Harmonic Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2020 Harmonic Earnings Conference 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 the question during this session, you will need to press star then 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then 0. I would now like to hand the conference over to your speaker for today. David Hanover, Investor Relations. Sir, you may begin.

Thank you, Tawanda. Hello, everyone, and thank you for joining us today for Harmonic's fourth quarter 2020 financial results conference call. With me today are Patrick Harshman, President and Chief Executive Officer, and Sanjay Khadra, 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 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 10Q and 10K reports, and the forward-looking statements section of today's preliminary results press release. These documents identify important risk factors which can cause actual results that differ materially from those contained in our projections or forward-looking statements. 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 filed with 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 this 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 fourth quarter call. Harmonic delivered a strong fourth quarter with record new bookings, sequential quarterly and year-over-year revenue growth, and earnings and cash generation that exceeded expectations. Both our cable access and video segments contributed meaningfully to these results. For cable access, financial success is being driven by scaling existing customers and by continued new customer wins. For video business, demand for both innovative new broadcast and streaming solutions resulted in our strongest revenue quarter in two years. Big picture? Looking back on 2020, Harmonic responded incredibly well to unexpected challenges and opportunities, demonstrating the transformative value of our newer solutions, the depth of our customer relationships, and the extraordinary capabilities of our global team. Despite continuing pandemic challenges, our business is exiting the year with strong market momentum, record backlog and deferred revenue, and a solid plan for growth and value creation. Taking a closer look at our cable access segment, we had another strong quarter. We were commercially deployed with 44 cable operators worldwide, up 91% from the fourth quarter of 2019. And these deployments scaled to serve over 2.6 million cable modems, up 149% year-over-year. Segment revenue was $45.5 million, bringing full-year revenue growth to approximately 56% once normalized for the one-time Comcast software license revenue recognized in the third quarter Segment operating margin was over 20%, demonstrating the operating leverage possible, even at this still early stage of market transformation. And while we're pleased with this financial progress, we're even more encouraged by the fact that global leaders in broadband delivery have been expanding their reliance on Harmonix CableOS through the pandemic, a time when expectations for broadband services are at an all-time high. Our cloud-native solution has been performing extremely well with increasing scale and traffic load, demonstrating the efficiency and effectiveness of both truly virtualized core networking software and of next-generation distributed access architectures. Our leading customers have been seeing the business benefits, their conviction evidenced by strong new bookings and backlog. Looking ahead, we're focused on two complementary growth factors – supporting these existing customers and accelerating CableOS deployment across their entire footprints, and winning and beginning to scale with new customers. Regarding customers who have already begun deploying CableOS, we're still at the first inning. CableOS has so far been rolled out to only approximately 5% of the over 50 million cable modems served by our early customers. For these existing customers, we continue to innovate to make it easier to expand CableOS into all of their various use cases. For example, in the fourth quarter, our new shelf product began to be successfully deployed at volume, opening the door to expanded centralized architecture deployment of TableOS in 2021. Similarly, now, in the first quarter, we're beginning to ship our new node platform that incorporates the powerful symmetric gigabit solution announced in coordination with Comcast last quarter, making the business case for our industry-leading distributed access solution even more compelling. We're also continuing to aggressively advance our core software with our latest containerized cloud native capabilities providing augmented code deployment agility and real time telemetry capabilities that are translating directly to significant operational advantages for our customers. Turning to winning new customers, the biggest news coming out of 2020 is our first multi-million dollar purchase order and initial shipments to a new tier one North American cable operator. This is another important milestone confirming our continuing mind share and market share momentum with global Tier 1s, of whom five are now rolling out CableOS. In total, we added six new CableOS customers between mid-October and the end of the year. This positive market momentum is also evident through a growing pipeline of new customer engagements that span additional Tier 1s and smaller operators across both our Cable DOCSIS and newer fiber-to-the-home solutions. While the pandemic continues to create some headwind for hardware lab evaluations and trials, we're creatively powering through this and anticipate a continuing flow of new customer wins throughout 2021. Summarizing for cable access, Harmonic delivered another strong quarter, financially and strategically. Our early customers were successfully scaling, leveraging our latest cableOS innovations to optimally address an increasing range of broadband service challenges and opportunities. And we're steadily adding new customers, both large and small. The future of cable access, and we think of broadband, wireless access more generally, is cloud-native core software powering a flexible, distributed access network. Harmonic's leadership in this transformational industry direction continues to shine brightly. Turning now to our video segment. Following a solid third quarter, we delivered an even stronger fourth quarter, driven by healthy global demand for both broadcast and streaming solutions. Segment revenue was $86 million, up 57% sequentially, and segment operating profit was 15.7%, bringing the business to a full-year operating profit. Bookings were also strong, greater than revenue, contributing to our record backlog and deferred revenue entering 2021. Behind these headlines are several notable business highlights and encouraging market trends. First, demand for high-quality live streaming solutions continues to grow. During the quarter, we signed one of our largest streaming SaaS agreements to date, a multimillion-dollar deal with a blue-chip domestic media company to power their free ad-supported and subscription live sports, news, and entertainment streaming service. This is a big win for us and part of the record backlog of the deferred revenue story. In total, we added net 17 new SaaS customers, over half of which are new to the company, demonstrating growing success and expanding our reach to address new streaming players worldwide. Through the end of the quarter, we were powering over 50,000 live streaming channels globally, up 15% year over year. A second video headline is the extent to which 5G bandwidth reclamation has been a catalyst for both near-term business and new opportunity creation. Our initial wave of work with SES on this initiative kicked into high gear during the quarter, contributing materially to our strong fourth quarter revenue result. The execution of our team and our business partners on this program has been nothing short of stellar. As many of you know, the 5G-driven bandwidth auctions in the US have been extremely successful, further focusing industry attention and expanding the potential opportunity for further government-sponsored bandwidth transitions. The broader context here is that traditional broadcast infrastructure remains the foundation for hundreds of billions of dollars of television advertising and subscription revenues today, revenue streams that are essential to global media companies as they invest in new streaming. So when it comes to existing media companies, Harmonix Video's strategy is to meet our customers where they are, supporting their essential broadcast infrastructure while also partnering with them to transform to more efficient and targeted advertising-friendly cloud and SaaS platforms. a compelling multi-year growth opportunity. And it's important to remember that SES and many of the media companies involved in 5G reclamation have historically been important harmonic video customers. In this broader industry context, 5G bandwidth reclamation is best understood as a new catalyst for our media customers to convince necessary and advantageous technology transformations. A trend harmonic is well positioned to capitalize on. So in summary here, our strong fourth quarter underlines the resilience of our video business and the opportunities ahead, scanning both new streaming and traditional media. The announcement last week of two new Emmy wins for our video innovations further highlights our technology excellence and the vital role we play for hundreds of media companies around the globe. We're entering 2021 with real market momentum, strong backlog and deferred revenue, new opportunities taking shape, and a plan for growth. We're excited to see where we can take our video business next. And I'll turn the call over to you, Sanjay, for more detailed discussion of our financial results and outlook.