Harmonic Inc.

Welcome to the Q3 2021 Harmonic Earnings Conference Call. My name is Tawanda, 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 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 note that today's conference is being recorded. If you require any further assistance, please press star then 0. I would now like to turn the call over to David Hanover, Investor Relations. David, you may begin.

Thank you, Operator. Hello, everyone, and thank you for joining us today for Harmonix Third Quarter 2021 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 or future financial performance of the company. Such statements are only current expectations and actual events or results may differ in material. We refer you to documents harmonic files at 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 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 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 Horschman. Patrick? Patrick Horschman All right.

Thank you, David, and welcome, everyone, to our third-quarter call. Harmonic delivered another quarter of strong financial and strategic results with 33 percent year-over-year revenue growth and 9 cents EPS. Both our cable access and video segments, again, contributed materially, each with double-digit revenue growth, positive operating income, and important strategic progress. Our cable access business delivered 43% top line growth, and the number of customers deploying cable OS grew 79% year over year. Our video business was up 26% year over year, with streaming SaaS revenue up 69% year over year. These results demonstrate continuing strong market momentum for our company, driven by our newest products and services. The combination of this momentum, our near record backlog and deferred revenue, and an increasingly robust cash position provide a strong foundation for continued growth through the balance of this year and into 2022. Looking now more closely at our cable access segment, it was another record quarter. Segment revenue was $57.6 million, up 43% from a year ago, as 68 operators were deploying our cableOS cable and fiber solution worldwide, up 79% from the third quarter of 2020. This updated end of quarter customer count includes one new international tier one operator. At quarter end, these ongoing deployments had scaled to serve over 3.9 million cable modems, up 77% year over year. As Sanjay will address in more detail, the quarter was also characterized by continuing higher supply chain costs, particularly for industry-leading DAA nodes. It's a very tough environment, and we're proud of the job our supply chain team is doing to keep our node platforms flowing and our customers' programs on track. As most of you know, we established our market-leading position in virtualized cable broadband by investing in R&D, innovating, and collaborating with like-minded customers. Our commitment to continuing to invest and innovate was on full display during the third quarter. In the Fiber to the Home arena, We introduced a significant new enhancement to our fiber-to-the-home solution targeted specifically at the rural market. We also closed several new fiber-to-the-home wins and made encouraging progress getting our fiber-to-the-home solution qualified by a couple of targeted larger operators. Back in the broadband over cable realm, we leveraged our unique software foundation to introduce a new solution we call Mac Anywhere, further extending and solidifying our leadership position in distributed access networks. We also work closely with an innovative customer to demonstrate groundbreaking progress on a DOCSIS 4.0 solution that's way ahead of the rest of the market, with our converged software core again being the key to our agility and time-to-market advantage. And finally, again leveraging our cloud-native core platform, we announced really innovative work done with Google to integrate their Google Cloud Marketplace with our cable OS. This solution enables operators to leverage CableOS to deploy new, revenue-generating cloud services at the cable network edge, a truly unique advantage Harmonic has in the marketplace, and an opportunity we aim to exploit further as the cloud edge market develops. A summarizing for our cable access business, I want to remind you that in 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. The technology, marketplace, and financial progress we've since achieved, our strong sales pipeline of Tier 1 and smaller operator engagements, and our Q4 guidance, which implies approximately 59% year-over-year growth in 2021, all demonstrate that we remain firmly on track to deliver on our growth vision. Turning now to our video segment, here also we delivered another very solid quarter. Third quarter segment revenue was $68.7 million, up 26% year-over-year, and segment gross margin was 61.9%, a new record for this business and further evidence of our transformation to a more software and service-centric business model. Recurring streaming SaaS revenue grew 69% year-over-year. driven principally by expanding existing customer usage and aided by new customer additions. As with our cable access business, in June we laid out our multi-year video business strategic plan. This plan has two core elements, taking a leading position in the growing billion-dollar streaming infrastructure market and maximizing revenue and profit from the larger but slowly declining video broadcast market. On the streaming SaaS side of things, 69% revenue growth reflects good progress both domestically and internationally. Overseas, during the third quarter and early in the current fourth quarter, we secured new streaming SaaS design wins with several tier one media companies. These important new wins are still in the process of launching, creating a healthy pipeline for continued SaaS revenue growth. Domestically, in addition to scaling our SaaS business with several larger media customers, we announced a new partnership with Jackson Energy Authority to provide a fully hosted video streaming solution, branded E-Plus Premier, for smaller and rural cable, broadband, and telecommunications providers. This solution supports a host of advanced capabilities, including targeted ad delivery, enabling smaller operators to stay competitive. We already have several operators on the platform and see this as an important expansion of our addressed market. Regarding the second element of our video strategic plan, we continue to see a resurgence in broadcast project activity globally, including growing momentum for an investment cycle in moving video transport from satellite to terrestrial IP networks. We recently won our first multimillion dollar North America satellite to IP fiber transformation project that was driven by operating efficiency and not by FCC mandate and funding. We believe this kind of transformation will be a growing trend globally, one that we're well-positioned to capitalize on through our new software-based XOS platform. In summary, for our video business, we delivered another strong quarter, characterized by solid revenue growth, gross margin expansion, operating profit, and new wins. The video sales pipeline and outlook for the remainder of the year remain positive, and looking further ahead, we continue to be confident in our ability to deliver on our multi-year strategy. With that, I'll now turn the call over to you, Sanjay, for a closer look at our financial results and outlook.