Harmonic Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2021 Harmonic Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this time, you will need to press star 1 on your telephone keypad. Please be advised that today's conference is being recorded, and if you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. David Hanover. Please go ahead, sir.

Thank you, Operator. Hello, everyone, and thank you for joining us today for Harmonic's first quarter 2021 financial results conference call. With me 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 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 harmonized 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. 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 of 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 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 first quarter call. Harmonic delivered another solid quarter with seasonally strong new bookings and solid year-over-year revenue, earnings, and cash growth. And both our cable access and video segments, again, contributed meaningfully. and both carry substantial backlog and deferred revenue into the remainder of the year. For cable access, the story has continued scaling by existing customers and new customer wins, driving 79% year-over-year segment revenue growth. For video business, demand for both our broadcast and streaming solutions remained healthy, enabling us to deliver 29% year-over-year segment revenue growth. Big picture, Armonic continues to respond well to both current challenges and opportunities, leveraging and continuing to invest in differentiated technologies, deep customer relationships, and an extraordinary global team. All of this translates into strong market momentum and an increasing growth outlook for the remainder of the year. So focusing first on our cable access segment, we delivered another strong quarter. We were commercially deployed with 53 cable operators worldwide, up 96% from the first quarter of 2020. And these deployments scaled to serve over 3 million cable modems, up 127% year-over-year. Segment revenue was $41.3 million, up 72% from a year ago. The margin sagged somewhat as we had a heavier mix of DAA hardware in the quarter, and our hardware was impacted by higher costs. We nonetheless again delivered positive segment operating margin. Looking ahead, we're well-positioned to continue this pace of revenue growth. We see broad market momentum for next-generation multi-gigabit broadband solutions, spanning fiber, cable, and wireless. and the emergence of cloud-native software working in concert with an open distributed access architecture as the winning formula. And within Cable, Harmonix cloud-native and DA solutions continue to be way out in front of the rest of the market. It was gratifying to have been recently recognized for the Deloro Group as the market leader in these next-generation technologies. To fully leverage our unique position, we're focused on three interrelated growth vectors, working with existing customers to scale CableOS deployment across their entire footprint, winning new customers from large tier ones to world broadband players, and expanding our address market to include fiber to the home and fiber to the business. We saw good progress in all three of these initiatives during the first quarter. Regarding customers who are already actively deploying KBOS, deployments are going really well. The pace is accelerating, and yet our solution has been rolled out to less than 6% of their combined footprints, which means we still have huge growth one way ahead of us with these already deploying customers. Regarding adding new customers, we also continue to make good progress. We received an initial multimillion-dollar purchase order from a new Tier 1 international operator, and we went several new regional and rural North America broadband customers during the quarter. And regarding fiber to the home, we closed our first deal in North America and have seen steady growth in our global sales pipeline, with engagement spanning a diverse group of larger cable operators and smaller rural broadband players. Underlying all this activity, we continue to invest heavily in new technology and services. Based on insights from our ongoing deployments, we're adding compelling new functionality to our cloud-native software core, support for new applications such as mobile backhaul, and we're engaged in innovative joint efforts with public cloud players around new edge cloud capabilities. And of course, our converged cable plus fiber-to-the-home solution continues to be a key R&D initiative. Finally, we're not immune to the global supply chain constraints. We're seeing shortages of several key components and related significantly higher costs, impacting most significantly our DAA and shelf hardware products. We're working hard to overcome these challenges, and as a result, while we expect higher costs and lower margins for these products for the balance of 2021, we're not backing off of our revenue growth target. We're aggressively seizing new opportunities to expand our DAA footprint and correspondingly raising our top line guidance. Summarizing for cable access, Harmonic delivered another strong quarter. Global broadband market trends are favorable. Near-term demand is healthy. Our early customers are successfully scaling. And we continue to add new customers, both large and small. The future of broadband access technology is clearly cloud-native core software powering a flexible distributed access network. And as a primary architect of this new model, Harmonic's broadband access future remains bright. Returning now to our video segment, we followed up a strong second half of 2020 with another solid quarter. First quarter segment revenue was $70.3 million, up 29% year-over-year, and up 5% from the first quarter of 2019, indicating growth that is more than just post-pandemic recovery. Gross margin was 55.1%, and segment operating margin was 5.4%, impressively demonstrating continued profitability despite business transformation headwinds. As you know, our key strategic transformation is from a purely broadcast technology and associated CapEx business model to a mix of broadcast CapEx and streaming SaaS with recurring revenue. Demand for high-quality live streaming solutions continues to grow, evidenced by a strong sales pipeline, several new streaming SaaS wins, and our near-record backlog in deferred revenue. During the quarter, we signed net seven new streaming SaaS customers, mostly customers that are new to Harmonic. bringing the total number of media companies on our streaming platform to 97, which is up 72% year over year. Approximately a quarter of these customers are still in the process of fully launching their new streaming services, underlying our continued streaming growth expectations. As a recent example, a prominent new sports streaming service that we signed in 2020 went live with us just a couple of weeks ago and is already delivering millions of daily ad impressions, with even higher ad volumes anticipated as the service expands. Since the ad insertion portion of our SaaS solution is charged on an impression volume, or CPM, the associated growth opportunity for this part of our video business is becoming more compelling. While streaming is the main headline, a secondary headline is revitalized broadcast demand. We're seeing a general rebound in broadcast project activity worldwide, of which we believe we're capturing an increasing share. We're also seeing 5G bandwidth reclamation continuing to be a catalyst for both near-term business and longer-term opportunity creation globally. During the first quarter, we continued to execute our announced program with SES, and several new 5G bandwidth reclamation projects came into focus, new projects that we now expect to contribute to the second half of the year in 2022. We're correspondingly raising our video segment revenue guidance modestly for the full year. Looking further ahead, we believe the success the industry is seeing with the C-band initiative is opening the door to a broader opportunity for wholesale IP video distribution via terrestrial fiber rather than satellite networks, a positive trend for sustained video broadcast investment. So in summary, we delivered another strong video quarter, characterized by solid revenue growth, gross margin, operating profit, new wins, and bookings. This performance highlights the resilience of our video business, our industry-leading technology, and our growing success extending our brand from the realm of high-end broadcast to high-performance cloud streaming and SaaS. Leveraging our strong backlog and deferred revenue and a robust video sales pipeline, we're moving forward through 2021 with real market momentum and conviction in our video growth plan. So let me now turn the call over to you, Sanjay, for a closer look at our financial results and outlook.