Hello, and thank you for standing by. Welcome to the First Quarter 2024 Harmonic Earnings Conference Call. My name is Towanda, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I would now like to 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 First Quarter 2024 Financial Results Conference Call. With me today are Patrick Harshman, President and Chief Executive Officer; Nimrod Ben-Natan, Senior Vice President and General Manager of Harmonic's Broadband business; 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 Investor Relations website. Now turning to Slide 2. 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 10-Q and 10-K 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. 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 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 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 Harshman. Patrick?

Thanks, David, and welcome, everyone, to our first quarter call. Today, we reported our Q1 results and updated full-year outlook, both of which are in line with our prior guidance and demonstrate solid execution and continuing confidence in our growth opportunities. Key business highlights include strong broadband orders and new customer wins, supporting this business' sustained multiyear growth trajectory; continued video SaaS revenue growth, driven by new sports opportunities and ad delivery technology and the retirement of our outstanding convertible debt this month, capping share dilution associated with convertible notes. We also announced on April 8, my planned retirement on June 11, the date of our Annual Shareholder Meeting, and our Board's selection of Nimrod Ben-Natan as the next CEO of Harmonic. Nimrod, Walter, and the senior Harmonic team have my full confidence in driving the next phase of growth for our company, and I look forward to having a continuing supporting relationship with Nimrod and the Board for at least another year. And with that, I'll now turn the call over to you Nimrod to provide a more detailed update on our broadband business.

Thank you, Patrick. Moving now to our broadband business on Slide #4. We reported segment revenue of $78.9 million, a decrease of 31% sequentially and 21% year-over-year, which was in line with our expectations. We had another strong quarter of new bookings, driving a record new backlog. The number of global customers deploying our solution reached 113, up 20% year-over-year, corresponding with 28.6 million DOCSIS cable modems now served worldwide. This represents approximately 60% of cable modems deployed globally, again, highlighting the substantial DOCSIS growth opportunity still in front of us in addition to further upgrades to DOCSIS 4.0 and fiber-to-the-home. As a result of this growth, Dell'Oro has recognized Harmonic with the fourth consecutive year of market share leadership in the DAA category, which is virtual CMTS and Remote PHY devices as well as becoming a global market share leader in total cable broadband equipment. As we communicated last quarter, the pace of DOCSIS 4.0 shipments is accelerating in accordance with our plan, and we expect this to expand further in the second half of the year. Additionally, we recently participated in the CableLabs DOCSIS 4.0 and DAA technology interop event, where we showcased our end-to-end DOCSIS 4.0 solution, highlighting record speeds of 9.4 gigabits per second for DOCSIS and interoperability with multiple DOCSIS 4.0 cable modems. We are also getting increased customer interest in our boosted DOCSIS 3.1 capability, which is unlocking the full potential of the existing DOCSIS network in combination with a new generation of DOCSIS 4.0 modems. This upgrade option is creating a unique opportunity for cable operators to achieve fiber speeds at lower capital intensity and faster time to market. Driven by the migration to higher-speed networks, we announced earlier today a new and unique product capability, the Beacon which is a new application…

Okay. Thanks, Nimrod. Turning now to our Video segment. The big picture is that we continue to see streaming SaaS become a larger portion of the business. In addition, we've closed our strategic review and are now actively rebuilding business momentum with a focus on further SaaS growth and driving improved profitability. SaaS revenue in the quarter was $12.9 million, up 11% year-over-year, but down modestly sequentially. Total segment revenue was $43.2 million, down from $57.3 million a year ago. We've continued to see macroeconomic and sector headwinds impacting our traditional Pay-TV customer spending on appliances. Our strategic review process was also causing a growing number of appliance and SaaS customers to hold back on new commitments pending the outcome. Looking more closely at our SaaS results, we're seeing growing usage by our largest and most successful customers, especially for lab sports, partially offset by the loss of a couple of mid-tier streaming customers who lost content rights and/or man into financial problems. Driven by the success we continue to have with our Tier 1 SaaS customers, we've continued to invest and innovate to new streaming-related technology. Our new in-stream personalized ad technology was a huge hit with the recent NAB show. For those of you unfamiliar with instream advertising, it's the creative insertion of personalized ads while viewers are still watching live-action programs versus the traditional ads that are simply inserted into programming breaks. Based on this and other unique technical capabilities, our pipeline of opportunities with new and existing sports-focused streaming customers is stronger than it has been since we launched our SaaS activity. The marriage of high-quality stream live sports with personalized ads and experiences continues to look to us and our media customers like a real winner. That said, we also recognize marketplace headwinds affecting appliance sales remain persistent industry-wide. And so we're taking action to restructure and streamline. As a result of these actions and our continuing confidence in our streaming sales growth plan, we're increasing our full-year segment EBITDA outlook. And with that, I'll now hand over to you, Walter, for a deeper discussion of our results, actions, and outlook.

Thanks, Patrick, and thank you all for joining us today. Before I discuss our quarterly results as well as our outlook, I'd like to remind everyone that the financial results I'll be referring to are provided on a non-GAAP basis. As David mentioned earlier, our Q1 press release and earnings presentation include reconciliations of the non-GAAP financial measures to GAAP that are discussed on this call. Both of these are available on our website. Our first quarter results were consistent with our expectations. Additionally, we exceeded the midpoint of revenue guidance in Broadband. I'll call out some of our first quarter highlights here on Slide 7. For the quarter, we reported total revenue of $122.1 million. We also reported EPS of $0.00, bookings of $146.1 million, a strong book-to-bill of 1.2, and a record backlog and deferred revenue of $677.8 million. Before reviewing our first quarter financials in more detail and providing detailed Q2 and full-year 2024 guidance, I'd like to highlight a few key points regarding our guidance. Regarding Broadband, we are reaffirming our FY '24 revenue guidance range of $460 million to $500 million. As we do each quarter, we closely evaluate the latest customer information, forecast, and commitments just prior to our earnings call. Although the mix of customer business has changed from our prior guidance, in total, we expect to meet our FY '24 revenue guidance range. At the midpoint of our reaffirmed FY '24 Broadband guidance, we expect revenue to increase 24% year-over-year. Based on expected momentum in the second half of 2024, we continue to anticipate 2025 Broadband revenue growth will accelerate on a year-over-year basis. As Nimrod mentioned earlier, we are well positioned with our leading technology, strong backlog, and our customer success to drive continued multiyear growth. With regards to Video, we…

Thanks, Walter. In summary, Harmonic delivered another solid quarter. Our order book, competitive position, and customer relationships are stronger than ever, and we continue to be uniquely positioned for sustained growth. Finally, on a personal note, I've been privileged to work alongside my talented and committed Harmonic colleagues, some great customers, and shareholders who have both challenged and supported me. And to all of you, I want to again say thank you and convey my view that the best is still to come for Harmonic. And with that, let's as Walter said, open up the call now for your questions.

[Operator Instructions] Our first question comes from the line of Simon Leopold with Raymond James.

Patrick, this is the last call you'll be doing. Just wanted to thank you for the time you've worked with us, been a great help. And Nimrod, we're looking forward to resuming and expanding the relationship with you. But getting into the question, one of the things I wanted to see if we could explore was Harmonic's dependence on the evolution of amplifiers, particularly for the rollout of DOCSIS 4.0. I understand you're not a manufacturer of the amplifiers but want to understand how that affects your trajectory and what you're assuming for the availability of both extended-spectrum and full duplex amplifiers.

So a couple of things, Simon. First of all, any remote PHY device and network expansion that operators that are going 4.0 are doing are always forward-looking. And even if they put it in an area which is not 4.0, they would love to put something which is 4.0 upgradable for whenever the rest of the network will become ready to 4.0. The same thing as others are putting 4.0 amplifiers or pass seeds and so forth. So that's number one. Number 2, and I think you should go back to what was kind of reported by the industry in terms of poles on the Full Duplex amplifiers. I would go from the silicon to the vendor and the operator, all of them have reported progress and a plan to go into field trials this year with the plan to have that in deployment going into '25. So that's our assumption based on everything that we've seen. And I guess many of you have visited the SCTE show in October, this is progressing really well.

And just maybe a quick follow-up. On the video segment, I think Walter made a reference to Patrick's comments as to some of the incremental weaknesses. And I understand some of the explanation is related to customers maybe pausing as the strategic review was underway. What I'm looking for is maybe a little bit of help bridging how much of the shortfall might be attributed to a pause. And then what the other aspects might be leading to the lower full-year outlook for video?

Yes, Simon, I'll kick it off here. Just in regard to the expectations on the full year. As Patrick highlighted in the opening remarks, I mean, this was creating a pause with certain customers in terms of making decisions. Obviously, with the announcement that we made recently, that's opened up the conversations, and there is an expectation that those conversations will move forward in terms of some of the business that was on hold. So I'd say from a full-year guide perspective, that the impact is marginal from that event and is more related to the headwinds that we're continuing to see with regards especially to the appliance business.

Our next question comes from the line of George Notter with Jefferies.

I guess I just wanted to ask about -- there is a pretty significant ramp you guys have now for the balance of the year. I think on the broadband side, I was looking at or calculating about $310 million in sales in the second half versus about $169 million in the first half. And I'm certain that your 2 largest customers are probably big components of that. But could you give us any more sense for what you're seeing in terms of pipeline activity, traction towards that second half ramp? And anything that could give us a bit more confidence in it would be helpful.

Okay. Certainly. Maybe I'll start, and then I'll ask Nimrod to provide some more color on that, George. First of all, from a customer standpoint, as I mentioned in the opening remarks, we're obviously tracking very closely with our largest customers in terms of the expectations for the full year and especially the back half of the year from a demand perspective, from a supply chain, ensuring that we're ready for the higher expected revenue in broadband. And in addition to those larger customers, we do have an expectation of growing the rest of the customer base beyond the 2 largest customers. And so we made some great traction in Q1 in terms of our revenue level from those other customers. And the team is highly focused in terms of continuing that momentum and building up the rest of the market opportunities and revenue in the back half. I'd like to turn it over to Nimrod to provide some color around what we're seeing in the market and some of the very encouraging conversations we're having with those other customers.

Yes. And I think we talk a lot about DOCSIS 4.0 and some of the major customers that are driving that. But what we see through the rest of the market is an increased urgency to look into what we call modernizing the network and whether you look at it competitively or just to keep up with bandwidth demand, operators have to increase, whether it's the upstream or the downstream of the network. And I did touch on this, what we call boosted 3.1, which really gives you fiber speeds. And we see more and more customers looking into that. This is now becoming available with the availability of DOCSIS 4.0 modem, have nothing to do with amplifiers or nodes or anything like that, just a combination of a 4.0 modem with boosted capabilities of 3.1 networks. Also interesting, and you may have heard other customers announcing the retirement of legacy QAM video and moving to an all-IP. This is freeing up a lot of bandwidth in the network which they can now put into this boosted architecture. So we have a lot of these discussions and in fact, advanced stages in lab and field trials. And this is giving us the confidence for the rest of the market to follow.

I assume that Charter is a big piece of the second-half ramp. I know those guys have talked about, for example, the NextGen Cable strategies conference, they were talking about reaccelerating their or accelerating their remote TAA build in July. Is that still something that seems doable from your perspective?

We cannot comment on any specific customer activity. I think specifically, if you look at the 2 major customers, both of them have announced their earnings last week, and they did provide an update. So you can follow up on that. I believe Charter talked about completing their upgrade by '26. I cannot comment specifically on July or any specific date.

Our next question comes from the line of Steven Frankel with Rosenblatt Securities.

I wonder if you might give us a little more color on the 7-figure fiber-to-the-home deal that you talked about during your commentary. Was this a new customer? Or is this within one of your existing CableOS customers today?

So it's an existing Tier 1 international customer. And what's exciting for us about this is that this is the adoption of the new fiber product generation that we announced during SCTE last year, which is the second phase of our fiber product introduction. And we're excited because this is being adopted by a major Tier 1 customer for this new architecture.

And how quickly does this get deployed? Is this something that will be deployed in the back half of this year? Or do we have the kind of prolonged ramp like we've seen with some of the DOCSIS customers?

No, this is the second half of the year. Shipments are starting early second half, and this is definitely second half.

Okay. And then maybe just an update on the color of customer conversations at NAB around streaming in the video business.

Well, Steve, I'll take this one, and I'll answer it in 2 ways. First, it felt to us to some extent that the market was back. I mean, candidly speaking, there's just been a little bit of a slowness to the overall space. And as both Walter and I explained, we still see some of that some of that drag on the traditional client space. The streaming guys and the large media companies were out in force at NAB, talking about looking about new content, new ways of packaging that content. And our [indiscernible]. As I mentioned, our pipeline leading up to and particularly after NAB around significant new SaaS streaming opportunities is substantially larger than it's been in the last 4 quarters and stronger than it's been really since we launched the SaaS offering. So not exclusively, sports is the bigger piece of that. And part of it is supporting new programming, new rights, but another part of it is better monetizing the existing rights. And more than ever before, discussions around new and innovative advertising models, particularly personalized advertising models. And as I mentioned, this in-stream advertising, which is you may have seen in a broadcast scenario at home where there's a squeeze back, et cetera. But that's all broadcasting. Everybody is seeing the same Ford truck advertisements there. Imagine if the squeeze back happens and now something is being served up specifically for you or your neighborhood, that becomes really powerful, and it's something that's generating a lot of excitement and incremental opportunity that we're seeing, Steve.

Great. And then lastly, just maybe a few more nuggets on Beacon and how material could that be as a revenue contributor to the broadband business.

First of all, it is a service. So it's a recurring service. We are not disclosing pricing or anything like that, but this is something that you can think of that scales with the number of nodes or subscribers in the network. We are in the customer field trial, and we expect this to start generating small revenue, but late this year. And over time, we see that kind of the bigger the footprint of our COS. This is an add-on on top of that.

And just lastly, is that targeted at Tier 2 specifically because Tier 1s can figure out how to do this themselves? Or do you think even a Tier 1 customer could potentially get benefits from this product?

I guess your question is on the targeted Eds or Beacon, I was not…

On Beacon, please.

Okay. Beacon can be relevant to any of our customers. It's not exclusive to only small ones.

Our next question comes from the line of Ryan Koontz with Needham & Company.

Most of my questions have been answered, but maybe you can expand a little more on this in-stream advertising opportunity. You were talking about in terms of the revenue and the deployment model. Where is the whole market in terms of maturity, in terms of being ready for this in-stream dynamic ad model? I thought that it was already there, but maybe I was misunderstood.

It's not already there for this particular kind of advertising availability. Certainly, personalized advertisement exists, but matching up personalized advertising with not a program break, but ongoing live programming is new, Ryan. So in fact, I mean, I spoke earlier about in customer meetings, in almost the next volume, I would say, in terms of meetings was with a broader ecosystem. Now we're, of course, not an ad-matching company, et cetera. But we had a number of those folks also through the booth. So it felt very much that at NAB that -- not that we're miles or years away, but the things were just now coalescing combination of the technology we're enabling in the pipeline, together with those who do the ad inventory and matching and together with the people who will melt it all together into services. So yes, it's pretty exciting, and I think we think we're going to see a lot of progress in the coming couple of quarters and certainly in the next year.

And just a quick follow-up on the DOCSIS 4.0 supply chain. Do you feel ready to meet your customer need, which at this point in terms of the ramp? Is it more supply chain limited or customers are phasing in the docs for hardware?

I think the supply chain is not an issue, and it's ramping according to the phasing that we've been working with our customers. So it's on track based on what we predicted previously.

Our next question comes from the line of Tim Savageaux with Northland Capital Markets.

And I'll offer my congratulations as well to both of you guys actually since when you got started with this thing. We're doing about $40 million in legacy revenue and now talking about $480 million. So that's a pretty amazing accomplishment over that period of time in terms of building the broadband business for both you guys and look forward to working with Nimrod. And it's really the diversification of that business that I think is critical. Now that you put away both Comcast and Charter, which again, is an amazing achievement. But moving forward, I think Walter made a comment about being pleased with the non-top 2 performance of the business, although -- and I'm doing this real-time and making a lot of assumptions, but it seems like that part of your business has been about 35%, 40% of broadband revenue. And that percentage, I think, was probably up in Q1, but I'm not sure the absolute number was, but I'd be interested in that. If that range is about right. And how do you grow that business, whether it's fiber to the home with the other Tier 1s? Are there other major global MSOs that could meaningfully shift that balance? And to the extent I'm right there, where would you like to have that number in a year? Well, it might be tough given Charter's full ramp. But you know what I'm saying, where do you want to take it over time?

Tim, it's Walter. I'll kick it off and then Nimrod can add some more color to it. But just in terms of your observations when I made the comment that we were pleased with the first quarter results, we did see some strong numbers for folks outside of the big 2 customers. And then also from a forecast perspective in terms of the reviews that we've had with Nimrod and the team around the full year and the expectation. And I think you hit the high points, expectation around additional customers that are ramping on from a DOCSIS standpoint, but also getting more traction on the fiber-to-the-home type of opportunities, both at the telco level but more so in the strategy that Nimrod mentioned earlier around our cable customers and their strategies on focusing in on fiber islands, et cetera. So I think there is momentum there. We were pleased with the mix of business we saw in Q1, but your observations that as we ramp up the second half, we obviously have the big customers that impact the overall number, but we're also seeing good traction and have good expectations around the rest of the customers growing from an absolute dollar perspective. So I'll turn it over to Nimrod to provide a little more color on that.

So I would say a couple of things. First of all, there is a known list of operators that have yet to make a migration to a next-generation architecture, and we target them as key opportunities. We also have customers that are not 100% our solution. They still have a legacy. So we're certainly looking to expand with them. And I would say above and beyond the core architecture, we look at fiber as another dimension of growth with existing cable customers. And also outside, we see a lot of value that we bring into fiber first customers. And this is an area where we have expanded our go-to-market and we now brought a fully dedicated sales leader on the broadband side, which is what I've seen over the last couple of couple of weeks is boosting everything we're doing. So I would say the combination of all of that, along with the fact that we made it a priority. We're continuing to focus on our major customers taking them through the transition that they make, but we feel that this is a good timing for us to focus on the rest of the market and make the right investment. As well as, as I said, we feel the urgency, whether it's fiber competition, whether it's the fixed wireless, or the urgency to extend the life of the DOCSIS broadband network. The combination of all of that bring many of them into a more urgent discussion about upgrading their network. So obviously, we're going to keep kind of focusing on the execution and growing that piece as Walter described.

Great. And Walter, just a follow-up, I think, on another comment, which was, I guess, in maintaining the broadband revenue target for the year. I think you made a comment about getting to the same place with a different mix. Is that sort of what we're talking about here, which is more new customer revenue, more fiber? Or did you mean maybe less big customer? I'd like to amplify on that.

Sure, Tim. Just from an overall perspective, we have a lot of customer shifts, as you would expect, as things move on through the year. I would characterize it as we had some shifts in big customers that had an impact as well. We've had some shifts in some of the smaller customers as well. And when I mean shift, it could be positive in terms of more or it could be less. And so I think one of the key things, and you hit it on your first question, it's all around diversification. And I think this is one of those situations. As I looked at the number with the team for the full year, we're getting some benefits from diversification in terms of when there's some changes going one way, there are some potential offsets another way. And so that's the way I would characterize the work-up of the full-year number. It's different than it was 90 days ago. but it's still holding in at the number we have overall that we guided 90 days ago.

Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Patrick for closing remarks.

Okay. Well, thank you again, everybody, for joining us this afternoon. We're excited about the quarter. We're excited about the momentum, and we're looking forward to our next opportunity to meet with you all. Until then, have a good day. Bye-bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.