Harmonic Inc.

Welcome to the Q4 in full year 2022 Harmonic Earnings Conference call. My name is Lateef, and I will be your operator for today's call. At this time, all participants are in a listen-only mode after the speaker presentation. There will be a question and answer session. To ask a question during the session, you will need to press star 1 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 and full year 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 going 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 our 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 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 Harchman. Patrick?

Well, thanks, David, and welcome, everyone, to our fourth quarter call. In the fourth quarter, Harmonic closed out 2022 with another period of excellent results. Revenue was a record $164 million. EPS was 17 cents, and adjusted EBITDA margin was over 16%, as both business segments were, again, solidly profitable. Our broadband segment grew revenue 38% year-over-year and contributed EBITDA margin of 21%. Video segment transformation continues, with fourth quarter SaaS revenue of 51% year-over-year and segment EBITDA margin over 9%. This impressive fourth quarter and full-year results demonstrate the tremendous market success and execution momentum we're carrying into 2023. We're entering the year with strong demand, unique technology, and competitive differentiation. and continuing confidence in our ability to deliver on the multi-year growth plan we outlined in our September 2022 analyst day. Taking a closer look first at our broadband segment, we again delivered excellent financial results that reflect both a healthy broadband market and expanding breadth and depth of our technology leadership position. Segment revenue is $96 million of 4% sequentially and 38% year-over-year. Segment gross margin was over 47%. An adjusted segment EBITDA margin was 21%, demonstrating consistently improving operating leverage. Sensing the worst of the supply chain disruption risks are behind us, some customers slowed orders as a step towards normalizing advanced purchase lead times. Nonetheless, we again exited the quarter with near-record backlog and deferred revenue. Our sustained broadband growth is a result of both a robust end market and strong go-to-market and project execution. The quarter-end modem served grew to $15.2 million, up 218% year-over-year, and we again added several new customers during the quarter, bringing the number deploying our solution to 91, up 25% year-over-year. Among these new wins is our first Asia-Pacific Tier 1 operator, an account we expect to begin to scale in 2023. Looking ahead, we're confident about both our 2023 and multi-year growth prospects. Our global pipeline of new account relationships is excellent, aided by growing industry recognition of our technology and deployment execution leadership. Two areas of rapidly expanding leadership to highlight are DOCSIS 4.0 and fiber on demand. In the DOCSIS 4.0 area, we've made great strides with both variants of the standard ESD and FDX, and we're actively supporting our customers in advanced demonstrations and trials of these technologies. In the fiber area, our converged PON plus DOCSIS solution is unique, in gaining increasing recognition from both existing and prospective customers as a powerful competitive advantage. Although we only recorded modest fiber revenue in 2022, we're entering 2023 with several new design wins, good order backlog, and a trajectory that is in line with our 2025 fiber growth target. Regarding 2023 more generally, the full-year growth outlook that Sanjay will share momentarily is supported by our year-end backlog, deferred revenue, and the existing plans of our current customers, with only very modest contribution assumed from new accounts. To be clear, we're confident about winning new accounts in 2023, both large and small. And for now, we're conservatively assuming these new wins would drive significant revenue and growth starting in 2024 and beyond, supporting our multi-year growth targets. As a reminder, in our mid-September analyst day, we laid out an aggressive three-year growth plan that calls for over $820 million of revenue and 28% EBITDA margin in 2025. As we close a very successful 2022 and head into 2023, we're pleased with our continued financial execution, we're excited about our increasingly strong technology and leadership position in the market, and we're confident in our ability to continue to execute our overall strategic plan. Turning now to our video segment, here also we delivered an excellent quarter. Fourth quarter segment revenue was $68.3 million, up 7% sequentially, although down 21% year over year when compared to an extraordinarily strong fourth quarter in 2021. Staff transformation execution continues to be the highlight, with record quarterly revenue of $10.5 million, up 51% year over year. As a result, quarterly gross margin was 59.9%, also up year over year, and adjusted segment EBITDA margin was over 9%. Full-year segment gross profit and adjusted EBITDA margin finished ahead of the guidance we provided at the beginning of the year, despite the loss of business in Russia and Ukraine, an encouraging result. As you will recall from our September Analyst Day, our video business strategy has two pillars, taking a leading position in the growing streaming SaaS market, particularly for live sports, and maximizing profit from the traditional video appliance market, with a financial focus on gross profit and EBITDA. Our full year 2022 results are fully in line with our longer range projections and support our continued confidence in the execution of this plan. Our streaming SaaS growth was again driven principally by larger media accounts expanding their consumer footprints and live sports content rights, and correspondingly expanding consumption of our service. The World Cup was a notable international success in the fourth quarter, and SaaS usage exceeded our expectations, and feedback on the quality of service we delivered was excellent. During the quarter, we also again secured several new SaaS contracts, including for Blue Chip North America support services that will launch later this year. We continue to see live sports streaming, and the movement of legacy broadcast workflows to the cloud is attractive and growing opportunities. And with our recent successes, our brand and technology leadership in high-quality streaming is strengthened. While SaaS transformation continues to be the headline, our video appliance sales pipeline remains solid, including in Europe, where we're pleased to say we're not seeing an impact from macroeconomic headlines. Putting it all together, we remain confident that our transformation in video to consumption-driven streaming SaaS is working, and that we're on track to achieve the targets we laid out for you in our September analyst day. As a reminder, this plan calls for greater than 45% compounded annual SaaS growth through 2025. consistent profitability, and return to mid-teens if it does segment margin. Our full year 2022 video segment results, the high-profile streaming services we're now powering, and the new wins we've recently secured, and our full year 2023 guidance all demonstrate we remain on track to achieve these objectives. With that, Sanjay, let me turn it over to you for further discussion of our results and our outlook.