Harmonic Inc.

Welcome to the Q3 2022 Harmonic Earnings Conference call. My name is Jonathan, and I will be your operator for today's call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that time, please press star 1-1 on your telephone. Please note that this conference is being recorded. And now I'd 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's third 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 the audio portion of the webcast, we've also provided slides for this webcast, which you may view 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, 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 have 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?

Well, thanks, David, and welcome, everyone, to our third quarter call. In the third quarter of 2022, Harmonic again delivered excellent business results. Revenue was up 23% year-over-year. New bookings were up 50%. EPS was $0.13, and adjusted EBITDA margin was 13.5%. Both business segments were again solidly profitable and had booked a bill greater than one. The cable access segment, which we have recently renamed broadband, continues to deliver strong top-line growth with revenue up 60% year-over-year. Video segment revenue transformation continues with SAS revenue up 64% year-over-year. In mid-September, we updated you on key market trends, our strategy, and our enhanced three-year financial model. Our third quarter results released today further highlight the key points in that presentation and support our confidence in our growth plan. We see robust demand for multi-gigabit broadband and live streaming video. Our associated products and services are winning in the marketplace, and our focused business execution remains resilient, despite accurate economic headwinds. Taking a closer look now at our broadband segment, we delivered strong financial results and further solidified our technology leadership and growth opportunity outlook. Segment revenue was $91.9 million, up 13% sequentially and 60% year-over-year. Segment gross margin rebounded to 45%. An adjusted segment EBITDA margin was 18.4%, demonstrating consistently improving leverage as the business scales. New orders were also strong, contributing to near-record backlog and deferred revenue. This sustained growth reflects both a robust broadband market and our strong execution. At quarter end, consumer modem served grew to 10.9 million, up 179% year-over-year, still less than 20% of our existing customers' DOCSIS footprint. We had several new customers during the quarter, bringing the number of customers actively deploying our solution to 85, up 25% year-over-year. And we secured an important new DOCSIS DAA win with an international Tier 1. We're also making excellent progress with several Tier 1s who have not yet selected. Aiding us in winning over these new accounts are two increasingly compelling technology advantages. First, there's growing industry consensus that the particular variant of DAA we pioneered with Comcast and other early customers, that is virtualized CMTS paired with remote PHY nodes, is the most architecturally advantageous and market-proven solution, and consequently the best way to go. Obviously, this growing consensus is good news for us, considering the huge technology and deployment expertise lead we have in virtualized CMTS and remote PHY. Our second unique advantage, which is increasingly resonating with prospective customers, is the way our fiber-to-the-home pond solution is seamlessly converged and integrated in both software and hardware with our DAA DOCSIS solution. As competition from fiber-based service providers continues to intensify, a multi-pronged solution that incorporates fiber-on-demand capability is becoming a must-have for our customers. Emphasizing this point, another highlight of the quarter significant new fiber win with an existing Tier 1 international cable customer, punctuated by an initial multimillion-dollar purchase order. Complementing our fiber solution, we've also been investing heavily in new DOCSIS 4.0 capability, and believe that here again, we are the industry technology leader, which puts us in an excellent position to benefit as demand for DOCSIS 4.0 commences in late 2023 and 2024. Putting it all together, our unique combination of DOCSIS 3.1 DAA, DOCSIS 4.0 DAA, and 10G fiber, all managed through common Cloud Native Core software and analytics, is simply the right solution at the right time, provided only by our company. Those of you who had the opportunity to visit the cable industry's premier technology conference in September in Philadelphia saw all of this on display and the tremendous feedback we received from both existing and prospective customers. We left the event feeling even more upbeat about the outlook for our business over the next several years. Referring back to our mid-September analyst day, we laid out an aggressive three-year growth plan that calls for over $800 million of revenue and 28% EBITDA margin in 2025. As we head into the final quarter of 2022 and begin looking ahead to 2023, we remain confident in our ability to deliver on this target and excited about the impact we're having on the global broadband market.