Harmonic Inc.

Welcome to the Q1 2022 Harmonic Earnings Conference call. My name is Valerie, and I'll be your operator on today's call. At this time, all participants are in listen-only mode. After the speaker's presentations, there will be a question and answer session. To ask a question at that time, please press star then 1 on your touchtone 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 Harmonix First Quarter 2022 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 going to slide two. During this call, we will provide projections and other forward-looking statements regarding future events or future financial performance of a 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, 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 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 this 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 Harchman. Patrick?

Well, thanks, David, and welcome, everyone, to our first quarter call. During the first quarter of 2022, Harmonic carried forward the strong business momentum we achieved in 2021. Revenue was up 32% year-over-year to $147.4 million. EPS was $0.08, and book-to-bill was $1.4. all of which drove further growth of our backlog and deferred revenue to a record level at quarter end. Among the business highlights enabling these corporate results were cable access segment revenue growth of 98%, video segment SaaS revenue growth of 75% year-over-year, and solid bottom-line contributions from both segments. The robust demand we continue to see for our solutions and our consistent execution despite significant supply chain and global geopolitical challenges make a strong statement about the health and management of our business and our confidence in delivering sustained market leadership, growth, and value creation for our customers and stockholders as we continue in 2022 and beyond. Taking a closer look at our cable access segment, we delivered another exceptional quarter. Segment revenue was up 98% year-over-year. By quarter end, 77 broadband service providers were deploying our cable OS, 45 percent year-over-year, and broadband modems served grew to 6.1 million, up 100 percent year-over-year, and still only about 10 percent of the currently addressable footprint defined by our wins to date. As Sanjay will discuss momentarily, adjusted segment EBITDA margin was approximately 12 percent, an impressive result considering persistent supply chain cost and capacity headwinds. Despite these challenges, overall market conditions were trending favorably for our broadband access business. Consumer and enterprise demand for broadband capacity is strong and growing. And competition between broadband service providers is heating up worldwide. Against this market backdrop, our competitive position has never been stronger. The distributed architectures we invented have become a de facto industry standard. It's becoming clearer that our continuing technology advances spanning cloud native software and digital hardware are way out in front of the competition. Consequently, demand for our end-to-end systems, encompassing software and hardware, continues to exceed previous expectations. Looking ahead to the remainder of 2022, we anticipate existing customers will continue to aggressively scale, and of course, we will also remain very focused on winning new accounts, both large and small. While multi-gigabit DOCSIS-based services remain the foundation of the business, we're increasingly bullish about our fiber-to-the-home opportunity. We have successfully launched Fiber to the Home with several smaller customers. We're making good progress qualifying our solution with Tier 1 accounts. At last week's CableLabs 10G showcase in Denver, we wowed attendees with our latest cloud-native platform developments, demonstrating DOCSIS 4.0 reaching 8.5 gigabits per second downstream and 5 gigabits per second upstream. We also showcased converged multi-gigabit DOCSIS 3.1 and symmetric 10-gig Fiber to the Home services, deployed through our CableOS Ripple outdoor node platform. A unique harmonic capability illustrating both the strategic value in widely deploying our outdoor node platforms and, through our innovations, the cable industry's ability to compete effectively with competitive fiber offerings. Putting it all together, we remain confident that our broadband access business is uniquely positioned for strong, profitable growth for the foreseeable future. And to be clear, this positive outlook incorporates what we know about the Russian war in Ukraine. We anticipate no sales of broadband access systems in Russia, and our updated guidance contemplates continued disruption and possibly additional expense associated with our personnel in Ukraine, a subset of our global R&D team. Looking beyond 2022, we now forecast that 2024 top-line revenue, EBITDA dollars, and EBITDA percentage for the broadband access segment will be ahead of the plan we communicated to you during our investor day in June last year. We're planning another investor day in the coming months, during which time we will further flesh out this multi-year update. In the meantime, we're excited about the broadband market and demand trends we see, and we're fully focused on execution in 2022. Turning now to our video segments. Here, we also delivered a solid quarter and start to the fiscal year. First quarter segment revenue was $65.8 million, down 6.4 percent year-over-year, while segment gross margin was 58.8 percent, up 370 basis points year-over-year, resulting in approximately flat segment gross profit. We achieved strong streaming SaaS revenue growth for the quarter, up 75 percent year-over-year, which was offset by expected slowly declining legacy video plan sales. As a reminder, In June last year, we also laid out our multi-year video business strategic plan, similar to what we did for our cable access business. Our video plan has two core elements, taking a leading position in the growing streaming SaaS market, particularly for live sports, and maximizing revenue and profit from the declining video plans broadcast one. Our first quarter results highlight continuing execution of this plan. On the broadcast appliance side of the business, demand and outlook continues largely as anticipated. In contrast to our broadband access business, we have historically sold video appliances and related services in Russia. And now as a result of the war in Ukraine, we anticipate losing approximately $6 million of previously forecasted Russian video business during 2022. Fortunately, we expect this Russia gap to be largely filled by video appliance and streaming SaaS upside in other parts of the world that we're seeing stronger than originally forecast demand. Streaming SaaS upside in the coming quarters is due in part to a major new sports-driven win during the first quarter with a Tier 1 streaming media company, as well as continued expansion of live streaming sports delivery for customers that have already launched. During the quarter, we set several new internal records for live content delivered and advertisements inserted, and our reputation for enabling best-in-class live streaming continues to grow. Looking ahead, we remain confident that our transformation in video to streaming SaaS is working. Considering our strong first quarter start and our above sales pipeline, we expect our streaming SaaS revenue to grow over 50% again in 2022. We remain on track to achieve the 2024 streaming SaaS targets we laid out for you in our investor day last year. In summary for our video segment, continued profitability, gross margin expansion, and streaming SaaS growth all point to a successful transformation and value creation story. With that, I'll turn it over to you now, Sanjay, for a closer look at our financial results and outlook.