.
Speaker Change: And outdoor notes they use our solution to deliver <unk> and DOCSIS four residential applications, while seeding their footprint with <unk> to address competitive pressure and enterprise opportunities.
Speaker Change: Finally, I want to highlight our cloud services, which provides our customers with network insights and telemetry to improve network reliability and subscriber satisfaction.
Speaker Change: This offering also includes our edge compute functions such as the beacon speed maximize their which is now rolling out.
Speaker Change: In 2024, we achieved a 47% year over year revenue growth with our cloud offerings.
Speaker Change: This robust performance underscores the strength and reliability and scalability of our cloud strategy and we will continue expanding the services and capabilities offered by our cloud services.
Speaker Change: Turning to slide 14, I would like to share our video market update.
Speaker Change: Traditionally broadcast workflows.
Speaker Change: Brian on dedicated appliances was screaming dependant on the cloud for flexibility and scalability now those lines are blurring broadcasters are moving some channels to the cloud for disaster recovery and Popups as streaming providers, one broadcast like reliability and sometimes bring workloads on prem to Manny.
Speaker Change: <unk> cost.
Speaker Change: Although the cloud can be expensive for constant use and require specific expertise. It's great for occasional events offers Lowe's offers lower upfront cost and lets you spin up new technology quickly. That's why we're seeing a great demand for hybrid solutions keep core channels owned.
Speaker Change: <unk>, while moving additional.
Speaker Change: Or short term war workloads to the cloud.
Speaker Change: This demand for hybrid works well for us as harmonic excels at both we have deep experience with broadcast appliances.
Speaker Change: And a robust cloud native platform, our hybrid solutions give customers the best of both worlds, providing seamless migration between on Prem and cloud while meeting broadcast standards in any environment.
Turning to slide 15.
Speaker Change: Let's look at our two strategic imperatives for our video business.
Speaker Change: Clients profitability and SaaS transformation.
Speaker Change: On the appliance side, we're executing with clear focus on our core <unk> and spectrum product lines.
Speaker Change: We're innovating around them to enable more functional consolidation.
Greater scalability and advanced use cases. This concentrated approach is already showing results our pipeline of larger deals deals in.
Speaker Change: In the fourth quarter of 2024 and into 2025 is growing and we're entering 2025 with an improved backlog.
Speaker Change: Turning to the SaaS streaming we're continuing to see strong momentum and are taking steps to increase this even further we just announced a notable partnership with Akamai for video streaming.
Speaker Change: And our fourth quarter SaaS revenue stands at $15 $1 million, we expect further growth in 2025 with the real impact of these sales efforts ramping into 2026 as recurring revenue builds over time.
Speaker Change: Overall these two pillars, our clients profitability and SaaS transformation are working together to create strong.
Speaker Change: Operating leverage and position us for sustained success as we move forward.
Walter Jankovic: Now, let me turn it over to Walter for a deeper discussion of our financial results and outlook.
Walter Jankovic: Thanks, Brad and thank you all for joining us today before I discuss our quarterly results and outlook I'd like to remind everyone. The financial statements I'll be referring to on this call are provided on a non-GAAP basis as David mentioned earlier, our Q4 press release and earnings presentation include reconciliations of the non-GAAP financial measures to GAAP.
Walter Jankovic: Both of these are available on our website.
Walter Jankovic: Looking at some of our fourth quarter highlights here on slide 17, we delivered record quarterly total company revenue adjusted EBITDA and EPS.
Walter Jankovic: Total company revenue increased 33% year over year to $222 2 million EPS rose, 246% to 45, and our cash balance reached $101 5 million up $43 3 million sequentially.
Walter Jankovic: Broadband revenue and EBITDA reached record levels to $171 million and $64 1 million respectively.
Walter Jankovic: Video revenue was $51 1 million and video EBITDA was $7 8 million as we continue to improve efficiencies in that business.
Walter Jankovic: Video SaaS revenue in the quarter was $15 1 million up 15% year over year.
Walter Jankovic: Before we review our detailed fourth quarter financials, and provide Q1 and full year 2025 guidance I want to put our topline and profitability results in perspective by reviewing the past five years as shown on slide 18.
And this time span we've delivered solid total company revenue growth and rapid broadband growth with similar trends in EBITDA. During this same period.
Walter Jankovic: While we expect a decline for both total company and broadband revenue in 2025 due to recent market dynamics, we expect revenue growth to resume in 2026 for both of these as.
Nimrod Benetton: As Nimrod highlighted earlier, the overall market growth for our part of the cable access market is estimated to be 13% CAGR from 2023 to 2028, we are cautiously managing our broadband business based on a more conservative growth rate in the low double digits.
Nimrod Benetton: Having said that we are extremely well positioned with our strong market share and technology leadership to capitalize on expected growth in 2026 and beyond.
Nimrod Benetton: I will now briefly review our capital allocation priorities on slide 19.
Nimrod Benetton: One of our priorities is driving organic growth this.
Nimrod Benetton: This includes investments to support broadband rest of world growth new.
Nimrod Benetton: New service offerings.
Nimrod Benetton: And funding anticipated working capital needs.
Nimrod Benetton: Another priority is returning capital to our shareholders through stock repurchases.
Nimrod Benetton: Today, we announced a new three year share repurchase program of up to 200 million, which doubles, our previous program and reflects our extreme confidence in the business. We will fund these repurchases with expected free cash flow over the next three years and our strong liquidity position of $101 5 million.
Nimrod Benetton: Dollars in cash and $82 million, an undrawn credit facility at the end of 2024.
Nimrod Benetton: In December 2024, we increased our current credit facility by 40 million to $200 million, which includes a $160 million revolving credit line and a $40 million delayed draw term loan. Therefore, we have ample liquidity to support our capital allocation priorities.
Nimrod Benetton: During Q4, we did not purchase any of our common stock under our prior repurchase program.
In 2025, we intend to Opportunistically repurchase shares when we believe our stock is undervalued relative to the strength of our business, thereby creating value for our long term shareholders.
Nimrod Benetton: 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.
Nimrod Benetton: Additionally, we will continue to prudently manage our balance sheet with the goal of maintaining overall net leverage of two times or less and available liquidity of no less than $100 million going forward.
Nimrod Benetton: And finally, we intend to explore inorganic expansion opportunities that complement and leverage our growing footprint in broadband.
Nimrod Benetton: Turning back to our fourth quarter 2020 for financial results on Slide 20.
Nimrod Benetton: In the fourth quarter, we had two customers representing greater than 10% of total revenue with Comcast, representing 43% of total revenue and charter representing 24%.
Total company Q4 gross margin was 56, 1% at the higher end of our guidance and significantly up both sequentially and year over year.
Nimrod Benetton: Broadband Q4 gross margin was 52, 7% up 440 basis points sequentially, and 1030 basis points year over year due predominantly to a higher mix of Pos licenses, partially offset by inventory provisions taken related to the current.
Speaker Change: <unk> DOCSIS four <unk> transition.
Speaker Change: Video gross margin in Q4 was 67, 4% up 280 basis points year over year, the increase mainly due to a favorable product mix coupled with our restructuring efforts in this business.
Speaker Change: Moving down the income statement on slide 21.
Speaker Change: Q4, 'twenty four operating expenses were $61 $5 million down 3% year over year.
Speaker Change: In the quarter, we had an unrealized noncash foreign exchange gain of approximately $5 8 million as a result of intercompany balances that we don't expect to settle in the short term. This is reflected in our other expense income line of the P&L and in our adjusted EBITDA.
Speaker Change: Turning to the order book Q4 bookings were $150 million the book to Bill ratio for the quarter was <unk> seven compared to 0.9 in Q3 24 at one two in Q4 23.
The 0.7 book to Bill ratio was due to the sharp increase in broadband revenue in the quarter and the expected outlook for early 2025 as we stated previously over time, we expect our book to Bill ratio to normalize and approach the historical benchmark of greater than one, especially as unify.
<unk> DOCSIS, four <unk> and broadband ramps.
Speaker Change: Turning to the balance sheet on slide 22, we ended Q4 with cash and cash equivalents of 101 5 million.
Speaker Change: The quarter over quarter change was mainly attributed to strong positive free cash flow of $46 2 million, resulting from higher income improved DSL and lower inventory levels.
Speaker Change: Days sales outstanding at the end of Q4, 'twenty, four or <unk> 72, compared to 80% in Q3, 24 and 76 in Q4 2003 the.
Speaker Change: The sequential decrease was due to strong in quarter collections performance and timing of shipments.
Speaker Change: Our days inventory on hand was 59 days at the end of Q4 dollars 24 compared to <unk> 73 at the end of Q3 24, and <unk> 89 at the end of Q4, 'twenty three inventory decreased $9 9 million in the quarter due to lower receipts and higher inventory provisions mainly in broadband.
Speaker Change: At the end of Q4 total backlog and deferred revenue was $496 3 million around 57% of our backlog and deferred revenue as customer request dates for shipments of products and for providing services within the next 12 months.
Speaker Change: Turning to guidance as we've mentioned previously due to recent market developments around unified DOCSIS four <unk>, we have seen some customers pushing out their deployment timing plants for 2025.
Speaker Change: We believe this is mainly a timing shift and expect that these 2025 deployment delays to create a positive tailwind for us in 2026 as schedules are refined and unified <unk> technology deployments accelerate.
Speaker Change: Now lets review our non-GAAP guidance for 2025, beginning on slide 23, we're taking a prudent approach given the factors I just mentioned.
Speaker Change: For Q1, we expect broadband to deliver revenue between $80 million to $90 million gross margins between 52% to 54% due to product mix and adjusted EBITDA between $9 million to $15 million.
Speaker Change: For the full year 2025, we expect broadband revenue between $400 million to $450 million gross margins between 51% to 54% and adjusted EBITDA between $77 million to $106 million.
Speaker Change: Of note, we saw reduced order forecast from some of our broadband customers last month and our current conservative outlook reflects this and the ongoing unified <unk> technology transition.
Speaker Change: For our video segment in Q1, we expect revenue in the range of $40 million to $45 million gross margin in the range of <unk>, 64% to 65%.
And adjusted EBITDA to range from zero to $2 million.
Speaker Change: For the full year, we expect video revenue between $185 million to $195 million gross margins between 63% to 65%.
Speaker Change: And adjusted EBITDA to range from $8 million to $17 million.
On slide 24, we have provided the total company guidance for Q1 and full year 2025, and the interest of time I will let you read through the details.
Speaker Change: Please also note that our non-GAAP tax rate for 2025 is 20%.
Speaker Change: Would like to highlight that the total company EPS for full year 2025 is expected to be in the range of 43 to <unk> 68 as.
Speaker Change: As mentioned earlier subsequent to our Q3 earnings call. We have seen additional demand forecast reductions, which are factored into this guidance.
Speaker Change: Before closing as you can tell from today's remarks, we provided more content on this earnings call than we typically do we felt it was important to do so given the current industry dynamics and how they relate to our 2025 guidance and our outlook for 2026.
Speaker Change: We appreciate you, giving us this extra time today and on future calls, we will return to a more normal level of detail.
Speaker Change: In summary, our strong fourth quarter results, including record quarterly total company revenue and adjusted EBITDA reflect the substantial progress we've made.
Speaker Change: In broadband, we have proven our technological capabilities and ability to scale to our customers' needs.
Speaker Change: Our technology leadership position has never been stronger and we believe this puts us in a strong position to capitalize on the long term growth opportunities, we see in broadband DOCSIS four <unk> and fiber.
Speaker Change: Thank you everyone for your attention today, and now I'll turn it back to NIM Rod for final remarks, before we open up the call for questions.
Walter Jankovic: Thank you Walter.
Walter Jankovic: So in conclusion, we had a record 2024, a testament to our technology leadership strong operating model and proven execution. We are navigating the expected 2025 broadband headwinds thoughtfully and positioning ourselves for the growth rebound, we anticipate in 2026 the <unk>.
Walter Jankovic: Term challenges do not alter our long term trajectory, we remain confident in our market leading positions the strengths of our products and our ability to execute on both our broadband and video strategy.
Walter Jankovic: Thank you for your attention throughout this presentation, Walter and I are now happy to take your questions.
Walter Jankovic: Thank you at this time, we will conduct a question answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for name to be announced to withdraw your question. Please press star one.
Walter Jankovic: Please limit yourself to one question and one follow up in the interest of time, please standby with Dupont the Q&A roster one moment for your first question.
Speaker Change: Our first question will come from the line of Simon Leopold scrum.
Speaker Change: Raymond James Your line is now open.
Simon Leopold: Thanks for taking the question I guess, one of the things I'm trying to get my head around here.
Simon Leopold: Is in terms of this outlook, how much is broad market trends and how much.
Simon Leopold: Of your outlook specifically in the cable edge segment is reflective of market share shifts, how you're thinking about market share versus market trends. Thank you.
Simon Leopold: Yes. So we think this is mostly a market trend.
Simon Leopold: We.
Simon Leopold: We believe our market share on <unk> remains very strong north of 90%.
Simon Leopold: And on a remote devices north of 60%, we don't see any.
Simon Leopold: Market share loss.
Simon Leopold: I would say quite the opposite is as we get into more although this is going to be.
Simon Leopold:
Simon Leopold: I would say.
Simon Leopold: Developing.
Simon Leopold: Slowly into the year and getting stronger as the second half of the year. The more we lean on unified four O more customers are going there we're going to in our mind increase our market share given our strengths in the end to end solution for unified So the short answer.
Simon Leopold: Is a market trend.
Simon Leopold: More so than.
Simon Leopold: Market share, we feel very confident about our market share.
Simon Leopold: Position and just to add to that Brian sure and just to add to <unk> point, I mean, youll see it reported I'm sure shortly from Delauro in terms of the quarterly market share, but we feel very good in terms of where the last few quarters have gone in terms of our market share position.
Speaker Change: And then I guess the related question is then is how much of this is reflective of patterns. Among your your two lead customers.
Speaker Change: One behaving differently or are they sort of moving in sync how should we think about those behaviors I'm, assuming one is maybe slowing to a greater extent than another any color you could offer I'd appreciate.
Speaker Change: We cannot provide the specific.
Speaker Change: Of them report that recently both of them discussed.
Speaker Change: At some level.
Speaker Change: The development of their initiatives.
Speaker Change: One have specifically noted increase in the overall capex category, which we are subset of that there are many other network elements that they spend money on.
Speaker Change: The other one was talking about.
Speaker Change: The expansion into DOCSIS, four <unk> and the kind of percentage of completion off there.
Speaker Change: Mid split initiative.
They both have different dynamics.
Speaker Change: Cannot specifically comment on one versus the other in terms of the impact on what we see in 2025.
Speaker Change: We also have the rest of the world.
Speaker Change: Dynamics.
Speaker Change: <unk>.
Speaker Change: We provided details on expectation for that to kind of grow and expand during the course of the year.
Speaker Change: Okay. Thanks for taking the questions.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Ryan Koontz from Needham Your line is open.
Speaker Change: Great. Thanks for the question.
Speaker Change: With regards to maybe whats changed on your comments around the ecosystem readiness.
Speaker Change: You've mentioned before about the.
Speaker Change: The full duplex amplifiers that are a real challenge for the industry.
Speaker Change: Can you kind of reflect reflect broadly on what you see happening across the broader cable industry as it relates to.
Speaker Change: Making these full duplex duplex apps work versus moving forward and then an ESG model or even even in DOCSIS three one for now and then coming back and doing the DOCSIS four clean up later.
Speaker Change: Thanks, Yes. So so first of all no dependency on customers that are rolling out DOCSIS, three one or extended spectrum DOCSIS four O.
Speaker Change:
Speaker Change: It primarily impacts those that want to take advantage of the full duplex.
Speaker Change: Or the flexible sdd whats called <unk>.
Speaker Change: <unk> that you can dynamically change the split in such case, you will need these type of amplifiers.
Speaker Change: As we said previously these are not.
Speaker Change: Just smart amplifiers. These are in fact brilliant amplifiers.
Speaker Change: And they require.
Speaker Change: Quite a significant.
Speaker Change: Integration ecosystem integration.
Speaker Change: Into the network to.
Speaker Change: To fully operationalize them.
Speaker Change: And it takes time.
Speaker Change: The volume of these devices relative to our devices is is a factor of 1% to 17, you have 17 times more of these devices and these are outdoor once you put them majority of the investment is to put them out there. So there is quite a lot of effort to fully operationalize.
Speaker Change: And this is what we have been talking about that previously at the same time you may recall that we we mention a circle and getting into that space and later on we announced.
Speaker Change: Our partnership with them that technological partnership with them and we're very encouraged with the progress made and we think that this is going to help the ecosystem move faster.
Speaker Change: To fully operationalize this.
Speaker Change: Brilliant amplifiers.
Nimrod Benetton: That's very helpful. Nimrod. Thank you and maybe just in terms of your metrics you quoted.
Nimrod Benetton: One 3 million new cable modem service, which is the lowest in a few years, but yet also reported record revenue and broadband can you help us kind of true that up in terms of what's happening there or is this are these hardware shipments in advance of activations or some kind of other rev recognition going on in the <unk>.
Nimrod Benetton: Thanks.
Speaker Change: I'll address that Ryan.
Speaker Change: Yes, so absolutely.
Speaker Change: The cable modems getting activated come after folks are picking up equipment and licenses so.
Speaker Change: You've kind of answered your own question there.
Speaker Change: Got it alright, thank you.
Speaker Change: Earlier comment that inventory was that similar to this too but.
Speaker Change: Inventory stacking up at some customers.
Speaker Change: Our comments on inventory was risk regards to taking an inventory provision related to the transition to DOCSIS unified for Dido, we had certain three dot one inventory is specific type that we took a $5 million provision on roughly.
Speaker Change: $5 million provision in Q4 that was the comment earlier.
Speaker Change: Perfect.
Thanks, so much I appreciate it.
Speaker Change: Thanks, Brian.
Speaker Change: Thank you one moment for your next question.
Speaker Change: Next question will come from the line of Steven Frankel from Rosenblatt Securities. Your line is open.
Speaker Change: Okay.
Speaker Change: Talk about a question about unified DOCSIS and when do you think there will be vague.
Speaker Change: Availability of chips to go into things like amplifiers.
Speaker Change: So what's your ROE.
Speaker Change: Yes.
Speaker Change: The silicon is available there is no.
Speaker Change: No dependency on availability of silicone.
Speaker Change: What I was talking about is how you put the product together and how you put all of the field, where our software tool operationalize that.
Speaker Change: How are you.
Speaker Change: Get the.
Speaker Change: The deployment.
Speaker Change: Teams fully mustering the deployment and troubleshooting of that so it's more of how you put that into the system together more so than the silicon the silicon itself is fully available.
Speaker Change: Okay.
Speaker Change: Like a couple of other previous questions I'm trying to square up.
Speaker Change: We're fairly bullish for all year.
Speaker Change: Spending plans by your two biggest customers.
Speaker Change: With your forecast, which is kind of the opposite of that so what am I missing or are they doing other things in their network build out that doesn't involve you or.
Speaker Change: You're just not going to factor that build out in until you see the orders.
Speaker Change: So when you look at major Msos Capex in this network evolution category. It includes our piece of technology, but it also includes amplifiers.
It includes a lot of LIBOR.
Speaker Change: Put it out there into the network depending on the type of upgrade that you do if you do extended spectrum you go and replace all the passive.
Speaker Change: Tops in the in the network itself, which is.
Speaker Change: A lot of LIBOR LIBOR effort.
Speaker Change: So holistically when you look at that we are a portion of that and in any given year.
Speaker Change: Necessarily that they spend equally on all parts.
Speaker Change: And.
Speaker Change: Could you give us any more color about these recent.
Speaker Change: Inventory order reductions that you've heard about in the last months and.
Speaker Change: Is there any rationale for that that you could share.
Yes, Steve It's Walter May I'll address that one.
Walter Jankovic: Our belief is those demand push outs are all related to the market dynamics, we talked about in terms of the transition over to unified <unk> as well as the other ecosystem dependency. So I believe it's all all related to that and we saw that as I mentioned in the prepare.
Walter Jankovic: Remarks, we saw that here in.
Walter Jankovic: In January January so we've now have all of our forecasts. We believe of those forecasts are now settled out.
Walter Jankovic: And as we mentioned on the call today were prudently guiding based on the market dynamics and the transitions. We we spoke about for 2025.
Walter Jankovic: Alright, thank you.
Walter Jankovic: <unk>.
Walter Jankovic: Thank you and as a reminder that statements.
Walter Jankovic: Two quick questions.
One moment for our next question.
Speaker Change: Our next question will come from the line of Tim's time ago from Northland Capital markets. Your line is open.
Speaker Change: Hey, good afternoon.
Speaker Change: Couple of questions here.
Speaker Change: Looking at the increase in gross margin forecast or guidance.
Speaker Change: Sure.
Speaker Change: Calendar 'twenty five.
Speaker Change: Okay.
Speaker Change: I assume that's a result of.
Speaker Change: Maybe a higher mix of video overall, but within broadband.
Speaker Change: It would appear to be.
Speaker Change: A higher mix of routing versus nodes.
Speaker Change: Would you confirm that it will be.
Speaker Change: Fair to say that substantially all of the revenue declines.
Speaker Change: You are forecasting for broadband next year are in on the node side.
Speaker Change: Okay.
Walter Jankovic: Yes, Hey, Tim it's Walter but yes, you have noticed that if you look at the mid point of our broadband guide on gross margins as compared to the full year 'twenty for broadband gross margins were up about 290% 90 basis points and that shift in mix.
Speaker Change: Is most significantly related to.
Speaker Change: POS platform as compared to notes when we look at the mix with the revenue dropping you are correct in assuming it's a lower mix of nodes and an increased mix with regards to with regards to licenses.
Speaker Change: If I can just dig in on that a little bit more.
Speaker Change: Increased mix would it be fair to say that the routing of the license side looking about flat.
Speaker Change: Oh in terms of the.
Speaker Change: The revenue profile.
Speaker Change: 2025 over 24.
Speaker Change: I think it would be slightly up.
Speaker Change: Even at a nominal dollar basis.
Speaker Change: Yes.
Speaker Change: Alright Thats interesting.
Speaker Change: And you manage.
Mentioned kind of managing the business prudently, although it seems like you're forecasting a pretty solid increase in opex on the broadband side.
Speaker Change: Despite the revenue declines.
Speaker Change: If you could.
Speaker Change: Give us a little more color on what's driving that.
Tim: Yes, correct Tim.
Tim: As you know in the video side of the business, we instituted our cost optimization through 2024. So now we're going to get the full year benefit of that in 2025 and Youre correct in terms of the direction on the broadband Opex is increasing and the major reason for that is that is.
Tim: We mentioned earlier rest of world customer growth in 2025, and supporting all of those customers basically building up the support structure on on that Opex. So we have broadband opex moving upward.
Tim: In 2025 over 2024.
And maybe I can add on that we mentioned on the last quarter that we.
Tim: Expect Rogers to start.
Tim: Deploying.
Tim: Towards the second half of the year, that's an integration therefore that we're investing.
Tim: We have in the pipeline quite a few of sizable opportunities that were expecting to secure this year. They all require some level of effort.
Tim: Both from an engineering point of view and.
Tim: Integration and support so put it all together that requires that incremental expense.
Tim: Okay got it and last one for me I think.
Tim: If you are quite specific but talking about broadband.
Tim: Yes.
Tim: Medium term basis.
Tim: Kind of revising the growth profile I think you said double digits or low double digits.
Tim: No.
Tim: Looking solidly over.
Tim: 30%, sorry, 20% before.
Speaker Change: I mean is that a function of what youre seeing this year and factoring that in or is there something changed in the market to alter your overall sense of of growth rate.
Speaker Change: Yes, certainly and just to first of all make sure. It was crystal clear as we shown on the chart today.
Speaker Change: The overall market for the <unk> report from 23 to 28 for the cable access part that's related to virtual IC MTS DAA and remote oil Ts is increasing at a 13% CAGR. If you go over that period of time.
Speaker Change: Our comments the comments that we made during the prepared remarks are around us managing our business and looking at it over the same time period and a low double digit.
Speaker Change: Kind of growth growth rate from that 23% to 28 spanned using that type of CAGR and the relevance of that is that from a cost structure standpoint from the things we control we're managing the business that that way as you can appreciate very difficult to buy.
Speaker Change: Going out two years three years to know exactly what our year's going to look like I think our focus right now is making sure that we continue to grow our market share.
Speaker Change: That we do the right thing from a cost standpoint, and that we capitalize on the opportunities that are ahead of us when that revenue comes based on the timing of our customers and their deployment deployment plans. So I wanted to address that.
Now your question as compared to prior.
CAGR rates that were out there I think there have been some market revisions to the market analyst revisions from the prior views that were out there and especially over the medium term and what I mean by that is <unk>.
Speaker Change: 25, 26, we're seeing it drop off so I think we're managing are things that we control.
Speaker Change: <unk> cautiously and we'll be ready for whenever the customer's deployment timings workout over over the next next next few years. So that's what I meant by that and I also just wanted to provide you a little color on what has changed.
Speaker Change: I appreciate it thanks very much.
Speaker Change: Okay. Thanks, Tim.
Speaker Change: Thank you I'm not showing any further questions at this time I'd like to call back over to Nimrod for any closing remarks.
Nimrod Benetton: We appreciate your continued interest in harmonic and look forward to updating you on our progress in the future.
Thank you all for joining the call and have a good day.
Nimrod Benetton: Thank you for your participation in today's conference. This does conclude the program and you may now disconnect everyone have a great day.
Nimrod Benetton: Yes.
Nimrod Benetton: [music].
Nimrod Benetton: Okay.
Nimrod Benetton: Yeah.
Nimrod Benetton: Okay.
Nimrod Benetton: Yes.
Nimrod Benetton: [music].
Nimrod Benetton: Okay.
Nimrod Benetton: Okay.