Harmonic Inc.

Welcome to the Q4 2021 Harmonic Earnings Conference call. My name is Valerie, and I'll be your operator for today's call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question at that time, please press star then 1 on your telephone. Please note that this conference is being recorded. I will now 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 Harmonic's fourth 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 the 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 files at the SEC, including our most recent 10Q and 10K reports in 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 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 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?

Well, thanks, David, and welcome, everyone, to our fourth quarter call. Harmonic capped a strong 2021 with another quarter of excellent financial and strategic results. Revenue was a record $155.8 million of 18.5% year-over-year. EPS was 16 cents. Cash generation was strong. And book-to-bill was 1.7, resulting in record backlog in deferred revenue of over $440 million. Full-year revenue grew over 33% as both our cable access and video segments continued to invest in the future and secure new strategic wins while also delivering positive operating income. Fourth quarter cable access segment revenue grew 53% as the number of customers deploying cable OS grew 66% year-over-year. Our video segment delivered strong year-over-year streaming revenue growth, 56.5%, and adjusted EBITDA margin of 19.8%. These 2021 results and our 2022 outlook demonstrate that execution of the multi-U.S. strategic and financial plans we shared with you in our June investor days remain firmly on track, despite continuing pandemic and supply chain headwinds. We're entering 2022 with truly industry-leading technology, strong market momentum, new customers actively deploying our latest solutions, record backlog in deferred revenue, and a solid cash position. a great foundation for extending our solutions, market impact, and growth. So looking now more closely at our cable access segment, it was another very good quarter and a very strong year. By quarter end, 73 broadband service providers were deploying our cable OS of 66% year-over-year. Broadband modem served grew to 4.8 million of 82% year-over-year. Segment revenue was $69.7 million, 53% from a year ago, and adjusted EBITDA margin was 9.6%, despite ongoing supply chain headwinds, which impacted both top-line and gross margins. In December, we announced Rogers' selection of harmonic and cable OS to power the company's next-generation multi-gigabit broadband services. Rogers is a true market leader, and this high-profile win further validates our technology leadership and significantly expands our market position in North America. Looking ahead, we have a strong pipeline of demand from existing customers who are already deploying cable OS, newer customers such as Rogers, who are still in the early stages of scaling up deployment, and customers that we're still working to convert to our platform. Existing cable customers seeking to secure supply well into 2022 drove the lion's share of our very strong fourth quarter bookings. However, newer customers and new software and service applications are a growing part of the demand story. We're particularly encouraged by the progress we're seeing with the fiber-to-the-home application of our cable OS solution. Q4 was a strong quarter for new fiber-to-the-home wins, spanning existing cable customers, new cable customers, and new rural telco customers who have no cable infrastructure. Supporting these wins, we also began shipping our new 60-gig remote switch during the quarter. We continue to see fiber-to-the-home as a competitive multiplier within cable accounts, where our integrated hybrid DOCSIS plus fiber-to-the-home solution is both powerful and unique. Validating this value proposition, we're making good progress qualifying our fiber-to-the-home solution with a couple of Tier 1 cable operators. We also see fiber-to-the-home as a means of significantly expanding our addressed market. Our recent non-cable operator wins highlight the still-developing market expansion opportunity We're correspondingly broadening our fiber-to-the-home go-to-market investments in 2022. Overall, for 2022, we see a strong demand environment for both our software and, more than previously anticipated, our hardware DA nodes and modules. And this is important because it demonstrates that our end-to-end solution leadership and market share continue to grow. That said, we're also continuing to contend with supply chain challenges which means that our current outlook for 2022 is supply constrained and burdened by exceptionally high costs. Despite these challenges, we remain confident in our ability to continue to deliver on our multi-year top line and income growth targets. Specifically, we continue to see greater than $2 billion of addressable market and a clear path for us to leverage our cloud native and DAA technology to be number one in cable broadband and to expand into attractive adjacent applications. The technology, marketplace, and financial progress achieved in 2021 and our strong sales pipeline of both cable and fiber-to-the-home opportunities demonstrate that we're on track to meet or exceed our broadband access growth objectives. Turning now to our video segment. Here also, we delivered a solid quarter, capping a year of strong financial and strategic achievement. Fourth quarter segment revenue was $86.1 million, up 25% sequentially and flat year-over-year. Segment gross margin was 58.8%, up 260 basis points year-over-year. Full-year video segment revenue grew 18.5%, and full-year adjusted EBITDA was 12.6%, driven by both stronger-than-anticipated traditional broadcast application demand and excellent progress with a strategic push into streaming. Streaming revenue for the year, encompassing SaaS and perpetual license sales, was $48.5 million, up 56.5% year-over-year. As a reminder, in June last year, we laid out our multi-year video business strategic plan. Our video plan has two core elements, taking a leading position in the growing streaming infrastructure market and maximizing revenue and profit from the large but slowly declining video broadcast market. Our 2021 results highlight strong execution of both elements of this plan. On the broadcast side of the business, higher than anticipated revenue demonstrates that the global broadcast market still has a lot of life left, and that we're capable of profitably taking a growing share of this business. Although we don't expect the surge of broadcast appliance demand we saw in 2021 to fully repeat itself in 2022, we see good opportunity to continue to profitably leverage the broadcast market for several years to come as we continue to transform and grow our streaming SaaS business. And on the streaming SaaS side of the business, our investments have translated into a growing number of new accounts and a sustainable growth trajectory. On our third quarter call, we highlighted new streaming SaaS design wins with several Tier 1 media companies. And during the fourth quarter, we saw a corresponding growing number of new services launched on our streaming platforms. By year end, we were delivering over 2,500 live sporting events per month on our VOS360 SaaS. Associated with growing adoption and usage by Tier 1 customers, we're seeing growing volume associated with major U.S. and international sports leagues and high-profile events like the upcoming Olympic Games. big-time content with big-time quality of service and target advertising requirements that enable our solution to really scale and shine. Looking ahead, we believe our ongoing streaming platform investments will continue to translate into growth with market-leading content donors and streaming service providers, particularly for high-value live sports. Consequently, we expect our streaming SaaS revenue to again grow over 50 percent in 2022. and we remain firmly on track to achieve over $100 million streaming revenue by 2024, of which we expect at least two-thirds to be SaaS, as we laid out for you in our June 2021 investor day. In summary for our video segment, we delivered an exceptionally strong 2021, and we remain on track to attain the multiyear strategic transformation and financial performance targets we've set for ourselves, creating an increasingly differentiated and valuable video streaming business. So now over to you, Sanjay, for a closer look at the financial results and outlook.