Harmonic Inc.

2024 Harmonix Earnings Conference call. My name is Victor and I'll 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 a question during the session, you will need to press Star 101 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press Star 101 again. 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 2024 Financial Results Conference Call. With me today are Nimrod Ben-Latan, President and CEO, and Walter Jankovic, 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 Industrial 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 made different materially. We refer you to documents 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 gap numbers and a reconciliation gap, 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, Nimrod Ben-Natan. Nimrod?

Thanks, David. And welcome, everyone, to our fourth quarter earnings call. I'd like to start today with an update on how we're executing on our long-term growth plans. First, regarding our 2024 commitments, we delivered all-time record fourth quarter and full-year 2024 results with strong growth in our broadband segment, driven by our growing leadership in DOCSIS 4.0 technology and our increasing market share. At the same time, we return our video segment to profitability, underscoring our operational focus. Next, as we look into 2025, we're navigating an industry-wide transition to Unified DOCSIS 4.0. While this change is expected to result in a below-trend year for broadband revenue due to the timing of the rollout and ecosystem dependencies, our technology leadership position in Unified DOCSIS 4.0 remains clear. Despite the anticipated short-term headwinds in broadband during 2025, we expect our robust operating model to continue to generate strong cash flow. At the same time, we've also set the stage for enhanced shareholder returns with a new $200 million three-year share repurchase program. Looking ahead to 2026 and beyond, we anticipate a return to above-trend growth driven by the full implementation of Unified DOCSIS 4.0 and ongoing customer ramp-ups. This trend has also been noted recently in an analyst report from Deloro, reinforcing our positive long-term outlook, and I will expand on that shortly. Let's now move to slide number five, our 2024 highlights. 2024 was a record year, and I would like to highlight four key achievements that set the stage for our future success. we demonstrated a strong ability to ramp up our operations in both the third and the fourth quarter, positioning us very well for future growth. Second, we successfully delivered on our expectation for both the fourth quarter and the full year of 24 with a growing footprint of DOCSIS 4.0 and fiber deployments. Third, In the fourth quarter, we saw strong revenue growth in our broadband rest of world customer base, exceeding 50% compared to the prior quarter. And we also added five new customers during the quarter. And finally, our video streaming SaaS segment is poised for growth, thanks in part to the momentum provided by our collaboration with Akamai that we announced earlier today. These highlights from 2024 underscore our strong performance and show how we have built a solid foundation for the next phase of our journey. Before we dive into our broadband update, I would like to start today with a big picture view of this business. We are recognized as a clear leader in next generation cable access technologies, driven by a proven track record of innovation and successful execution over multiple years. Serving the world's largest operators has helped us secure a leading market share, underscoring the trust and confidence our customers demonstrate in our innovative solutions. So even with the near-term industry-wide challenges in 2025, the overall growth trajectory for broadband remains positive. We are guiding 2025 forecasts prudently, taking into account these near-term factors and positioning ourselves to capitalize on market momentum in 2026 and beyond. Ultimately, our expertise, track record, and strategic approach reinforce why we're well prepared to remain a leader in the evolving broadband landscape. The broadband industry is at the pivotal turning point. Service providers are facing increasing competition from telco and fixed wireless access providers. challenging both their market share and convergence opportunities. To stay ahead, operators must modernize their networks with DAA and virtualized CMTS. These technologies drive business growth by improving network reliability, enhancing downstream and upstream speeds, lowering operating costs, reducing latency, and ensuring fiber optionality. Harmonic is at the forefront of this transition, helping our customers future-proof their network for constantly changing consumer demands. Beyond competition from other service providers, cable operators must also contend with an ever-growing demand for bandwidth and higher expectations for subscribers' quality of experience. The surge in live sports streaming, major gaming releases, and AI-driven applications and agents are prompting operators to accelerate network evolution towards a modern virtualized platform, combining advanced DOCSIS with targeted fiber optionality where necessary. Unified DOCSIS 4.0 offers a major upgrade opportunity for cable broadband networks, unlocking a range of symmetrical speed boosts that put cable on par with fiber operators. In addition, advanced capabilities like low latency and AI powered by new unified silicon help operators stay one step ahead in an increasingly competitive market. At Harmonic, we are collaborating closely with our customers to optimize migration strategies tailored for each network's unique requirements and service goals. Fiber optionality has always been a core element of our platform strategy. We designed our broadband solutions so that operators can easily add fiber services no matter their network topology or architecture, by leveraging the COS platform and remote devices. This approach not only ensures flexibility, but also delivers significant financial and operational benefits. A key differentiator of COS is its ability to power both fiber and DOCSIS technologies simultaneously within the same network. This capability accelerates the evolution to fiber in existing footprints while enabling a smooth shift to fiber-focused expansion. Our customers are finding it a highly effective way to modernize and future-proof their broadband networks. Let's now move to slide 11, our broadband vision, which is centered on accelerating the adoption of next-generation virtualized broadband networks by leveraging both DOCSIS and fiber technologies we aim to deliver unparalleled speed, reliability, and operational simplicity. This vision is perfectly aligned with our customers' priorities, equipping them with the services and tools they need to better drive growth and stay ahead in an ever-evolving competitive market landscape. Now, I would like to review the outlook for the cable broadband market according to a recent analyst report from Deloro. First, Let's look at the dark blue line, which represents the virtual CMTS and DAA market. You will see it climb steadily over time and captures nearly the majority of the total broadband cable market by 2028 when it reaches nearly $1.2 billion. This clearly shows the industry's shift towards virtualized and distributed access architecture. Second, even with the strong long-term outlook, This report recognizes that there are some headwinds in 2025. These are driven primarily by operator readiness and the transition to unified DOCSIS 4.0. As a result, we see a slight dip or plateau in spending while providers prepare for the next major technology upgrade. Third, these short-term ups and downs are not unusual. The chart highlights similar cycles in the past, especially during previous DOCSIS technology transitions, while clearly illustrating the market's long-term growth trajectory. Finally, even with the expected 2025 pause, the overall average CAGR for the virtual CMTS DAA market from 23 to 2028 is around 13%, a solid double-digit growth rate that underscores the growth opportunity of virtualized and distributed access solutions. Turning to slide 13, the broadband's strategic imperatives are built around four key areas, customer diversification, technology leadership, fiber growth, and cloud services. Let's start with customer diversification. Our focus here is on expanding revenue beyond our top two customers. In the rest of the world market, we saw a fourth quarter revenue grow by over 50% compared to the previous quarter. We also secured five new wins, including significant deals with BlueStream Fiber in the US and EPCO in the EMEA region. To help our customers speed up the rollout of the new DOCSIS technology, we are now offering our customers expanded professional services to help them more quickly operationalize their next generation broadband infrastructure. Looking ahead, we expect the rest of world segment to deliver even more substantial growth in 2025 as we win new accounts and see them expand the scope of their engagement with Harmonic. Now let's talk about technology leadership. We're making significant strides with the rollout of DOCSIS 4.0, which features a unified core and supports both full duplex and FDD through our new unified remote devices. Our COS platform plays a critical role by seamlessly orchestrating all formats of DOCSIS and fiber, plus our differentiated fiber offering, including our open ONU, high-density and versatile OLTs, and virtual platform, ensures we remain ahead of the curve in innovation and market demand. Moving on to fiber growth, our strategy is to help our cable customers migrate cost-effectively and expand into fiber. Over 30% of our current DOCSIS customers are now purchasing our fiber solution, which validates our fiber optionality product strategy and positions us for future growth as they expand their fiber footprint. Looking forward, we see significant opportunity from our second generation remote switch, the JD2, which is forward compatible with 25GS PON and is now available and shipping imminently. This module is compatible with our deployed base of nodes as well as a wide range of third party nodes. Additionally, a previously announced LATAM tier one operator launched our high density PEL remote OLT into production, leveraging their existing DOCSIS network and outdoor nodes. They use our solution to deliver GPON and DOCSIS for residential applications while seeding their footprint with 10 GPON to address competitive pressure and enterprise opportunities. Finally, I want to highlight our cloud services, which provides our customers with network insights and telemetry to improve network reliability and subscriber satisfaction. This offering also includes our edge compute functions, such as the beacon speed maximizer, which is now rolling out. In 2024, we achieved a 47% year-over-year revenue growth with our cloud offerings. This robust performance underscores the strengths and scalability of our cloud strategy and we will continue expanding the services and capabilities offered by our cloud services. Turning to slide 14, I would like to share our video market update. Traditionally, broadcast workflows ran on dedicated appliances. while streaming dependent on the cloud for flexibility and scalability. Now those lines are blaring. Broadcasters are moving some channels to the cloud for disaster recovery and pop-ups, and streaming providers want broadcast-like reliability and sometimes bring workflows on-prem to manage cost. Although the cloud can be expensive for constant use and requires specific expertise, it's great for occasional events. offers lower upfront costs and lets you spin up new technology quickly. That's why we're seeing a great demand for hybrid solutions. Keep core channels on-prem while moving additional or short-term workloads to the cloud. This demand for hybrid works well for us as Harmonic excels at both. We have deep experience with broadcast appliances and a robust cloud native platform. Our hybrid solutions give customers the best of both worlds, providing seamless migration between on-prem and cloud while meeting broadcast standards in any environment. Turning to slide 15, let's look at our two strategic imperatives for our video business, appliance profitability and SaaS transformation. On the appliance side, we're executing with clear focus on our core XOS and Spectrum product lines. We're innovating around them to enable more functional consolidation, greater scalability, and advanced use cases. This concentrated approach is already showing results. Our pipeline of larger deals in the fourth quarter of 2024 and into 2025 is growing, and we're entering 2025 with an improved backlog. Turning to the SaaS streaming, We're continuing to see strong momentum and are taking steps to increase this even further. We just announced a notable partnership with Akamai for video streaming and our fourth quarter SAS revenue stands at $15.1 million. We expect further growth in 2025 with the real impact of these sales efforts ramping into 2026 as recurring revenue builds over time. Overall, These two pillars, appliance profitability and SaaS transformation, are working together to create strong operating leverage and position us for sustained success as we move forward. Now, let me turn it over to Walter for a deeper discussion of our financial results and outlook.