Welcome to the Q1 2015 Harmonic earnings conference call. [Operator instructions] At this time, I’d like to turn the call over to Blair King, Harmonics’ director of investor relations. Blair King, you may begin.

Thank you, operator. Hello everybody. With me at our headquarters in San Jose, California are Patrick Harshman, our CEO; Carolyn Aver, our CFO; and Peter Alexander, our CMO. I’d like to point out that in addition to the audio portion of this call, we have also provided slides, which you can see by going to the Investor Relations page on harmonicinc.com and clicking on the first quarter 2015 preliminary results call button. Now turning to Slide 2, let me remind you that during this call, we will provide projections and other forward looking statements regarding future events or the future financial performance of the company. We must caution you that such statements are only current expectations and actual events or results may differ materially. We refer you to the documents that Harmonic files with the SEC, including our most recent 10-Q and 10-K report and the forward looking statement section of today's preliminary results press release. These documents identify important risk factors that could cause actual results to differ materially from those contained in our projections, or forward looking statements. Please note that unless or otherwise indicated that financial metrics we provide you on this call are determined on a non-GAAP basis. These items, together with corresponding GAAP numbers and a reconciliation to 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 operations. Some of this information is included in the press release, and the remainder of the information will be available on a recorded version of this call on our website. With that, let me turn over now to you, Patrick.

Thanks, Blair, and thank you, everyone, for joining us today. Turning now to our slide three, today we reported our results for the first quarter of 2015, reflecting a combination of solid progress on our strategic project initiatives, a strong gross margin, and year over year earnings growth, but also a challenging operating environment. Revenue in the quarter was $104 million, down 4% sequentially, and near the endpoint of our guidance range, as our Cable Edge business achieved record revenue, while video revenue was soft, impacted by both global currency headwinds and a continued technology transition driven pause in major projects, particularly among our pay TV service provider customers. Historically, the first quarter has been our seasonally slowest, and this was again evident in the first quarter of 2015, with bookings of $97 million, down 20% from a fairly strong fourth quarter, which benefited from year-end spending. The softer demand was seen both in international markets, a consequence of the strong dollar, and among service providers pausing before major video technology upgrades. Gross margin in the quarter was 54%, approximately flat with the fourth quarter, reflecting both our product strategy and our strong competitive position. Earnings were $0.05 a share, a penny below last quarter’s results, but up sharply from the first quarter of last year, revealing the leverage we’re building into our business and the underlying improving earnings power of the company. With that overview, let’s now turn to slide four, where I’ll provide more detail on our video business results for the quarter. Despite soft first quarter demand for our video products, strategic progress and mid to long term market dynamics were actually encouraging. So how do we reconcile a slow start to the year with our continued strategic conviction here around video? Well, even within EMEA and…

Thank you, Patrick. Let’s move to slide nine. Our net revenue for the first quarter was $104 million, near the midpoint of our guidance range and down approximately 4% from both $107.9 million in the fourth quarter of 2014 and $108 million in the year ago period. Our Cable Edge segment was up $13.8 million sequentially, led by improved demand for our NSG Pro platform. This was offset by a decrease in our video segment of $17.7 million. As Patrick mentioned, the decline in our video segment is principally related to a global investment pause in our service provider vertical, pending the adoption of next-generation technologies and architectures as well as the continuation of soft demand trends within the EMEA and APAC regions, which were further compounded by the strengthening dollar during the quarter. Our bookings for the first quarter were $97.3 million, down 20% sequentially and 23% from the first quarter of 2014. On a year over year basis, the investment pause we discussed in our video segment, as well as the strengthening dollar, played a significant role in the decline. Additionally, Q1 2014 had $10 million of multiyear service contracts included in those bookings. These declines were partially offset by record bookings in our Cable Edge segment. Anticipating your questions, I’ll take a moment here to address the impact of the strengthened dollar on our revenue. As we have historically stated, while approximately half of our revenue comes from outside of the United States, approximately 90% of our revenue is invoiced in U.S. dollars. So while we don’t see a big translation impact on our financial statement, we still have a very real impact on our business. The global strength of the dollar has significantly impacted the purchasing power of our channel partners and end customers. In fact,…

Okay, thanks, Carolyn. Let me simply summarize by saying the market is in transition, and we’re transitioning Harmonic to thrive in the new environment. As the video marketplace begins to embrace virtualization, we’re winning new VOS customers and strengthening our position in existing accounts. As the marketplace begins to embrace Ultra HD and HEVC compression, we’re winning high profile Ultra HD and HEVC shootouts and seeing trial activity gaining momentum. As the cable industry gears up for a move to IP-delivered video, enabled by centralized and distributed CCAP, our new platforms and entry into this space are progressing well. Nevertheless, we’re operating within choppy market conditions with currency headwinds overseas, customer consolidation dynamics, and adoption speed of new technologies creating uncertainty around near term investment and as Carolyn just explained, consequently, our second quarter outlook. All that being said, we’re pleased with the year over year earnings growth delivered in the first quarter, and we remain cautiously optimistic that adoption of our new products will continue to accelerate, and that the back half of this year will drive both top and bottom line growth. And so with that, let me say thank you for your continued interest and support, and let’s open the call for your questions.

[Operator instructions.] And we have James Kisner from Jefferies on the line with a question.

The first question we had was around video products. I think you originally guided revenue growth of low single digit, single digit. Is that still the guidance for 2015, for video products?

Yes it is at this point. We had a slow start, but we’re encouraged by the dynamics, as I explained. We’ve seen it before with product transitions, where there’s a real pause before the uptick. As Carolyn walked through, we’ve seen a material increase in the early sales of our VOS platform. And we’re looking for a further acceleration in the second quarter and onward.

And I don’t know if you can provide any breakdown in terms of video processing versus production and play out. Which one of these segments got hit more in the first quarter compared to the expectation?

It’s definitely video processing, and I would say that’s somewhat corresponding to the fact that it was particularly video service providers, traditional pay TV groups. Some of our large pay TV customers are also some of the most aggressive and forward-looking about moving to virtualization. They’re also among the most aggressive looking to move to Ultra HD. And so therefore, they’re the ones who are really planning actively their next moves, holding back on immediate investment to really roll out something new and special. Put differently, there’s a stronger correlation between our production and play out products and our broadcast to media customer group, and as Carolyn just highlighted, we actually saw sequential growth with our broadcast to media customers. And that reflects pretty strong and consistent demand trends around our production play out products.

And the last question we have is actually around, so Time Warner Cable recently announced partnering with [unintelligible], so implementing their CCAP solution, so in terms of impact on your business, how do you see CCAP playing out with the old traditional Edge QAM products? What is their relationship, and what do you think about this? I know you said you did well in CCAP products as well.

It was a record quarter for us from a Cable Edge perspective. Our new Cable Edge product, the downstream CCAP product or Edge QAM is packaged in a platform, the NSG Pro platform, which is designed to accommodate both one way downstream services as well as two way services. We’re still working on introducing our two way 3.1 capable technology. There’s certainly other players out there in the market. We think we’re going to be a strong competitor with this two way product, and the fact that we’re establishing such a strong deployed base of the Pro platform both domestically and internationally across many different MSOs gives us amplified reason to be encouraged about our ability to be competitive.

And the next question comes from Simon Leopold from Raymond James.

You mentioned that you’re expecting carriers to pick up momentum for spending around major investments in the later half of this year. Is this from conversations that you’ve had with your customers that’s driving your confidence? What is driving your confidence in that [unintelligible]?

We just came back from one of the largest digital video related tradeshows of the year, NAB, in Las Vegas, which is attended by tens of thousands from all over the world. And if I want to pick one data point, that’s perhaps the best opportunity for a cross section of discussions across geographies as well as different verticals. And we come away quite encouraged. It was just a year ago that we introduced, at that show, the notion of pushing video infrastructure to virtualization, and frankly, there was some skepticism and some question. It’s markedly different a year later. The discussions at this year’s shows were very much about real deployments. I think what we’ve seen over the last year, and not that it’s gone but it’s been a period of a lot of our customers sitting back and taking stock, saying, gee, where’s all this going. And not unlike the way you or I might pause if we were to think about buying a new television, we might wait a minute and kind of make sure that the new Ultra HD model was ready, or whether it’s not [unintelligible], why not? We’ve seen a similar pause around the next generation of video technology. People get it, that the next generation has the potential to be completely virtualized on very efficient and flexible blade servers. They get it that it should support not only traditional services and resolutions, but also Ultra HD. They get it, that it should support over the top platforms. And that’s led to a lot of conversations, and frankly, customers kicking the tires. And so we’ve been in a lot of labs, we’ve had a lot of early sales to a number of I would call them blue chip customers. And all of that has gone quite well. And so we see material evidence of strengthening. Momentum coming out of the first quarter, momentum that we have quarter-to-date in the second quarter, all of which informs our view of a real rebound in the bookings for the quarter and as Carolyn said, that rebound in bookings spilling over into revenue in the back half of the year.

I might add, Patrick, for NAB, I think last year was about the notion of UHD. This year was more about the maturing solutions in UHD. So we had the UHD workflow from our UHD play out capability through [branding] and graphics encoding and over the top full UHD, and that attracted a lot of interest of the PTV operators. And then secondly, the SES demo which you mentioned, we showed the complete flow from glass to glass, camera to television, all IP, as if it was a live sports broadcast. So we had the camera plugged into an outside broadcast truck with our UHD encoder, and that was going ultimately over two satellite links to get back to the hall with a live demo of that on a TV receiving it as IP and showing that in full Ultra HD. So it was a real solution, and our service provider pay TV operator companies were very interested in that.

And you mentioned some projects having longer revenue recognition cycles and kind of spilling into the second half. So is that partially going to drive the rebound in the second half as well?

Absolutely.

So would you say that’s a bigger driver, or a pickup in new product sales?

No, I’d say it’s both.

So you wouldn’t say that one would have a greater impact on the rebound in the second half?

I think the build of additional bookings will have a bigger impact.

And just lastly, you mentioned in the past that cable operator consolidation didn’t really have much of an impact on your guidance and your forecast. I’m expecting that dynamic hasn’t changed now that Comcast has called off the Time Warner deal?

Well, first I think it’s important to remember that customer M&A for us is certainly broader than the Comcast Time Warner deal. Of course, we’re keenly interested in DirecTV, AT&T, and overseas Vodafone and LGI are key relationships in Latin America, Televisa and America Mobil have all been acquisitive companies where we’ve seen combinations. And in general, all of those have been a positive from our perspective. As mentioned in the prepared remarks, in one of those cases in Europe, actually, we did see a delay of an expected project. And so we, I think, perhaps, have a heighted realization that project timing or delays is certainly possible through these discussions and through these processes. And so we’re mindful of that as we go into the second quarter and the back half of this year. But I wouldn’t overstate the potential impact beyond that.

And we have no further comments or questions at this time. I’ll turn the call over to Patrick Harshman, CEO, for final remarks.

Okay, well, thank you very much. Let me close by simply highlighting the fact that we are executing well on our strategic agenda. Our Cable Edge business is really thriving, and our video markets are showing clear evidence of a rebound. We’re intensely focused on driving both revenue and earnings growth this year, and we believe the opportunity remains compelling. And I can tell you we’re leading this organization with a well defined roadmap and a clear resolve to drive both top and bottom line growth. With that, we look forward to updating you again on our progress over the course of the quarter and on next quarter’s call. Thank you again, everyone, for joining us today.