HARMONIC INC. Q3 FY2024 earnings call

• Broadband Progress: Record total revenue and adjusted EBITDA, exceeding guidance. Strong execution on key initiatives, including growth in cOS deployments, new customer acquisitions, and fiber-to-the-home momentum. Unified DOCSIS 4.0 availability boosts competitive position.
• Video Turnaround: Returned to profitability through rightsizing actions. SaaS streaming revenue growth driven by live sports, expansions, and new wins. XOS media processor secured a refresh project, highlighting space/power savings and video quality improvements.
• Financials: Record total company revenue, EPS, and adjusted EBITDA. Broadband and Video revenues exceeded guidance. Gross margins improved, with Broadband at 48.3% and Video at 69% in Q3.

Broadband Segment

• Q3 revenue: $145.3 million, up 92% year-over-year and 56% sequentially, representing 74.2% of total revenue. Number of global customers deploying cOS solution reached 121, with over 32 million DOCSIS cable modems in operation globally (18% of the market). Secured 7 new customers in Q3. Fiber-to-the-home strategy gaining momentum with record fiber deals, partnership with Tribal Ready, and progress on Open ONU strategy. Unified DOCSIS 4.0 now available to all cable broadband providers, driving customer interest.

Video Segment

• Q3 total revenue: $50.4 million, down slightly year-over-year but up 10% sequentially. SaaS streaming revenue was $14.2 million, up 13.1% year-over-year, representing 28.1% of segment revenue. Returned to profitability with >10% adjusted EBITDA margin. Secured a refresh project with a Tier 1 service provider using XOS media processor. SaaS streaming business growing pipeline of Tier 1 opportunities and expanding with existing customers.

• Broadband: Reaffirmed full-year 2024 revenue guidance at midpoint ($477M - $487M), up 24% year-over-year. Raised EBITDA guidance. Short-term headwind in 2025 due to Unified DOCSIS 4.0 deployment timing challenges, but long-term positive tailwind expected.
• Video: Reaffirmed 2024 EBITDA guidance. Refined 2024 revenue guidance within prior range, slightly lower midpoint. Restructuring completed, expecting savings of $18M in 2024 and $28M annualized in 2025.
• Full-Year 2024: Expected total revenue $205M - $220M, adjusted EBITDA $55M - $64M, EPS $0.33 - $0.39.

• Unified DOCSIS 4.0 Deployment Delays: Customers pushing out deployment timing due to ecosystem integration requirements and Unified RF front-end development, causing short-term revenue headwind in 2025.
• Ecosystem Dependency: Dependence on availability and maturity of FDX amplifiers, which could impact deployment timelines.

Q: The nice upside in Broadband in the September quarter, can you explain, was that primarily timing that you expected later in the year? And can you have any color you can provide on product mix, as that might have been shifting and driving higher margins?

A: Hey, Ryan. It's Walter. Thanks for the question. So first of all, with regards to Q3, obviously, we achieved higher than the expectation we set in terms of our guidance, and that was just based on delivery timing, capability to ship out product to customers. And as you've noted today, we've reaffirmed our full year guidance at the midpoint for Broadband. So this is just a shift, as we had seen it a quarter ago, when we were looking at the second half a little stronger in Q3, maintaining the full year for Broadband on the guidance. To your second question, with regards to Q3 specifically on product mix. So certainly our product mix shifted slightly, and hence the margin improvement in terms of the gross margins you're seeing in Q3.

Q: In terms of the characterization of your Tier 1 customer deployments, what color can you provide on how those have changed, excluding Comcast, which is obviously in a strong growth mode? Looks like substantially all of your growth was coming out of the Americas segment. Any commentary you can make around some of the Americas' Tier 1s moving into deployment mode?

A: Well, we cannot mention specific customers. We indicated the percentage of business with both Comcast and Charter in the opening remarks. As far as other customers, there is certainly momentum of new growing pipeline and more customers in that market segment. We indicated a number of new logos that we won this quarter, and our expectation that this will continue into the fourth quarter and beyond.

Q: In terms of the characterization of your guidance for 2025, it sounds like there could be some stalling of growth in Broadband as customers evaluate Unified. Can Broadband revenues decline in 2025?

A: So I'll take that, Tim. It's Walter. With regards to the prior comments that we had in the earnings call slides and that we had commented on during these earnings calls, yes, that no longer applies in terms of Broadband growth accelerating further in '25 based on exceeding the growth rate of FY '24, which right now at the midpoint is 24%. So we've taken that out of the slides because of the situation that we've described this afternoon in terms of the Unified technology as well as what we've seen in terms of customer demands. So as I mentioned earlier in the response to the prior question, right now we're looking at a whole number of plans with customers. It's premature for us to give any specific revenue guidance for FY '25 as we assess this for the next couple of months with customers and to your point on what could it look like in terms of the most conservative, the only thing that I'll say based on doing some very conservative type of modeling and reviewing some scenarios, in terms of very conservative scenarios, is that we still expect our FY '25 total company EPS to be above where it is today in terms of our guidance for FY '24 EPS at the midpoint. But that is based on the most conservative scenario that we're looking at. But it's just too premature to provide any type of guidance range around FY '25.