HLIT - Earnings call transcript Q2 2018

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Operator

Welcome to the Q2 2018 Harmonic Earnings Conference Call. My name is Candice, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. the to turn Relations. Noutsios, now will call Nicole over Investor I you begin. Nicole, may

Nicole Noutsios

operator. thank Conference Thank us everyone, CFO. our Hello, you, and Kalra, Sanjay Harmonic's today Patrick our Quarter CEO; me and today you Second XXXX With Earnings Call. are Harshman, for joining for

webcast Before going which webcast, our in provided we've on to we slides to to you audio the to that I'd out like webcast, can also by see portion our begin, this website. point addition of IR the

Now Slide X. turning to

XX-K recorded of call I'll And the Harshman. be today's in financial the with During this our expectations forward-looking SEC, preliminary and on a today's the also We'll please operations and our company. risk release, this is results remainder this the unless But Patrick call our or performance XX-Q website provide indicated, and call, or refer call in and release. over on we projections most now, contained are from GAAP, section which historical, documents the basis. statistical our some you identify current results otherwise our numbers and note on together including to differ which those press and version the SEC information actual or we've and on filed on CEO, of determined non-GAAP will future to included can press and other Harmonic will statements we the corresponding to other provide and regarding of financial Form may items, files available statements Such contained of information important statements. turn These only discuss to are information GAAP We on our the press results events with And cause regarding or are recent events posted with actual statements forward-looking documents materially These business on factors, future the forward-looking website. of materially. metrics financial that you those reconciliation reports, differ projections release. X-K. in a

Patrick Harshman

Well, our improvement success reporting by call to with to and positive be solid pleased enabled strategic again a thanks, financial SaaS CableOS of and quarter the welcome, Nicole, today. year-over-year video our and everyone, We're transformation. ongoing software

include XXX% XX% operating continued served up $XXX was X% XXXX our sequentially Cable now the and really architectures we Revenue of segment segment numbers, notable positive flexible target X.X%, is over greater while broadband these now be Specifically, and approximately operating from book-to-bill revenue our up XX%, momentum a distributed our Cable revenue Other are last reach Access X modems segment through out up and segment. over these Cable market can modems, XXX,XXX year-over-year driving service cable XX% at again for was combination rolled X.X% top for bookings being more remain access was of profit highlights delivering segment. quarter. than income CableOS that to track profit to our on million. XX% is demonstrating the Taking over XXX,XXX new CableOS, architecture, scale. drove CableOS And and segment financial Access with a of CableOS delivered closer a first of Behind as at revenue CableOS up progress ultra-high-definition income, and look Video growth X.X%. our year-over-year year-over-year the sales solid operating financial corporate Access trajectory. era,

X X customers, deployment. preparing half underpins During with good our And the global our been much quarter, closely Tier has scale second focus this CableOS a few was and of guidance. on progress working for Tier

and and award deployments and virtualization because work CableOS beyond made now of our last and momentum of endorsement line also advanced we field market that groundbreaking want our the XX this of quarter. broader powerful Harmonic expanding We're has from patent productizing that well important we've core base here a for done announced objective further X this our customer foundational recently market-leading inventing overall a seeing and technology, over the up Tier a progress an trials, market-leading, introduced reiterate However, commercial is new have to business associated has Tier this underlines to reported $XXX demand say and Cable and paradigm. The is position. and XX pace it's architectural CableOS amount deployment that goes year. I be of tremendous milestone achieving CCAP technology Harmonic deploying the Harmonic access successfully in initial scalable wins market for of leader distributed tremendous. pipeline, these combination and solutions the the volume announced the million revenue increasing and opportunity next uniquely all cable virtualized solutions end cable our and ongoing results that X cable access. of with operators, clear of nothing fiscal Access of the position recently our broadband other compelling wave very expertise of access is Considering leadership, market a for market generation short Comcast positive scalable when

So turning segment. now to Video our

financial Here we're clear of initiatives gaining performance. our momentum evidence also, and growth improved seeing driving

improved up QX operating million income demand is SaaS more video-centric transition the and and business. was X.X%, business over-the-top-centric translating software X-quarter quarter broadcast segment average over reminder, a segment to over-the-top an profitable customer positive objective of with appliance over income As and a our to a our year-over-year, financial into operating making income Video base and ultra-high-definition Positive expanding has historically $XX consecutive fourth performance. been predictable X%.

as improving software head record as segment backlog growing linear solidifying SaaS, And video market on healthy quarter is to deferred now over-the-top and XXXX. X% Harmonic position the Video streaming and revenue, which a transformation visibility continuing in over over bookings and deployed high-quality space. we our linear shift the Looking worldwide, streaming and this has up enabling and carry premium XX,XXX into ahead, that of consistency track, further channels financial leader is rest sequentially, second forward demonstrating live the with we

customers, done is cloud-based being that addressable expand offering this traditional to another our While over-the-top market. SaaS public pay-TV here us and with media is is over-the-top our enabling point much business key of

During wins one million a a with X brand-new the greater-than-$X mobile second, second streaming we skinny out incumbent SaaS service bundle setting first the customers, quarter, rolling streaming for international an and new had a the operator domestic service. startup up time;

The saw activity, growing catalyst ramp a the for interest During see some second worldwide we Cup was UHD shipped we solutions. were year-over-year. ultra-high-definition more deploying also in generally, monetizing quarter in high-quality demand for ultra-high-definition XXX% channel continued up World a over this but and of programming. the quarter,

bringing in high-value you, solutions in segments, for improving business summary, a of to progress over financial of strong the and Sanjay, more So our both our make our call and performance. to on turn on detailed results to continue customer discussion our And that I'll we market note, in outlook.

Sanjay Kalra

all call you, afternoon. for and our joining Patrick, Thank you this thank

with non-GAAP you quarterly the financial remind detailed like my a I to remarks, be provided to would I results on you are referring basis. Before share I'll all that

heard to return solid just Patrick, pleased QX profitability. and are As to delivered you results we from

a of profitable expenses quarter our execution in while in above both In across gross profitable of were strong, EPS a Revenue and results better guidance than metrics. our was resulting delivered financial operating last with were quarter margins fact, number segments well strong range. and we anticipated

position second cash us ratio improved a foundation. also the a maintained Our and enabling book-to-bill of of XXXX to strong with we X.X, enter financial half solid

our $XX.X $XX.X revenue Cable our to Slide As million in making growth compared 'XX, million our throughout we to guidance. steady year-ago was XX% in million Access and Activity segment our we of QX in end results, XX% $XX.X both compared Cable 'XX a review X Access to the $XX.X million, importantly, And has resulting is revenue in QX to $XX.X segments. and in QX QX growth segment period. the growth. progress in high in turn and of quarter-over-quarter above year-over-year XXXX. saw million million been This $X.X was

in believe million We that XXXX. continue will approximately $XXX of target to our of hit revenue we

in XXX,XXX in we have last and QX our million increase particularly in QX year-over-year success and technology, reflects QX enable million were quarter, and margins and had Gross customer of substantial software XX.X% in served demand and in contributed lines, quarter, Consistent more QX This were Comcast, improvements. improved in and QX $XX.X who product one year. mentioned, SaaS. quarter worldwide same these modems the this greater-than-XX% software in revenue. As Patrick last XXX% up year-over-year XX% XX.X% cable competitive revenue QX Access revenue QX we was sequential CableOS video sequential to to XX% $XX.X compared XX.X% million Growth compared than compared $XX.X XX.X% XX% with and gross 'XX. Cable 'XX. in system total of margins quarter-over-quarter. Video across CableOS all by to almost

expense is we to due QX our As without compromising The was XX% XX.X% margins decrease strong modest in CableOS strategic segment versus control was QX growth. mentioned in XX.X% We our QX Video QX software-oriented gross shift. QX historical margin Cable in in Access to in previously, 'XX. maintained products. future more mix than and segment compared investments Video a primarily product

driven expense capital-intensive contributed to QX QX in QX our and million was guidance of throughout primarily software reduction million the reflects the to R&D than XX% quarter. transformation company cost QX Video Operating the expenses continuation from $X.X expenses million segment, margin by careful $X.X of lower of year-over-year development in development which and million, a were result, model operating $XX million. This operating operating hardware our income income predominantly a 'XX. $XX.X operating control operating million As $XX.X range in $XX from $XX our X.X% the model. of of million a and

million loss and favorably and quarter. loss 'XX. We Cable of income $X.XX compares million QX $X.XX, QX was compares million $XX.X in QX of EPS QX in Access generated million $X.XX of this to 'XX. profit QX $X.X the of a to operating QX's in segment $X.X which are a in pleased $X.X of that loss a

margins expense revenue of by million. weighted both share of We management. previously, basic EPS count ended average and As XX.X mentioned and year-over-year this with share and in count segments was our careful XX.X growth diluted improvement a million driven in of gross

in QX million were $XXX.X XX.X XX.X QX to QX and million in $XX.X $XXX.X QX compared shares in million and bookings 'XX. QX million were in 'XX. million basic Our

of book-to-bill has XX% sequentially we would comparative X.X bookings the the and announced of and and segment contribution and of opportunity XXXX. OTT impact year-over-year. during transition alignment So the up focused we million, like fourth revenue is and context systems allocation market's some growth Video cable SaaS cost execution. and to regarding which segment our to risen year-over-year provide virtualized The quarter growing our I reflects the the deferred $XXX.X to to as of change, was our materializing strong X% and backlog expected,

and ARR associated decrease of for to new relating of This sooner Regarding the of customers onboarding customer SaaS, ARR, service 'XX, the 'XX. decommission the QX to annual QX $X.X in increase customers a by large to was cloud a current to the usage. end generated than deals bookings $X.X in our of increased ARR existing their as anticipated. million ARR one mix at of recurring for run million onetime of revenue in was million of due had with SaaS offset ARR We who rate elected part quarter SaaS additional or a result $X.X similar new

the on bookings call, I employed stay our of of attribute we professional noted SaaS for need between XXXX, expect ahead and Historically, the revenue sales to made revenues X% directly become aggregate CableOS supporting results full last more we the ramp for operating increasingly any bookings. and our adjustments. have relating total fourth quarter quarter to segments. of and XXXX, Access from gradually Separately, our total services our XXXX, allocation an segment of by to we the Looking the X on as to Video fourth during adopted to to as our attribution of precise Cable are segments distinct selling and during close those change transparency we solutions methodology was our this year solutions. fourth X% financial a of based XXXX. comparable enhanced methodology operating in activities sequential continue Beginning expenses quarter Since Video our without

now reported financial the the would methodology our QX our apply Cable on to year-over-year company results. of operating position liquidity and the we will a operating and segment combined of basis. a of $X.X decreasing year-over-year for that comparison this adjustment to to Video increased will to segments, operating total segment our balance revenue Cable Access XX% However, 'XX by respectively, loss need segment margins new our Access QX I without, This loss attribution of million any correspondingly over results. of impact course, of Slide while X. 'XX move Therefore on our increase the XXX%, results and sheet

As $X.X end second of X, to past compares backlog and This mentioned have million. future of been With reflects has deferred half XXXX. operations primarily million, and than QX for of $X.X $XX.X support a This to million. cash backlog QX million other in 'XX. activities million. ratio previously, with sequential We QX million $X.X as in of solid at generated QX, we at the reduced QX $XXX.X ended the for is end QX $XXX.X book-to-bill investing million compares a end spent was the built in the cash of it in X $XX.X which from more of quarters, $XXX.X at cash and the for by $XX of of The revenue cash 'XX. of quarters, to million increase revenue and million a financing

Our days end XX at QX to at at compared days consistent of the with end of 'XX. outstanding days QX QX sales was the XX

we on results, XX 'XX. and days QX inventory value at summary, our leveraging end work XX of were XX end QX the In at at end encouraged our opportunity. we quarter mid- ahead long-term of of creation by of second to compared to the I'm hand committed days us, days have Our the while lot of a and QX are and days

the the million; to expenses of Now in million to million range $X profit range to to for XX%; in million EPS revenue a let's of our $XX $XX market million $XX of $X range effective a of from to XX% Considering non-GAAP $X.XX to loss the operating dynamics, from of $XX for revenue from count loss an recent Slide range expect QX Video of rate operating a income business $X.XX; million XX%; a to we guidance. to X and margins revenues in loss million; million; $XX to diluted of XX.X to average share million. count XX.X tax weighted basic turn of profit a range $XX to a and of share $XX XXXX, in with Access and million and range million, the QX range QX $XXX to of million gross of Cable the

is Finally, to expected between $XX the range cash million at of to QX $XX end million.

million to our to operating XX% million; in in We of gross XX%; expect range $XX also revenue want provide we $XX you in and with $XXX the guidance for QX, range million of million XX to Access to $XX count to to tax of from Video count the of $X in Cable margins million to where a basic to expenses $XX XX% a $XX $XXX million million diluted income and of of range the profit million, of revenue to an profit average weighted revenue the range from $XX $X.XX; XX.X to range million; a share range $XX a to $X.XX EPS of million million; of to rate of share operating million. range effective profit a from

cash Finally, million the range $XX QX also end of expected between is to at million. to $XX

Moving to Slide X.

originally ranges differs an annual we are guidance this XXXX high now is guidance generally have end from are that and guidance, which the what for you in see, revenue at and QX consolidated We updated forecasted. annual initial will consistent view of of QX narrowed, our earnings the

$XX improved original due revenue to and higher primarily operating from mix in profit Cable primarily guidance $XXX to $XXX to of expense a compared $XXX full year, Video to in loss in to weighted CableOS to lower where $XXX effective changes SaaS $XXX and strong management; revenue contributed compares range $X.XX million million, our $XXX to $XXX loss Access compared million to basic a to profit average of range profit for increased the company's the an million of of of from and $XXX million to This more compared revenue of Access resulting of our million million XX.X cash to segment; shares. margins; $X.XX from margins XX%; the We Access million due to our of to now of $XX to to guidance Cable expect million of due to to from to a guidance $X.XX range in range original the a million of million, in our revenue due operating to million the million our a $XX revenue $XXX million to of with Specifically we mix $XXX $XXX million million $XXX million million. to range margins $XX for million, $XX million XX% guidance million to from original to loss of million a $X $XXX $XX operating to range $XXX from of the compared million, original range EPS million. rate to Video Cable $XX to now XX% profit contributed $X.XX; gross and range services to Video XX% gross tax a of $XX This shares XX.X of primarily expect XX%, share $XX software count primarily to in guidance to and guidance is expenses expenses. to and and of original prior software million the improved to revenue diluted million. of range

remain by cash. quarter profitable value. long-term focused and I delivering turn and our a financially. As increased change this that to would income, year strategic first to and like material call executing the only a full and the is had second year, initiatives of growth EPS conclude to we a now over stating We both operating on Patrick. I will half result, strategically strong guidance and shareholder back

Patrick Harshman

Okay. up wrap by Thanks, highlighting Sanjay. We it priorities. our to want again strategic

leadership X For revenue continue deployments. operators, of CableOS one on is to wins objective here segment XXXX to with market and and scale design to customers. And secure positioning Leveraging new second business, smaller both profitable our industry three our wave for to Access objective growth. is Tier objective growing business successfully deliver additional is number and first our million long-term $XXX our this further number target, midsized Cable CableOS a momentum,

the tapping house, objective consistent On further new of side media service verticals. Objective to market, our just of our the two the to past Video the leverage segment growth X over and three we've to first across is deliver models. our is to customers SaaS over-the-top accelerate as provider solutions into expand business quarters. continue and addressable higher-growth offerings done to objective number our And is profitability number

the Our our driving value enabled this thank take the remainder year business these and the first head and talented support. to priorities opportunity our continuing confidence want and of the strategic shareholders to by commitment We progress into renewed has our We're to as for we our half pleased profitability clear growth, their of and shareholder continued year. momentum. dedicated customers and financial employees, through in

questions. now let's open the So call with that, up for

Operator

And Thank from of you. Jefferies. question Notter comes our Instructions] [Operator George first

line open. Your is now

George Notter

results I much to here. Hi. about improving Thanks nice ask wanted the see I and guess, CableOS. to very

versus, cable think, XXX,XXX I you last of served think back had even platform, that to XXXk now being quarter, modems XXX,XXX you mentioned if I up go You QX. out

Access sold, got of Are you not terms remind So like great in how rates. modems the guess, economic with works Help looks getting in that. also. you revenue Can the of that is scaling on instances paid terms And my quite in follow-up software us question, the I've throughput? at connected, it model CableOS? just me Cable division a I then

Patrick Harshman

Yes.

should still of So small so thanks cable in Frankly, for the realm scale volumes. question, yes, modems relatively the capacity, we're the George. In revenue general, with connected. with

point modest both have right associated recognized I'd some to a think course, That these, I and that starting quarter. the the quality backlog at to tie relatively modems I see so between The some direction. revenue our or key it's being of associated the of said, was don't line a results already bit say, deployment to the important numbers in out growth is the important, direct still the are deferred to of to recognized, that the scale. the is working the is be mean, the connected, is of early move they and I in has. quarter-over-quarter revenue them financial that field it's in revenue think technology little

George Notter

it. Got

minority think trigger recognition? also, I'm what products through great. flowed curiosity, sorry. how about out And it this that for then cable has through bringing And modems at mixture of you or Okay, XXXk Is a -- what's point? do of for should just the those for the revenue it? think revenue those we of then

Sanjay Kalra

so of in we terms in piece around next revenue is or of sit does recorded George, so. the which and the backlog connected, so in the or for there Yes. quarter P&L the be It XX% yet. don't should in our XXX,XXX cable modems see

and dollar no as the modem there clear or say. dollar modem, cable real versus to mentioned, -- cable if Patrick exact I So alignment, is

modems the the deployment it's the we think modems it's or on pick -- some up going there's both, more and cable on more I we way to whether see see connected revenue. how difference be modems So revenue overall, directionally, versus going in revenue. whether But

if percentage a hard to you say, around of but So in XX%, to we want it have a our precise revenue but will get number backlog. in range, I the be will XX% reasonable don't is take

George Notter

there. Thanks leave lot. I’ll Okay. a right

Patrick Harshman

Thank you.

Operator

you. Thank Leopold our next comes James. Simon And question Raymond of from

now Your line is open.

Simon Leopold

question. for Thanks Great. taking my

is One a couple. a simple ask modeling hopefully question. to wanted I First,

for the XXX lot expected quarter, I basis from You little point midpoint. seems it looking I'm than guidance, mix. XXX bit guiding on have basis when second maybe but of would QX up detail I'm point gross more I that. the based the at appreciate coming decline than you're lower so at a about a just And with decline margin provided

were in maybe maybe So volume mix better appreciate I there of understanding the us you Any quarter -- or get whether getting don't could just additional if just color can second on whether wrong. the I I'm they a assumption factors variables give that? or

Sanjay Kalra

Simon. sure, Yes,

of look our I XX% to for in and of HX, is understand if year in XX% overall full terms and margins, to you XX%, is XX% even In guidance are range they HX to QX closer lower, XX% XX%. the and

to if rates of range. actually you half, QX strong more overall So you in the what first full our by note are as second end. end please both be at But we precise, which in we Video QX also we the the HX of first the are at if the both our at year segments, will margins high ends, our mix half. experienced on in lower in that Cable compared versus margins look in more we expecting for and margins consistently Access, increase tight low in believe CableOS half the a saw But second very than to improved hardware have X% look half in

and to are it it's so of mix half CableOS, seeing versus going which more to now hardware are a the net what we So we the out, far. in second see

Simon Leopold

that has position awarded, patent And you of patents, about how now whether you. a want maybe that violated Thank or understanding the not opportunities, the or whether you you've gotten helpful. was see that competitively patent? you whether licensing Thank it's your other to your to anybody you. I see you were think thing That's get ask better

Patrick Harshman

point, have that the patent networks. as describes, it benefit intellectual Well, foundational are prepared it's is cable another, we it's say it we've be going access the It establishing recognition, having that it the extremely our to guess created. we that driven. speak, I innovation technology -- our think this to the of communicate future and It And objective, having a forward. will of how patent, way advantageous. a one speaks in suffice service business, is position, is extremely core to so to we we of bank, use as a overarching think, said, go and in to we we But at that not property, speaks we've Exactly relevant will value, which we the the or leadership be we to to strategy. that to think market-leading not think

Simon Leopold

be a guess, may competitors question element of have talked have to sense yours. would this products all or at point? of comparable one have of they don't you patent you whether your I my that violated know Do about not number is or

Patrick Harshman

right. frankly, of you're lot Well, We've talk. heard a

very anything yet to We any for yet to into little, have to run we And we specific. have have seen -- run frank. except into anything PowerPoint be

And so I seen, think be that, that Simon. remains to

Simon Leopold

Great. taking questions. my Thank you for

Patrick Harshman

you. Thank

Operator

Thank next question our you. of Frankel And Steven comes from Dougherty.

now is open. line Your

Steven Frankel

like very where full-scale [deal What couple A today what CableOS we discussion. in large remained afternoon. with from Good - major to trial] on seemed follow-up happened the get a deployment? of your Tier are to Xs

Patrick Harshman

customers. good a X and our It's has so it is is difficult this impression committed that management this to switching The is, and pretty customers, the Touching architectural high-volume of is, Tier different for example, to system way -- generalize. And broader for rollout. our different the systems, a manifest incredibly has in themselves that infrastructure, early works of part the ways routing big number IP et implications are technological cetera. with shift news

software delivery for in our about preparing end-to-end it's the So new end-to-end engaged, IP volume we that involves customers, validating and And said, technology, virtualized more about validating rollout. as different network. less our are system we this actively increasingly, with

in they're our validated ready way higher in we customers home that really in to down are the the And of really, a volume start stretch so believe, getting worked and different coming to field. roll these systems end-to-end

second guidance greater And half. to can in to that second see has half going been on-ramp broader just the So we're deployment good. even we certainly, just in in But see the the But really The moving our than really encouraged things the here technology. that progress are based challenge on start been been significantly 'XX. that progress, given. good more the you as we've be the complex, clear, to has has

Steven Frankel

the Great, Patrick. on And segment. Video

the some you and off alternative your customer background was? turned in give you SaaS what us can the that made maybe why as offering, So decision to they that's think

Patrick Harshman

They second on on So in We build And had decided distinct location, two up -- cloud this operating customer infrastructures. clarify. physical were started let cloud one while They physical in cloud, so return they going approach locations. using their were revenue both me infrastructure off our one SaaS. infrastructure. in cloud to had they a to to

at one And that's this and some locations expected to more what to of quickly anticipated. the is just the location down location, all than of we they been Now move happened to their down we decided point traffic to one second those consolidate strategic the and road turn plan.

So temporary They're its they're we But from consolidation right our SaaS -- of we had sites largest customers actually have I'd our a, to are say, two among one. step simply now. a actually, still still customer. because down

Steven Frankel

I that Thank really appreciate you. clarification.

Patrick Harshman

you. Thank All right.

Operator

Instructions] over for Thank turn Harshman you. questions closing showing at the Patrick like remarks. to And conference I'm [Operator back further time. no this to I'd

Patrick Harshman

Well, thank much. you Okay. very

beyond. continuing you just we're a half with from forward support, second heard we're your performance. we looking soon. as We're strong to by great first positioned half look you've for us, a again speaking and forward encouraged XXXX and As and We importantly, appreciate our to all and

Sanjay Kalra

Thank you.

Operator

participating have day. conclude the disconnect. Ladies and in great program, does may conference. all This and Everyone, for a you thank you gentlemen, today's

Harmonic (HLIT) 30 Jul 182018 Q2 Earnings call transcript