Harmonic Inc.

Welcome to the Q3 2020 Harmonic Orange Conference Call. My name is Jimmy, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. After the speaker's prepared remarks, we will be hosting a question-and-answer session. To ask a question during the session, please press star and 1 on your touch-tone telephone. If you would like any other assistance during the conference, please press star and 0. Please note that this conference is being recorded. I will now turn the call over to David Hanover, Investor Relations. David, you may begin.

Thank you, Jimmy. Hello, everyone, and thank you for joining us for today's Harmonic Third Quarter 2020 Financial Results Conference Call. With me today are Patrick Harshman, President and Chief Executive Officer, and Sanjay Kalra, Chief Financial Officer. Before we begin, I'd like to point out that in addition to our audio portion of the webcast, we've also provided slides to this webcast, which you may see by going to our webcast on our Investor Relations website. Now turning to slide two. During this call, we will provide projections and other forward-looking statements regarding future events and 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 or furnished to 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. 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 GAAP numbers and a reconciliation to GAAP, are contained in today's press release, which we posted on our website and furnished to 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? Thanks, David, and welcome everyone to our third quarter call. Harmonic delivered a solid third quarter. As our cable access business continued to gain momentum, and our video business rebounded strongly from the Q2 pandemic slowdown. Corporate revenue was $94.9 million, up 28% sequentially. EPS was 3 cents and book-to-bill was greater than 1, highlighting strong execution and market momentum as we head into the fourth quarter. The company has really responded to the challenges and opportunities that this year has brought. We're executing well. Our competitive differentiation and customer relationships are stronger than ever. and we see healthy demand for both our cable access and video products and services. Taking a closer look now at our cable access segment, we had another strong quarter. Revenue was $40.3 million, up 52% sequentially, and segment operating income was over 14%, our strongest financial quarter to date, with the exception of Q3 a year ago when we recognized one-time revenue from our foundational software license deal with Comcast. As of the mid-October CableTech Expo, we were commercially deployed with 38 cable operators worldwide, up 9 from the second quarter and 100% from Q3 a year ago. As of the end of the quarter, CableOS was actively serving over 2.1 million cable modems, up 122% from a year ago, of which over 1.4 million are served through a distributed access architecture, all indicative of a transforming market and of strong harmonic momentum. This momentum was evident at the recent CableTech Expo, the industry's premier technology conference. The industry consensus was clear. The future of cable access is software-based, increasingly leveraging distributed access architectures. Underscored by the fact the largest cable operator in the U.S. and the largest cable operator in Europe are both rolling out Harmonix's CableOS platform. Correspondingly, our new customer pipeline remains strong. and we continue to anticipate being able to communicate an additional top five North American deployment by the end of the year. Associated with this cable tech event, we made several significant announcements that further extend our market and technology leadership. We highlighted several new customer deployments spanning the Americas, Europe and Asia. In coordination with Comcast, we announced a powerful and competitively differentiated symmetric gigabit solution that breaks through cable's upstream bandwidth bottleneck. A crucial innovation in the context of increased work and school-from-home video conferencing. And we raised the bar for core software, announcing and demonstrating that operators can now leverage our cloud-native platform for multiple simultaneous containerized network applications, including PON, 5G Open RAN, and video caching, delivering on the vision of a cloud-native architecture in a way that is groundbreaking not only for cable, but for broadband service providers more generally. The first of these cloud-native applications we've attacked are XGS and 10GE pod for Fiber to the Home. We're pleased to report that our first Fiber to the Home field trials are going well, and that we've received our first volume purchase order. This is an important strategic milestone in demonstrating the extensibility of our cloud-native cableOS platform beyond traditional cable applications, and specifically the opportunity for Harmonic to address the large and growing Fiber to the Home market. We'll continue to update you on this important additive growth initiative. So summarizing for cable access, we delivered another strong quarter. We provided further evidence that cable operators around the world are moving to cable OS. We announced powerful new technologies that are extending our value proposition and competitive advantages. And we're expanding our addressable market to include fiber to the home and additional access network applications. We're proud of our accomplishments and excited about where this business is headed. And turning now to our video segment, we saw a solid rebound after several months of pandemic-related slowdown. Segment revenue was $54.6 million, up 15% sequentially, as previously delayed projects began to resume, in some cases, sooner than we expected. Associated gross margin was 54.6%, indicating a healthy mix of appliance, software license, and SAS revenue. Looking ahead, we continue to anticipate an even stronger fourth quarter, with combined second half revenue in line with our previous guidance. Specifically, as Sanjay will discuss momentarily, we anticipate a further step up to $80 to $85 million revenue and associated solid operating profit in the fourth quarter. We're particularly pleased to see continued growth of streaming solution sales through both public cloud SaaS and on-premises appliance and software solutions. We signed nine new cloud-based streaming customers during the quarter, A mix of both traditional and new media companies. Live streaming of premium content is where our competitive differentiation and brand is strongest and where we see sustainable growth opportunity. Highlighting our expanding position in this live streaming space, through the end of the quarter we exceeded 48,000 live streaming channels deployed worldwide, up 15% year-over-year. Last quarter, we communicated an incremental business opportunity associated with the FCC-mandated reclamation of C-band satellite spectrum for 5G. As you may recall, we estimated this to be a several hundred million dollar global opportunity that will play out over the next couple of years, a substantial additional solution category that will complement our live streaming and traditional broadcast sales. We also announced a partnership with satellite leader SES and said that we expect associated revenue to commence in the fourth quarter of this year. I'm pleased to tell you that all of this is still on track. We've received our first multi-million dollar order associated with the C-band 5G opportunity during the third quarter, and we continue to expect to recognize revenue beginning in the fourth quarter. In summary for our video business, we saw a solid rebound in customer activity and demand in the third quarter, and we're carrying strong momentum into the fourth quarter with traditional broadcast, expanding live streaming, and new 5G bandwidth reclamation projects all contributing to what we project will be a strong, profitable quarter. Looking further ahead, the resilience we're seeing in the second half of the year, underscored by growing success with our streaming platforms, point to the strengths of our video brand, technology and customer relationships and to our compelling opportunity to drive profitable growth. I'll turn the call over now to you, Sanjay, for more detailed discussion about financial results and outlook.