Harmonic Inc.

Welcome to the Q2 2021 Harmonic Earnings Conference call. My name is Sarah and I'll be your operator for today's call. At this time, all participants are now in only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star zero on your touchtone telephone. As a reminder, this conference is called being recorded. I will turn the call over to David Inover, Investor Relations. David, you may begin.

Thank you, Operator. Hello, everyone, and thank you for joining us today for Armonix's second quarter 2021 Financial Results Conference Call. With me today are Patrick Harshman, President and Chief Executive Officer, and Sanjay Kara, 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 to differ materially from those contained in our projections or forward-looking statements. And please note that unless otherwise indicated, these 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 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 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 second quarter call. Harmonic delivered an excellent quarter with strong year-over-year revenue and earnings growth and book-to-bill of 1.6, resulting in record backlog and deferred revenue. Both our cable access and video segments, again, contributed materially to these results, each with double-digit revenue growth and positive operating income and with comparable book-to-bills. The cable access business delivered 89% top-line growth while also making great progress extending our addressed market and global leadership position through multiple new design wins. Our video business was up 34% year-over-year as demand for both our latest broadcast edge and streaming SaaS solutions grew, with streaming SaaS revenue up an impressive 68% year-over-year. Two months ago, Harmonic laid out detailed multi-year growth plans for our two businesses, The financial and strategic results of this quarter demonstrate that we continue to be firmly on track and well-positioned to seize the compelling broadband and streaming video opportunities ahead of us and to deliver on our associated financial objectives. Taking a closer look now at our cable access segments, it was another really strong quarter. Segment revenue was $50.1 million, up 89% from a year ago, and we finished the quarter commercially deployed with 62 cable operators worldwide. up 114 percent from the second quarter of 2020. These deployments scaled to serve over 3.3 million cable modems, up 94 percent year-over-year. With these results, we anticipate soon moving into second place in terms of total CMTS market share, as the virtualized CMTS market subset that we lead continues to gain traction globally. As anticipated last quarter, aggregate gross margin is being impacted by temporarily higher costs And at the same time, accelerating demand for our DAA nodes, a reflection of our expanding market leader position in DAA deployments. In early June, we laid out our three-year vision for the strategic evolution and financial growth of this business. We identified a greater than $2 billion addressable market and a path for us to leverage our cloud native and DAA technology leadership to drive a greater than 40% annual growth rate for the next several years, targeting over $500 million of revenue by 2024. An essential element of this growth plan is adoption of our cloud-native cable OS solution by cable operators here in the US and around the globe, both Tier 1s and smaller operators. During the second quarter, we added two new Tier 1s to the list of those who have selected cable OS, bringing the global total number of Tier 1 customers we've disclosed to eight. including three out of the top five in North America, of course, including Comcast, the largest in Europe, Vodafone, and two of the largest in Latin America, Claro, Telmex, and Millicom, all blue-chip endorsements. We have a solid pipeline of additional Tier 1 engagements and are confident that we'll continue to see new design wins and deployments with leading names in the industry. While this momentum has us on a great path to lead the roughly billion-dollar addressable cable broadband market, We're also actively engaged in complementary initiatives that, in aggregate, will add another billion dollars of addressable market by 2024. The largest and nearest term of these initiatives is Fiber to the Home, where our strategy is to provide a software-based cloud-native solution that's fully converged with our virtualized CMTS application. During the quarter, we had a major product release, significantly grew our sales opportunity pipeline, and perhaps most significantly, saw very positive progress with a couple of large hybrid cable and fiber operators. As noted in the recent press release we did with new customer Claro in Latin America, a unique feature of our DAA solution is the flexible on-demand extension from DOCSIS to Fiber-to-the-Home PON. Every single DAA node that we deploy can also house a remote LLT module and receive Fiber-to-the-Home PON traffic from our unified software head end, and therefore seamlessly support targeted extension and overlay of a cable network with a Fiber-to-the-Home network. Node-by-node flexibility that is unique in the industry and increasingly resonating with customers worldwide. Big picture, global broadband market trends remain favorable. Near-term demand is healthy, and our broadband market leadership position and opportunities have never been stronger. And we're doing what we said we'd do, executing on our immediate opportunities while also investing in complementary new initiatives that will expand our addressable market and create further competitive differentiations. We're pleased to be again raising our full-year revenue guidance, comfortably meeting our 40 percent annual growth rate target in 2021, while also making demonstrable progress on our longer-range broadband growth initiatives. Turning now to our video segment, recent momentum continued with another solid quarter. Second quarter segment revenue was $63.3 million, up 34 percent year-over-year, and segment gross margin expanded to 59.3 percent. a near record for this business and clear indication of ongoing successful transformation to a more software and service-centric model. Recurring streaming SaaS revenue grew 68% year-over-year, driven by both scaling existing customer usage and new customer additions. As with our cable access business, two months ago we laid out the strategic growth plan for our video business. Our video business plan has two core elements, capturing a leading position in the growing billion-dollar streaming infrastructure market and maximizing revenue and profit from the still larger but slowly declining broadcast infrastructure market. On the streaming SaaS side of the business, 68% revenue growth was complemented by 55% year-over-year growth in the number of customers, bringing the total number of SaaS customers to 102. Approximately 20 of these signed customers are still in the process of fully launching or migrating their streaming services to our VOS platform, and therefore still pre-revenue. Looking ahead, we remain confident about hitting our SaaS revenue growth targets for several reasons. The streaming market continues to grow. Our technology differentiation, streaming brand awareness, and sales pipeline all continue to improve. And we're seeing consistent usage and revenue growth from existing SaaS customers. We targeted that assertion where our revenue scales with that volume, driving the most pronounced expansion. Returning to the second element of our video strategic plan, we're pleased to see continued resurgence in broadband project activity worldwide. Our strong second quarter results reflected overall broadcast market resilience. It happened with nearly no 5G bandwidth reclamation contribution, as Q2 was between 5G-driven projects. That said, our very strong second quarter video bookings and sales pipeline do reflect additional 5G-driven demand, and more generally, an emerging multi-year opportunity for new video edge processing technology that enables the transition of video transport from satellite to terrestrial IP over fiber networks, an opportunity we believe we're uniquely positioned to capitalize on through our new software-based XOS platform. Considering our growing streaming SaaS and broadcast infrastructure backlog and opportunity pipelines, we're again raising our full-year segment revenue and adjusted EBITDA guidance, with resultant revenue guidance reflecting anticipated growth over both 2020 and 2019. In summary, we delivered another strong video quarter characterized by solid revenue growth, gross margin expansion, operating profit, new wins, and bookings. And the outlook for the remainder of the year is positive. Looking further ahead, we've laid out a compelling multiyear strategy, and we're continuing to make targeted strategic and financial progress for delivering on this plan. With that, I'll now turn the call over to you, Sanjay, for a closer look at our financial results and outlook.

Sanjay Gupta Thanks, Patrick. And thank you all for joining us today. Before I discuss our quarterly results and outlook, I'd like to remind everyone that the financial results I'll be referring to are provided on a non-GAAP basis. As David mentioned earlier, our Q2 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. Turning to slide seven, Let's start with an overview of second quarter financial highlights. We delivered solid results, which were above our guidance ranges, including revenue of $113.4 million, up 53.2% year-over-year, gross margin of 53.9%, a 230 basis point improvement year-over-year, adjusted EBITDA of $9.5 million, or 8.4% of revenue, and EPS of 5 cents. We also had record second quarter bookings with a book-to-bill ratio of 1.6. As a result, we ended Q2 with record backlog and deferred revenue of 347.2 million, up 65% year-over-year. Cash was 115.2 million, up 48% year-over-year, positioning us well for the remainder of this year and into 2022. Now let's review our second quarter financials in more detail. Turning to slide eight, total company Q2 revenue was 113.4 million, a 53.2% increase compared to 74 million in Q2 2020. Cable access revenue was 50.1 million compared to 41.3 million in Q1 2021 and 26.5 million in the year-ago period. Reflecting our continuing market share gains, In our video segment, we reported Q2 revenue of 63.3 million compared to 70.3 million in Q1 and 47.5 million in the year-ago period. The year-over-year growth reflects improving business in all regions worldwide, aided by both solid broadcast demand and strong SaaS revenue growth. We had one customer representing greater than 10% of total revenue during the quarter, Comcast, contributed 31% of total revenue. As mentioned earlier, gross margin improved quarter over quarter to 53.9% in Q2 21 compared to 50.4% in Q1 21 and 51.6% in Q2 20. Cable access gross margin came in at 47% in Q2 21 compared to 42.2% in Q1 21 and 45.7% in Q2 20. reflecting a higher software mix this period. As a reminder, the higher cable hardware supply chain costs we discussed in the last quarter had a modest impact in first half, as our inventory was partially secured before the recent cost run-up and continue to be expected to have a greater impact in the second half. Video segment gross margin was 59.3% in Q2 21, compared to 55.1% in Q1 2021 and 54.8% in the year-ago period, which reflects both an improved software mix within our appliance category and our expanding SaaS business. Moving down the income statement on slide nine, Q2 2021 operating expenses were 54.6 million compared to 51.1 million in Q1 2021, and 43.3 million in Q2-20. The sequential and year-over-year increase was primarily due to increased cable access research and development services and sales and marketing for both segments as we continue to invest in our growth initiatives. Adjusted EBITDA for the second quarter was 8.4% of revenue at 9.5 million, reflecting contributions of 6.1 million from cable access and 3.4 million from video. This compares to an adjusted EBITDA of 9.1 million in Q1-21 and an adjusted EBITDA loss of 2.8 million in Q2-20 and translates to Q2-21 EPS of 5 cents per share compared to 4 cents per share in Q1 and an EPS loss of 6 cents in Q2 last year. We ended the quarter with a diluted weighted average share count of 103.8 million compared to 103.2 million in Q1-21 and 96.7 million in Q220. The sequential increase reflects the weighted effect of stock issued to employees. The year-over-year increase is primarily due to the issuance of 4.2 million shares for our employee restricted stock, ESPP, and performance-based compensation during the year, and 1.6 million shares for convertible debt dilution, which was a result of our increased average stock price. Q2 bookings were 186.9 million, a record second quarter, representing a 94.1% sequential increase compared to 96.3 million in Q1-21 and a 142.7% increase from 77 million in Q2-20. During the quarter, we saw double-digit sequential and annual bookings growth in every geographic region we operate in. Following an outstanding Q4 20 bookings quarter, we are pleased to report another very strong quarter of new bookings, demonstrating robust demand for our differentiated technology solutions. Turning to slide 10, we now discuss our liquidity position and balance sheet. We entered Q2 with cash of 115.2 million, compared to 100.8 million at Q1 21, and 77.7 million at the end of Q2 2020. The 14.4 million sequential cash increase is comprised of 16.8 million cash generated from operations, primarily attributable to both cable access and video segment profits, net of $4 million cash used in purchase of fixed assets, and 1.6 million received primarily through our employee stock purchase plan and from stock option exercises. Our day sales outstanding at the end of Q2 was 80 days compared to 69 days at the end of Q1 and 91 days in Q2-20. The sequential increase reflects the timing difference of certain large receivables, and the year-over-year decrease reflects continued overall collection improvements. Our day's inventory on hand was 74 days at the end of Q2 compared to 58 days at the end of Q1 and 81 days at the end of Q2-20. Reflecting increasing inventory at the end of Q2 as we prepare for heavy second half of the year shipments associated with our backlog. At the end of Q2, total backlog and deferred revenue was a record 347.2 million. compared to $274.3 million at the end of Q1 2021 and $210.2 million at the end of Q2 2020. A 27% sequential increase and a 65% year-over-year growth. This record backlog and deferred revenue reflects increasing commitments from our large cable customers, growing demand for new broadcast edge appliances, including 5G bandwidth reclamation projects, and growing video streaming SaaS volume commitments. Note that historically about 80 to 90% of our backlog and deferred revenue gets converted into revenue within a rolling one year period. As mentioned on previous calls, not included in our backlog is additional contractually agreed cable OS business with three of our initial tier one cable customers. At the end of Q2 21, This incremental amount was approximately 145 million, down from 156 million last quarter, as approximately 11 million went through the per shares order process and therefore moved into bookings. Taking these cable OS contracts into account, we have total future contracted revenues of approximately 492.2 million. which provides us with a very solid foundation for the remainder of 2021 and into 2022. Now I'll turn to our non-GAAP guidance for 2021, beginning on slide 11. While COVID-19 related uncertainty and volatility still exists, our customer activity and pipeline have recovered substantially since the height of the pandemic. Having said that, we are still navigating through an unprecedented global supply chain situation, which creates both cost challenges compared to 2020 and production timing challenges to our cable guidance for 2021. I will now review guidance for our cable segment for Q3, Q4, and the full year. For Q3, we currently expect cable access revenue in the range of 50 to 55 million. Gross margin in the range of 41.5% to 43.5%. Operating expenses to range from $18.5 to $19 million. Adjusted EBITDA to range from $4.7 to $5.2 million. For Q4, we currently expect cable access revenue in the range of $50 to $60 million, with the upside limited by the supply chain issues I mentioned earlier. Gross margin in the range of 45 to 47%. Operating expenses to range from 20 to 21 million. Adjusted EBITDA to range from 4.9 to 7.6 million. For the full year 2021, we now expect cable access revenue in the range of 192 to 207 million. At midpoint of our guidance, this reflects a 12 million increase versus our prior guidance. This growth is driven by strong momentum with our existing Tier 1 cable customers as they accelerate deployments, as well as new customer growth and still modest converged fiber to the home revenue. Gross margins in the range of 44% to 45% slacked versus prior guidance at the midpoint. There is no change in the supply chain related impact to our gross margins compared to what we guided in our prior earnings call in April. We have been working hard to contain the supply chain cost impact at these revenue levels within our guided gross margins. Operating expenses are expected to be between 73.2 to 74.7 million, an increase of one million versus prior guidance. Most of the increase is due to increased research and development primarily related to fiber to the home initiatives and sales and marketing expenses. Adjusted EBITDA in the range of 18.7 to 21.9 million. An increase of 4.2 million at the midpoint. On slide 12, I will now discuss guidance for our video segment for Q3, Q4, and the full year. For Q3, we currently expect video revenue in the range of 62 to 67 million. Video gross margin in the range of 55 to 58%. Operating expenses to range from 35 to 36 million. Adjusted EBITDA to range from 1.1 to 4.9 million. For Q4, we expect video revenue in the range of 82 to 87 million. Video gross margin in the range of 54 to 56%. operating expenses to range from 35 to 36 million, adjusted EBITDA to range from 11 to 15 million. For the full year 2021, we now expect video revenue in the range of 278 to 288 million. At the midpoint of our guidance, this reflects a $13 million increase versus prior guidance attributable to both rebounding broadcast market demand and growth in streaming sales. Gross margins in the range of 55.5% to 57%. At the midpoint of our guidance, this represents a 25 basis point improvement over prior guidance, mainly due to improved product mix and expanding sales margins. Operating expenses are expected to be between 141 to 143 million. an increase of 1.5 million versus prior guidance at midpoint. This increase is largely due to sales-related expenses associated with high revenues. Adjusted EBITDA in the range of 21.7 to 29.5 million, an increase of 6.3 million compared to prior guidance at the midpoint. Slide 13 presents the consolidated total company guidance for Q3, Q4, and full year 2021 which is simply the sum of the two segment charts we just reviewed. For Q3, we expect revenue in the range of 112 to 122 million. Gross margin in the range of 49.9% to 50.6%. Operating expenses to range from 53.5 to 55 million. Adjusted EBITDA to range from 5.8 to 10.1 million dollars. EPS to range from one to five cents per share. a weighted average diluted share count of approximately 105.8 million. At the end of Q3, cash is expected to range from 115 to 125 million. For Q4, we expect revenue in the range of 133 to 148 million, gross margin in the range of 50.8 percent to 51.5 percent, operating expenses to range from 55 to 57 million, Adjusted EBITDA to range from 15.9 to 22.6 million. EPS to range from 9 cents to 15 cents. A weighted average diluted share count of approximately 106.6 million. At the end of Q4, cash is expected to range from 125 to 145 million. For the full year, we now expect total company revenue in the range of 470 to 495 million. Please note, we have raised our expectations at both the low end and high end of the range due to the continued strong demand we saw in the second quarter and our updated growth expectations for both segments. Growth margin in the range of 51.2% to 51.6%. At the midpoint of our guidance, this represents an increase of eight basis points versus prior guidance at midpoint. Operating expenses to range from 214.2 to 217.7 million. An increase of 2.5 million from our previous annual guidance. Adjusted EBITDA to range from 40.4 million to 51.4 million. An increase of 30% versus prior guidance at midpoint. EPS to range from 19 cents to 29 cents per share. a 60% increase compared to the midpoint of prior guidance. An effective tax rate of 10%, a weighted average diluted share count of approximately 104.9 million. And finally, cash at the end of the year is expected to come in between 125 to 145 million. In closing, during the second quarter, we continue to execute on our strategic priorities, positioning our cable access and video streaming businesses for long-term success. This is in line with the multi-year revenue and operating models we shared with you during our June video and cable access segment investor events. With that, thank you everyone. And now I'll turn it back to Patrick for final remarks before we open up the call for questions.

Okay, thanks Sanjay. Sanjay just mentioned our strategic priorities, so let's wrap it up by reviewing those priorities for the remainder of this year. For our cable access business, our objectives are accelerated volume deployments with our growing list of Tier 1 customers, entering new global operators, particularly additional Tier 1s, and expanding our address market through CableOS's new converged DOCSIS and fiber-to-the-premises capabilities. For our video segment, our objectives are accelerating the growth of our streaming and SaaS customer base and per-customer usage. capitalizing on the coming transformations of traditional broadcasting media infrastructure globally, particularly the new edge processing opportunity, and delivering consistent margin expansion, recurring revenue growth, and profitability. Putting it all together, we continue to aim to deliver industry-leading solutions to enable superior subscriber experiences and to create value for our customers and our shareholders. Thank you all for your support. And with that, let's now open up the call for questions.

Ladies and gentlemen, if you have a question at this time, please press the star and then the number one key on your touchdown telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Again, ladies and gentlemen, if you have a question at this time, please press star and then the number one key on your touchdown telephone. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Simon from Raymond James. Your line is open.

Great. Thanks for taking the question. I just first want to start with the gross margin you reported for this second quarter. Both of your reporting segments were better than we expected, and my recollection was last quarter it sounded like gross margin was going to get hit pretty hard from supply chain constraints, and it actually was a pretty meaningful improvement Could you unpack that a bit in terms of what was different from your original expectations?

Sure. Simon, so let me start with cable first. I think cable, we saw a good software mix this time. Although, you know, when we guided, we were expecting some supply chain impacts. And they did happen. It came in accordance with the guidance. But we saw a good mix of software. So that's the improvement we saw in the cable margins. In terms of video gross margin, what we guided, You know, we saw a strong mix, as I said in my prepared remarks. We saw an improved mix of software and SaaS revenues and good margins there.

And in terms of where we stand today with the supply chain constraints, what's sort of being baked into your guidance by segment, and how are you thinking about essentially the supply chain getting worse or staying the same as it was before?

So Simon, in terms of our supply chain impact, you know, whatever we considered in the past guidance, that remains the same. For full year, the gross margins for cable are exactly the same at midpoint. We guided 44.5 previously. We are at 44.5 now. So the supply chain is, the costs have remained the same for the whole year.

And in the past, we've talked about opportunities for you coming from government stimulus programs Could you give us an update? Have you seen progress? Have you – any of these new awards, are they related to what we would consider government stimulus-type programs? And what's your assessment of that particular opportunity as you look out longer than just a quarter?

There has been no material contribution to our business from projects that have a government stimulus behind them. That being said, we're certainly pursuing opportunities that may have government stimulus. I think particularly on the cable fiber to the home side, that's relevant. So it's part of the opportunity pipeline, but it's not part of the revenue or bookings results that we're reporting today.

I guess what I'm just trying to confirm, and my impression is that no decisions have been made And I just want to confirm that that's correct assumption.

Decisions in what regard?

Well, in terms of the operators making selections and signing contracts.

I think it varies. I think it varies. You know, frankly, there are some opportunities out there that we think we're too late for. Others we think that we're in plenty of time for. So I can't give you a complete blanket statement, Simon. But there's certainly plenty of still available opportunities that we're competing for. Great.

Well, thank you very much for taking the questions.

All right. Thank you.

Next question comes from the line of George Knopper from Jefferies. Your line is open.

Hi, guys. Thanks very much. I was very impressed by the bookings number this quarter. I think you said the book to build was similar across both sides of the business. If you could just confirm that, that would be great. And And then I guess I was just hoping to go another layer deeper in those bookings on each side of the business. I assume that C-band reclamation was a big piece of the narrative on video with the second wave of that activity out in front of us. But maybe you could just confirm that also and just give us any more flavor you can for the nature of the bookings. Thanks.

Well, let me confirm both, George. Yes, both segments have similar book-to-bill, and I confirm the other piece as well.

Got it. And then, so on the cable access side, was it broad-based among many different cable operators that you have in your customer base, or was it more narrow among some of your biggest tier ones? Anything else you could give us there?

It's really broad-based on both sides, George. Yes, cable, we benefited from both new orders from existing customers as well as strong order input from newer customers. So I'd say that cable was broad-based. Indeed, some part on the video side, as Sanjay just confirmed, was related to 5G, but as he also mentioned earlier in his remarks, we actually saw strong bookings across geographies, and to date, the 5G activity has been limited still to the U.S. So it would be incorrect to attribute the video strength exclusively to 5G. Got it.

Okay. That's helpful. And then I guess just to kind of follow on to the prior question, you guys are, you know, doing a lot of development work on the fiber-to-prem technology. piece of the solution. Can you talk about kind of where you are in that development? Just get us updated versus three months ago. And how do you see yourself kind of aligning, you know, product-wise with some of the opportunities that are out there on Fiber to the Prem and all the stimulus that's out there these days?

Well, let me take a step back and remind or clarify that our initial strategy and where we're focused is not, you know, we're not going after Verizon and AT&T or, frankly, any exclusively historical telco player. Our real, I think, value add is a converged DOCSIS and fiber solution. And we believe that just the subset of operators who will be deploying both DOCSIS and fiber in either the same or in different parts of the network, that creates a compelling, let's say, initial or phase one opportunity for us. And it's those customers who we're making progress with, it's those customers with whom we have our initial deployments, and it's some of the larger of those customers where we're starting to make some real good progress in their labs and in their testing. I would say that the value of what we're proposing is coming into greater focus. And at the same time, we're better understanding the different use cases and how these things will be deployed. I mean, the market is evolving. Just late last week, for example, Virgin Media in the UK kind of made a splash by talking about some aggressive new fiber to the home plans there in the UK market, and that they were further clarified on their earnings call where they talked about fiber and cable kind of moving forward in coexistence with maybe the fiber serving the higher-end customers or being the premium tier of service. I think that's a picture that for us has become in a sharper focus, and it's helped us steer the way we position the technology, both technologically and commercially. So we're making good progress on both fronts, George. We're quite encouraged by the... the work we're doing with our customers, as well as the, you know, I'd say the strategic thinking of customers, large and small in this area. So obviously we continue to invest in it, and we'll continue to keep you posted on our progress.

Great. Thank you very much.

Next question comes from the line of Ryan Koontz from Leadham & Company. Your line is open.

Thanks for the question. First, a clarification, if I could, on your prepared remark about bookings. You commented that 80-90% of your typical backlog is shippable in the next year. Were you implying that that's still the case with this new surge in bookings as well, that that same characteristic would apply?

That's right, Ryan. That's our historical trend, that 80-90% of deferred revenue and backlog gets converted within the next 12 months, and we expect the same trend to continue.

Perfect. Thank you. And then just looking at your set of eight Tier 1 wins, obviously critical and very strategic, could you maybe characterize where those customers are now in their path toward volume deployment? How many are in volume deployment today? And where the balance kind of sit in that process of operations integration or field trials, that sort of thing?

Out of the eight that we've discussed, we have four who I'd say are really in volume deployment today. Within those, I'd say various maturation. I'd say nobody is probably completely moving at the pace and volume they would ultimately like to, but I think we could safely call for volume. And I'd say the other four, various kind of stages of startup.

Helpful. Thank you both.

All right, thank you.

Ladies and gentlemen, if you have a question at this time, please press star and then the number one key on your touchstone telephone. Next question comes from the line of Team SavageX from Northland Capital. Your line is open.

Hi, good afternoon, and congrats on the bookings in particular. And I did want to follow up there a little bit around the kind of topic of new versus existing customers. And you mentioned a Virgin call where they were talking about fiber to the home. Actually, Comcast had some pretty interesting things to say about virtualization and accelerating next-gen technology deployment on their call. I don't know if that's coincident. I mean, you obviously saw a fair bit of growth here in the quarter with Comcast. And so, you know, as you look at that is, you know, are you seeing a, you know, can you comment, I guess, on those comments or if you're seeing a meaningful acceleration there. And despite that, it does look like from a booking standpoint, you know, you did add some meaningful new orders there. So, you know, any further color on those specific comments and then with regard to whether you're seeing, you might have seen a few of those four tier ones you mentioned go into volume deployment pretty much last quarter, and that might have accounted for some of the strength in bookings beyond Comcast.

You know, I would attribute the step up in bookings in the second quarter. I don't actually have the breakdown in front of me, and I don't know if you've got a comment, Sanjay. I think it certainly wasn't dominated by existing customers. New customers contributed materially, Tim. So I think it's probably safest to think about the booking number as an equal balance between healthy orders from existing customers and new customer order inflow.

I agree. That's a decent mix between new and existing.

You know, we're gratified to hear some of the leading operators in the space talk openly about their thinking. I mean, I... You know, they've been talking about, I think the leaders in the cable industry began talking about 10G maybe two years ago at the CES conference. And, you know, with increased worldwide competition from fiber coming, I think that the topic of competing in next generation broadband, thinking through what next generation broadband looks like, And here I'm just talking about going beyond just symmetric gig to really symmetric multi-gigabit services and ultimately symmetric 10-gigabit services. This is not science fiction anymore. This is a very relevant topic. And our view is that those who have selected us early were really among the operators who were out front earliest thinking about this and who put the greatest importance on on ensuring that their networks were going to be competitive, not just, you know, the next 18 months, you know, but over the next decade. So from that perspective, it's not news to us. Tim, I think the news is, if you will, that there's more open discussion about it. And perhaps the element of news there is the extent to which we're now seeing a mix of advanced DOCSIS, virtualized DOCSIS DAA, together with fiber as really coming into focus as an attractive blend of capabilities for meeting this kind of next phase of competition and consumer demand in the industry. Does that help?

That's fantastic. Yeah, much appreciated. Thanks very much. I'll pass it on.

All right. Well, thank you.

Next question comes from the line of Stephen Franco from . Your line is open.

Patrick, in the spectrum reallocation part of the video business, there was an opportunity to not just sell some hardware into those customers, but build a recurring revenue relationship around maybe some of your SaaS offerings as well. Could you update us on how that mission might be going?

It continues to be an attractive opportunity, I would say, fairly well. But we still have work to do, if I had to summarize it, Steve. I mean, taking a step back, overall, we're quite pleased with the progress we're making in SAS. Certainly, the discussions with operators involved in the whole 5G thing are part of that mix. But I wouldn't put disproportionate weight on it. But it is an attractive opportunity. You know, more generally, I think our brand is really strengthening it from a SaaS perspective. More and more media companies around the globe are starting to understand what we're doing in that space. Both those who might have an opportunity to reallocate stuff between satellites or, in fact, take it off entirely and move to fiber. I think everybody is understanding better that Harmonic is bringing both some of that traditional network capability as well as streaming SaaS capabilities to the party. And it's continuing to be pretty fun and exciting to work on.

And how has the size of the typical SaaS engagement changed over the last year? Are you getting larger initial deal sizes or are these deal sizes growing over time as that ad element comes in and the customer ramps?

Well, it's all of the above. On one hand, definitely part of the growing pipeline includes bigger deals than we've had before. And I'd say that end of the spectrum is bigger. At the same time, though, as our brand becomes stronger, we're kind of doing a better job of addressing what I'd call the long tail. You know, in an aggregate, particularly when you think about contact generation worldwide, there's a lot of opportunity under that long tail. So, you know, through Salesforce investments that Sanjay mentioned, through new channel development as well as direct sales, we're trying to go after both ends of the spectrum. And we're seeing more success on both ends of the spectrum, both the bigger deals and the smaller. Thinking about the ad stuff in particular, I'd say their most impressive so far has been Some of the maturation of that stuff, maybe maturation is too far along, but some of the development of that with some of the larger engagements that we have, particularly in North America. So engagements with larger media companies who perhaps have more mature advertising models is where we're seeing some very encouraging uptick there. And hence, we're increasingly optimistic about that targeted ad model getting more traction with the other large ones as well as the longer tail that I mentioned a moment ago.

Great. And then on capable OS, now that it's the market starting to mature and you have such a strong reputation in the market, do you have any more visibility into those that haven't launched into kind of the velocity of their launch once they get started? Um,

I think it's improving. It's still work in progress, but it's still improving, particularly a large Tier 1. Every one of them has their own kind of unique environment, operating paradigms, et cetera. So, you know, I think there is no such thing as a turnkey, you know, 15-day Tier 1 turn-up. That being said, we are getting better. We're getting more sophisticated. I think our lab integration field service professional services teams are excellent. I think it's a big part of the value we're bringing to the party now. It's not only the technology but the know-how, and that's serving us well. But to be clear, it's still heavy lifting, and that's okay. I mean, these are, you know, we're all broadband customers, so the fact that our consumers, I mean, the fact that our customers are taking it carefully, they're triple-checking everything to make sure the service is fully robust, et cetera, et cetera, it makes complete sense. But we're seeing good progress, and I think you're seeing that show up in our numbers.

Great. It's a tremendous quarter, so congratulations, and I look forward to the back half of the year.

All right. Well, thank you very much, Steve. We appreciate it.

Showing no further question at this time, I would like to turn the conference back to CEO Patrick Harshman for closing remarks.

Okay. Well, thank you all for joining us today. We've had a strong quarter. The outlook is strong. We're executing the plan we've discussed. We're excited about our business. We're encouraged by the market conditions. And we look forward to continuing to make progress and continue to communicate with you. So we look forward to talking with you all next time. Until then, have a good day. Great. Thank you all. Bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and have a wonderful day. You may all disconnect.