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.