HARMONIC INC. Q1 FY2026 earnings call

• Strategic Positioning and Core Priorities

  • The company is transitioning to a pure-play broadband company following the pending sale of its video business to Mediakind, which remains on track to close in Q2 2026.
  • Long-term strategy is focused on four key priorities: extending DOCSIS leadership while accelerating global fiber position via converged COS architecture; increasing customer diversification; leading with network intelligence to drive new recurring revenue; and driving operating leverage through simplified cost structure.
  • The company sees a growing total addressable market: the cable serviceable market is projected to grow to over $1.1 billion by 2030, and the fiber addressable market exceeds $2.6 billion, with network intelligence representing an additional incremental growth opportunity.

• Customer and Product Milestones

  • Harmonic now serves 150 customers with 45.7 million total CPE devices, and achieved a customer NPS of 85 in Q1, up from 82 at end-2025.
  • Notable new customer wins include KBRO (Taiwan) for the Fiber on Demand solution, and Vive Broadband (US) for a converged DOCSIS and fiber network modernization platform. A large European operator booked a sizable order for the Sistar MDU optical node.
  • DOCSIS 4.0 commercial traction continues to grow, with new wins and advancing deployments for existing customers; the unified solution enables flexible, capital-efficient upstream capacity expansion alongside DOCSIS and fiber convergence on a single platform.
  • New product innovations are launching: the Perl XL and Jetty 3 outside plant fiber solutions will be introduced at FiberConnect, and Ampli, an AI-powered multi-vendor amplifier management solution, will be showcased at the ANGA show in Germany.
  • Early deployments of the company's Beacon network intelligence solution have reduced customer calls by more than 30%, delivering measurable OPEX savings and improved subscriber experience.

• Capital Allocation

  • The company repurchased $43 million of shares in Q1 2026 under its $200 million repurchase program, with $122 million total repurchased to date. The minimum annual goal is to repurchase enough shares to offset dilution from equity compensation.
  • The transaction is expected to generate ~$145 million in net pre-adjustment cash proceeds, enhancing capital allocation flexibility for organic investment, shareholder returns, and selective strategic M&A focused on fiber and network intelligence growth.

All results below reflect continuing broadband operations only, as the video business is classified as held for sale and discontinued. Total Q1 2026 broadband revenue was $121.7 million, representing 43% year-over-year growth. The top two customers together accounted for 58% of total broadband revenue (each contributed more than 10% individually). Rest of market (all revenue excluding the two largest customers) generated 78% year-over-year revenue growth, representing 42% of total Q1 broadband revenue. Fiber products represented more than 14% of total appliance and integration revenue over the trailing 12 months ending Q1 2026. Total backlog and deferred revenue for broadband reached a record $582.1 million, up 87% year-over-year, with 60% expected to convert to revenue within 12 months. Non-GAAP Q1 operating profit was $26 million, and non-GAAP EPS was 17 cents. Free cash flow for Q1 was $30.3 million.

• Full year 2026 broadband revenue guidance is raised to $475 - $495 million, up from the prior guidance range of $440 - $480 million, representing a 5.4% increase at the midpoint.
• Full year 2026 non-GAAP EPS guidance is raised to 57 - 67 cents, up ~13.8% from the midpoint of the prior guidance range.
• Full year 2026 guidance expects gross margins of 50 - 51.5% (down from Q1 levels due to elevated memory costs and new product ramps), and operating profit of $87 - $101 million. Full year guidance includes $10 million in stranded costs related to the video business sale, ~30% of which are expected to be eliminated within one year of closing.
• Q2 2026 guidance calls for broadband revenue of $115 - $125 million, gross margins of 52 - 53%, operating profit of $23 - $28 million, and EPS of 15 - 19 cents. The sequential flat revenue profile relative to Q1 reflects prudence in guidance, not weak customer demand.
• Management's guidance incorporates current memory market pricing, a 24.5% non-GAAP tax rate, and a total estimated tariff impact of $2.3 million on full year gross margins.

• Uncertainty in macroeconomic conditions and ongoing geopolitical instability (specifically the situation in the Middle East) creates forecasting uncertainty.
• Elevated memory chip costs are expected to pressure full year gross margins, with a net $6 million impact concentrated in the second half of 2026.
• New product ramps typically result in temporary margin pressure before targeted margin levels are achieved for new offerings.
• Prices for key commodities including CPUs, PCBs, and aluminum are rising, creating supply chain uncertainty.
• Third-party server and switch components sold through to rest of market customers are experiencing some supply constraints, which could delay customer deployments if unaddressed; while the revenue contribution of these pass-through products is less than 5% of total revenue, product availability remains a material operational risk.

Q: What triggered the strong recent growth in rest of market revenue, and is it driven primarily by DOCSIS 4.0 or other factors?

A: Rest of market growth is broad-based across DOCSIS 4.0, fiber, and migrations to Harmonic's virtualized platform. The current revenue growth reflects customer wins secured over the past 18 months, which take time to integrate and ramp to full revenue recognition. These previously won projects are now beginning to contribute meaningfully to topline results.

Q: What is the financial impact of memory costs, and are there ongoing supply concerns for key high-end silicon components?

A: The net impact of elevated memory costs on full year 2026 margins is approximately $6 million, concentrated in the second half. Additional margin pressure in the second half comes from ongoing new product ramps, which have temporary lower margins before production scales. Harmonic has secured most of the memory needed to meet its current full year guidance, and has aggressively pipelined key silicon components, so silicon availability is not a material concern at this time. Rising prices for other commodities and limited availability for some third-party switches/servers create moderate caution, but these are not material to overall revenue.

Q: Why does full year guidance imply roughly flat sequential quarterly revenue after Q1? Is this due to pulled forward demand or conservative guidance?

A: The flat sequential profile reflects intentional conservative guidance, not weak customer demand or pull-forward of orders. Management is being prudent given recent macroeconomic and geopolitical uncertainty, plus emerging supply chain constraints. Q1 revenue came in stronger than expected due to faster-than-anticipated deployment progress on one large customer project, which shifted some revenue into Q1 that was previously expected in later quarters. Customer demand overall remains very strong, and rest of market deployment momentum is better than expected 90 days ago.

Q: What types of M&A opportunities is Harmonic targeting after the video business sale, and how do you see industry consolidation?

A: The company prioritizes M&A opportunities that support customer diversification, accelerate growth in fiber, and expand its network intelligence product portfolio. Harmonic already has a strong market position in cable and DOCSIS, so targets will need to have meaningful synergy with the company's existing platform and create added value for customers, rather than just expanding product lines for scale. The company will remain selective in evaluating inorganic opportunities.