Great. Thanks a lot, folks. Appreciate you joining us here at the Raymond James TMT and Consumer Conference here in New York. My name is Simon Leopold. I'm a data infrastructure analyst. And I'm pleased we've got a fireside chat session right now with Harmonic. And we have with us the CEO, Nimrod Ben-Natan, and the CFO, Walter Jankovic. Thanks very much for coming. Appreciate it. We know we were just chatting about how busy conference season can be. So the way I want to kick this off, particularly with the idea that we might have some folks who are new to the story, is how do you like to introduce Harmonic to a new investor?
Thanks for having us. We operate in two major markets, the broadband access and video delivery. In broadband, we've pioneered a new virtualized and distributed architecture, which enables broadband providers to upgrade their networks to symmetric multi-gigabit speeds. It's a market that we're leading, kind of the leading player in the market. We've got more than 120 customers. The two leading customers are Comcast and Charter. The business is growing with strong operating margins. The recent guidance we provided for the year, we're going to do $482 million. On the video side, where we focus on products and solutions for content and service providers, the emerging piece of that business is streaming, which we sell as a service. A good example for that would be Peacock as a customer who is using that to deliver NFL games at scale with pristine quality and reliability.
Or more recently, if you follow the Olympics coverage, that was all based on our platform. The business is profitable. We've gone through a right-sizing process earlier in the year. And based on recent guidance, it will do $190 million this year.
Maybe on top of that, just a little bit about the background, each of you, how long you've been with the company and where you came from.
Sure. Maybe I'll start off. I've been with the company since May of last year. I've been in the communications infrastructure business for many decades now. And just prior to coming here, I was at Lumentum for several years.
For me, it's the definition of forever. I started as an engineer, then led the product. And since 2012, I was the GM of the broadband business. And earlier this year, when Patrick retired, I took over the CEO.
Appreciate it. So just reflecting back on the most recent earnings report, now it was a third quarter report, not a fourth quarter, but you had opted not to provide explicit guidance for 2025. Not necessarily a big deal, but you had suggested that there would be some downward revisions. So maybe sort of set up a little bit of what informed that commentary and how you're thinking about the outlook for the next year?
Yeah, certainly. In our last earnings call, we highlighted and provided some directional input with regards to 2025. Previously, in prior earnings calls, we had indicated that we expected an acceleration of our growth in 2025 in the broadband business. However, we have noted several timing issues with regards to customers that are committed, our customers, and impacting the timing of when we should see some of that spend, and specifically, a lot of that happened just prior to the last earnings call, and the three big factors there, first of all, was around ecosystem dependency. We don't do amplifiers, specifically FDX amplifiers. But we had highlighted earlier on in the year, Simon, that if amplifiers aren't operational in the field at scale, that could impact timing around 2025 revenues, and so that was the first factor.
The second factor is that at SCTE, there was an announcement made that Unified 4.0 silicon would be available to all customers, not just the top few customers in the DOCSIS environment. And so we've seen several customers, over a dozen, come back that were going to move down a path of DOCSIS 3.1 in terms of virtualization as well as the DAA infrastructure, now wanting to revisit that decision because obviously the benefits of Unified 4.0 from a speed perspective, compete against fiber perspective is much stronger. So we've now got customers who've come back, asked for samples, asked for pricing. And so we see a delay potential there in terms of timing delta of when we should see that spend occur. Now, that's a big benefit for us because we see DOCSIS 4.0 beneficial in two ways.
One is it's a higher value technology, so from the perspective of the potential spend being much larger for us, as well the ability for us to win more share. We've got significant capability and lead on being able to do FDX as well as ESD in the market. And therefore, we really believe that that is a tailwind for our business and really strong long term. B ut will have a short term impact as customers reconsider their spend profile for 2025. The third element is we actually get formal forecasts from customers. And therefore, we noted on the earnings call that we had a formal forecast update from customers. We've incorporated that and therefore wanted to be very timely and transparent, obviously, with regards to what we're seeing in 2025.
After our earnings call, you also saw that Charter announced their earnings and indicated that their network evolution plan, the timing of when they expect to complete that phase, moved out a year to 2027.
Anybody paying attention?
Yeah. No, no surprise. But now everybody sees the pattern of spend, if you will. And so those are the factors. Now, the really important point to take away from all of this is that these timing headwinds in 2025, they turn to be tailwinds. So as we look forward to 2026, we see a reacceleration of growth. You think about amplifiers in terms of the FDX amplifiers being operational ready out in the field, the 4.0 unified and customers moving down that path and adopting. Our efforts around non-top tier customers in terms of the rest of the world just generally deploying out there. So we see it as tailwind for 2026 and beyond. And that's the key point we want to make sure everybody's clear about that we see at some point those headwinds turn into tailwinds for us.
From a market standpoint, we just see it as a broader market, especially with that Unified 4.0 being available to everybody.
That was one of the things I want to follow up on out of that. What is the timeline for when these Unified amplifiers become available and what portion of your customer base are waiting for this amplifier? How much effective is that?
So maybe clarifying a couple of points here. We really talk about operational readiness, not just availability. These are highly programmable amplifiers, unlike the kind of legacy amplifiers. So you may hear that they are available but operational scale is different. In terms of dependency, this is really those Unified amplifiers are required for networks where you decide to use full duplex as a technology. And it's really one major customer doing that while the others have the option with unified, but have not yet decided to do that. So the impact is really with one customer.
What's the timeline for when you think they'll be available at scale when they're integrated into network? What's the readiness expected?
We did not provide a kind of specific timeline within 2025. What we said is that we believe that all of that will turn into tailwind going into and during 2026. Not everything is under our control, so we cannot comment on that. The one thing we can comment, which is more about the ecosystem of these amplifiers, which so far there was only one vendor in that space. A second one, Sercomm, announced entering into that space. And this morning, we announced collaboration with them to really help bring that technology to market, leveraging our full duplex technology expertise. So we think that's kind of a good move that will help this ecosystem.
So you're selling a device called an RPD, remote PHY device. Is it the same device regardless of what kind of amplifiers they're using? Are there different models? How does it affect what you're shipping and what you're selling?
Yeah. So in Unified 4.0, there is an RPD and there is RF front end that have to be compatible with the so-called Unified 4.0. So regardless of where it gets shipped for Unified 4.0, it's the same. If you operate that as a full duplex, then you need those specialized full duplex, well, they are called Unified amplifiers. If you operate the network as a traditional extended spectrum, then you don't. This can be any amplifier from the traditional suppliers.
And what's the relationship with Sercomm? So is it essentially a channel partnership? How should we think about the business arrangement?
It's a technology partnership. We did not get into any, at least the press release, we did not provide any commercial details about the arrangement. The most important thing for us was to help accelerate introduction to the market of a second supplier that has a lot of experience in high volume manufacturing. They come from the CPE space. What's important to understand that for each RPD, each node that we sell, you need to deploy anywhere from 17 amplifiers to 20 amplifiers. So it's a high volume, much higher volume than what we do at volume for RPDs.
So I was sort of half joking when you mentioned Charter extended the timeline for its build-out. But when I reflect back on the SCTE, the trade show in September, I think the message coming out of the entire industry was Charter's off the starting block. They're going to finally get moving with their upgrades. And then on the earnings call, they did announce, hey, it's going to take us through 2026 into 2027. Between the cable TV trade show and Charter's announcement, did you perceive anything changing or is the timeline for your work with them really much?
I don't think anything changed. Obviously, we work very closely with them. It was just a timing of making a public announcement, which they made at kind of the end of their, well, at their earnings call, which just so happened to be a couple of days after our earnings call. So we could not comment on any of that during our earnings call. And they specifically said two things that integrating this architecture is taking longer. They made some progress, but it's taking longer. And deliberately, they decided to extend the window of the project all the way to the end of 2027, which when you think about that, that changes. They also talked about the capital intensity in the out years that will be lower driven by that decision. There wasn't anything new happening between the SCTE Tech Expo and that timing.
I think it was just a matter of an opportunity for them to speak publicly about that.
Yeah. The other big announcement was Comcast talking about spinning off its cable business. What could that mean for you? How do you think about that?
This is cable programming. I mean, it's part of the cable, the business of Comcast, but not so much related to the broadband business. So I don't see, we don't see any impact or anything like that. They are kind of potentially customer of our video business, but I actually believe as a pure play programming, then in fact, they will go and acquire other struggling assets on the video programming and kind of make it a healthier business. But for broadband, we don't see any impact.
So, for the RPD, kind of CableOS side of the business, non-event video business, maybe a good thing.
Maybe a good thing, yeah.
Yeah, just another customer.
So yeah, you've given us disclosures on Charter and Comcast because they're big customers. Process of elimination has implied or told us, informed us that other customers have been rather slow. Maybe talk a bit about those trends because I think I'm as guilty as the street of focusing on your two biggest customers. I want to hear more about the others.
So I think we did talk about progress that we made in Q3 in terms of new wins. We specifically mentioned seven new wins, and we said that that's going to continue through the rest of the year. We did make a couple of changes earlier in the year. We brought a new global SVP of sales that is very focused on that market with the idea to grow that as well as the telco market. And we do see, I would say, movement in that market. I think the whole DOCSIS 4.0 is a catalyst of many that were on the sidelines kind of waiting to see what's going to happen. We think that many have made significant investment back in the COVID period that kind of they amortized, and now they really have to upgrade the network, and DOCSIS 4.0 is available.
The competitive environment for them is getting even tougher with we all heard about AT&T making a significant move, a kind of increase on the fiber side, and fixed wireless is a wild card competitively for everybody. So our expectation going into next year that we're going to see kind of acceleration of the growth of the non-top two. There is definitely much more attention on our side, and we see a lot of kind of phases that are coming into the market primarily because of the Unified 4.0 kind of change.
And just to add to Nimrod's comments, I mean, we did say in the last earnings call that we expect growth in the current quarter for the rest of world customers, the non-top two, and as Nimrod pointed out, as we go through 2025. So if you think about the situation I mentioned earlier in regards to Unified 4.0 and some customers reconsidering if they should now jump onto 4.0 versus 3.1, certainly that impacts the trajectory of growth in 2025, but we still expect growth in those rest of world customers that continue on.
So, your comment about AT&T's recent analyst meeting, I think it seems like it's more than that because Verizon now trying to buy Frontier speaks volumes. T-Mobile entering JVs to do fiber to home. T-Mobile, a wireless carrier entering JVs to do fiber to home. So we can see what's happening on the sort of telco side of the world. How is this informing your strategy, whether it's your own fiber to the home products or the reactions of your customers? Are they thinking differently? Are they reacting to what their competitors are doing?
We definitely see intensified priority around upgrading the network. Yes, many would wish to go all the way to fiber, but I think everybody understands that this is a long and expensive journey, and the most important thing is to maintain the subscriber base. I think the timing with 4.0 is helping them. I think across the board, they are getting very creative, and I think cable is leading the whole convergence much better than the telco with the mobile service on top, and I think we're going to see a lot of rebundling of streaming services, but I think from appetite for upgrading the network, which is a multi-year effort, you cannot wait until you need it. You have to do that ahead of time. We definitely see an increased activity and interest.
I think, as I said, the DOCSIS 4.0 is a great timing because many who were on the sidelines are now kind of jumping on it.
Maybe just one other point to add to Nimrod's comments here is if certain operators were on Legacy 3.1 and were kind of sitting saying, maybe I'll just bite the bullet and go fiber. I think the ability for them now to go to 4.0 gives them a jumpstart in terms of getting to those fiber-like speeds and to do it faster and to do it for a fraction of the investment. Because what we've heard back in, I think in the public domain, that it could cost you 5x more to go fiber as compared to do a DOCSIS 4.0 upgrade when you think of ripping out all the coax and putting fiber to the home.
It really gives a nice migration path, gives the ability for operators to jump in and compete against what you just pointed out, Simon, which seems to be a consolidation and a push forward on fiber.
One of the metrics you've given us in the past that sort of illustrates the runway left on these upgrade initiatives is the percent of penetration that's been upgraded to new architectures. Where does the cable TV industry stand in terms of upgrading to distributed access architectures and a virtual CMTS?
Yeah, so if you think about our 120 customers, we think of them as covering roughly 50% of the total cable footprint.
Does that include China when you say 50%?
No, excluding China. We totally.
Just, I always got to clarify that.
Of the 180 million that we say excluding China, that's the subscriber count.
Now, off that 90, we're about 1/3 of the way. And when we say 1/3 of the way, excluding DOCSIS 4.0 for those that have done DOCSIS 3.1 and will do 4.0, and we've got a couple of customers like that, and excluding any fiber optionality, which is an important component on top of that, and obviously excluding new wins on top of that. So it's about 1/3 of what was captured, which is about half of the total opportunity for kind of the first wave and as we see the second wave of DOCSIS 4.0 and the fiber.
Gives us another dimension to count.
Exactly. That's how we look at it. It's a multi-dimensional growth expansion opportunity.
And then I want to touch a little bit on the competitive landscape. And I want to sort of bucket this in two parts. The first part is around the headend or the cable OS, the virtual software part of it, and the other is around RPD. So let's tackle the headend first. So 120 wins, I believe the next closest is single digits based on their disclosures. How is the marketplace thinking about that in that I think buyers get frightened about being sort of locked in, so they look at alternatives, but you've got a pretty massive lead. What's sort of the dialogue with your customers when they want to look at alternatives?
First of all, out of the 120 customers, 121 customers that we have, they all have our cOS platform as the exclusive orchestration system that they use. In many ways, we think about that the same as enterprises are thinking of a CRM system, ERP CRM. You have one. You cannot bring multiple. We believe that that's going to continue. We always respect the competition, and we think that we're very focused on keeping our customers happy and satisfied and kind of keeping the roadmap. We're not standing still, pushing that forward with the goal of keep winning the other half of the market. At some point, this is a heavy investment. A smaller player that has a single-digit customers may struggle to justify kind of the play in the market. That's on the headend piece.
On the RPD, this is obviously where customers are maintaining a multi-source supplier strategy. This is also heavily dependent on supply chain, and there is always something that could happen. So that gives them the flexibility. There are no supply issues on the software and on the headend. It's an area where we focus really hard to differentiate, and I think we've got a very unique platform for kind of the RPD, the outdoor node. And we do have 60% of that market, give or take. And in some cases, there is a customer preference to still go with one vendor from an operational kind of one throat to choke support arguments.
Can you differentiate RPDs while still adhering to the industry standards?
Oh, yeah, big time. I think from the very beginning, we've innovated with a modular platform that has optionality for fiber, kind of very dense and modular solution. We've innovated around power management, power consumption, unique capabilities that are very valuable for customers. In fact, we have a very rich patent portfolio around capabilities related to that. Everything is fully programmable. I mean, we've done a lot of innovation. I think the market that we got is thanks to the innovation, not because of the commercial bundling.
Great. I want to pivot to the video segment before we run out of time because that's important too. It's not the growth driver, but maybe help us understand, first of all, the elements of your video business and what drives that market.
Yeah. So just generally, the video business broken up into two pieces. The SaaS piece of the business where we're providing the video streaming, we do both on demand as well as live. We're highly differentiated in the live market. And that's the area of growth. As more and more folks adopt streaming, you're seeing exclusive streaming events and property rights in terms of the sports rights move to those types of domains. We're uniquely positioned there with the platform that we have. The other piece of our business is what we call the appliance business. It's production and playout as well as broadcast video side of the business. And Nimrod mentioned earlier the size and scale of that business. I think our focus has been this year to really right-size that business, get it back to profitability, which we did in Q3.
We expect it to be, based on our last earnings call and guidance, profitable in Q4. So really driving it for growth. We've got two different elements to the business. One is growing with streaming, and then the other piece of the broadcast market over time, the overall market continues to decline. So we're managing that for profitability. So those are two big elements, and the driving force on the whole video market is really this shift to streaming and how long will that take in terms of impacting the broadcast side over to streaming. That'll probably be many, many years, and we're trying to manage through that transition.
Now, when you say streaming, I think of streaming really as two different things. There's live event streaming, like sports, watching it while it's happening, and then there's prerecorded streaming where it's sort of the on-demand, the show I missed. What's the breakup of your business between the sort of live events and the recorded files?
Yeah. If you look across our top customers and we look across at the color of what makes that up, it's significantly tilted to the live events. We do a lot of video on demand. We support a lot of channels out there that are more in that category as well. But if you look across the board, especially the tier ones that we have in terms of customers, it's definitely more on that side.
It's not an easy problem to solve getting the live streaming at scale to achieve broadcast reliability. An NFL fan expects no interruption watching an NFL game. The fact that it's exclusive by one of the new streaming guys, they don't care. They want to see that super reliable, resilient. This is a lot of what we do is how to get cloud infrastructure that is not at the same reliability as what you expect from a consumer point of view at home to deliver that reliability as you think of how you create resiliency within the architecture to provide that kind of reliable service.
I watched the Olympics on Peacock and sort of experienced what that was like, and it was great. Then Tyson-Paul was kind of a disaster. People had a lot of bad experiences with it. I think one of the things I don't think many understand is there's a lot of parts to the bucket brigade from the source in the cloud before it gets to your home. Maybe talk a little bit about, and not sort of saying you guys were behind the Netflix Tyson-Paul, but it's something I think a lot of people saw as a way that, hey, maybe it doesn't always work. What's sort of your take on that?
Certainly. A couple of things. First of all, it's tough. The challenge is to be a boxer at 58 years old. I think that's the first challenge. Second challenge, as you pointed out, having a reliable stream when you've got tens of millions of sign-on users coming on for a specific event at a specific time. And as we pointed out, we've partnered and as a customer had Peacock. We've done the Olympics exclusive. When you see the exclusive NFL type of playoff games, you've got a significant amount of scaling up that you need to do and be able to handle. And to your point, Simon, it's both on how you handle the streaming, how you handle it in the cloud infrastructure, how you handle it through the CDN. And so all of those elements come into play.
I think what is the big challenge for the folks that take on the streaming is they pay the rights to the sporting event, and brand reputation is a significant factor, right? and it has to go flawlessly or else you get the tirade of folks that are on social media complaining about the actual event, so it's not an easy problem to solve. We've demonstrated partnering with folks the ability to achieve that level of quality scale, video quality, and so it's not simple and straightforward, and we're out there to help the whole industry with that.
We're just about out of time. I always like to close with the following question. What do you think is the least appreciated aspect to the investment community, either around Harmonic or around your stock? What sort of do you want to make sure people walk away with?
I think the magnitude and longevity of the opportunity is not fully understood. We believe that it's a huge opportunity that will last over many years. It's not just one and done kind of I do this and not invest anymore. The 3.1, the 4.0, the fiber, these are waves that as you look across the entire opportunity, will last many years and can be very big. Yes, there could be lumpiness, which is part of what we deal with, but it's very significant and will last many years. I think that's number one. Number two, the platform that we developed, the cOS platform, is very unique in being able to transition those waves. We started with a very specific view on DOCSIS 3.1. It's the same platform that gets you over to 4.0 and gives you the fiber optionality. And even we talked about edge compute future capabilities.
So, very unique platform. And the last piece about Harmonic, I think, is the scale. I think we've demonstrated how we can expand the business and achieve fairly significant profit numbers that are driven by a lot of hardware and software with a growing number of customers. So these are kind of the magnitude, the longevity, the platform, and the scale. These are things that I think not fully understood by all investors.
Yeah. I think there's a lot of focus around 2025 as compared to our discussion today around 2026 and the reacceleration of growth.
Well, great. Well, thank you very much, Walter, Nimrod. Thanks, everybody.
Thanks for having us.
Thank you.
Thank you.
Thanks.