Well, welcome to the afternoon. Thanks for sticking in at the 21st Annual Needham Technology, Media and Consumer Conference. I'm Ryan Koontz. I cover the broadband sector at Needham. Really thrilled today to have Harmonic here, and CFO Walter Jankovic. Thanks, Walter.
Thanks for having me, Ryan.
Yeah. Let's bat clean-up here. You just had results Monday. Put up some pretty impressive numbers. Can you walk us through some of the puts and takes there for those that didn't get, you know, a full episode of the debrief?
Yeah. Certainly, Ryan. We just reported our Q1 results, and we had a really strong start to the year. Our revenue growth and our continuing operations, which is our broadband business, revenue growth was 43% year-over-year. Sequential growth from Q4 to Q1 was 24%. Underneath the revenue, the rest of market, which is our non-top two customers, the growth there was 78% year-over-year, demonstrating the diversification that we're starting to get across our revenue base. When you look at our earnings for the quarter, they were significantly up in terms of our EPS year-over-year.
Yeah
about 140%. That demonstrates the operating leverage that we have in our business as we scale up the revenue. Bookings were strong in the quarter. We posted a book-to-bill of one for rest of market customers.
Yeah
above one. That comes on the heels of us doing a book-to-bill of 3.5 back in Q4. We're sitting with record level of backlog and deferred revenue. We highlighted during the call that we expect 60% of that to burn off over the next 12 months.
Which is out to the end of Q1. We felt like we started the quarter quite strong. We had some wins in the fiber space, which is continued strategic focus.
Yeah
for us. We also highlighted that when you look back over the trailing four quarters, in the fiber side of our business, that makes up over 14% of our revenue.
Oh, great.
Showing progress in one of the key areas that we're looking to grow and diversify in terms of the overall customer base.
Yeah.
Free cash flow for the quarter, $30 million. We bought back about $43 million of shares, so it's good start to the year.
Certainly.
And-
That rest of market number just jumps off the page, really.
Absolutely, and I think with the bookings and where we're sitting now with backlog, gave us the confidence to raise our full-year guidance for the business by over 5% at the midpoint for the top line.
About 13% for the EPS as we see strength.
Yeah
for the year.
Your 2Q guide was very impressive, too.
Yeah, we continue to see the momentum as we're building up both across our top two customers, but across the rest of the market, so we expect year-over-year strong growth in Q2. That's all adding to the story in terms of our confidence level in the business.
Yeah
The growth for 2026.
Yeah. Fascinating. That's, again, what I mean, going a little bit off script here, but, you know, one of the questions I asked on the call was, you know, what is the trigger here that you're starting to see light up that rest of market, you know, for the business?
Well, I think there was this, you know, a period where operators, especially the rest of the market.
Yeah
were deciding what technology to go with, and the decisions have been made in terms of the DOCSIS upgrades.
Yeah
that are happening in the market. The competitive dynamics in terms of providing their subscribers, their customers.
Sure
the quality of service, the reliability, and the speeds on the network.
They gotta compete.
They have to compete.
Yeah.
There's too many other competitors, both in the fiber space and fixed wireless access space.
You're starting to see that momentum building in terms of rest of market customers starting to deploy.
That's great, I mean, 'cause you've had Comcast there in the lead, kind of the lone wolf for a long time. Great to see everybody get behind the whole industry behind you. There in the quarter, your gross margins were also really strong on product mix. What can you tell us about went well on the margin front?
Sure. It's the mix of the business. As we look at both Q1 as well as the guidance we provided for Q2, it's the cOS licenses.
That's our orchestration software. The mix of that business versus the total revenue is-
Yeah
stronger. That drives up the margin profile, of the company.
Yeah.
When you look at it from a first half year-over-year perspective, it's stronger.
Yeah
of that business, as you're getting more operators rolling out the network.
Yeah.
They're buying licenses for the cOS.
Yeah
orchestration software, they're buying the nodes from us in terms of the hardware piece. As we've talked about before, in the market share position, we continue high market share in the cOS.
In the license side of the platform, over 95%. In the hardware side in nodes for DOCSIS-
Yeah
you know, it's around 70%. Our stated goal has always been greater than 60% in that space.
Mm-hmm. Yeah. Can you walk through some of the mechanics there of when customers come to you for licenses and what drives that? I mean, obviously, they're gonna do an upgrade. They've gotta roll out hardware, these nodes, these node upgrades. When do they come to you to buy the software typically?
Well, different customers buy at different points in time, but generally, they buy the licenses in advance of lighting up the network.
Got it.
They've gotta put out hardware out into the network in terms of the nodes and the rest of the ecosystem equipment that's required, but they're buying licenses as they go in terms of lighting up equipment and putting it on the virtualized platform.
You've got, must be great visibility looking into 2Q now. Must have a lot of confidence in your 2Q numbers.
Oh, yeah. Well, with the backlog that we have.
Yeah
it's, you know, set up, you know, with a high degree of backlog that supports the revenue in the near term. That also goes for the year as we look at the backlog and where we sit today at the end of Q1 and look forward through the next several quarters.
Yeah. That's fantastic. Talk to us about supply chain. I mean, this has kind of been a little bit of a boogeyman in the hardware industry here with semis and memory and, you know, lots of companies out there raising price. Obviously, you guys don't sell consumer gear or Wi-Fi gear, so not tremendous pressure on your bill of materials as a percentage. You know, how are you managing your supply chain fears these days?
Yeah, certainly. I mean, it all started more so with the memory a few months ago.
As we highlighted during our recent call, we have secured most of what we need for this year. We have it in hand.
Wow
in terms of the memory requirements. The team's done a great job in getting out ahead of this a few months ago in terms of making sure we're pipelining the memory. Obviously, we're paying at an elevated price on that memory.
Yeah
as many of you know, and that's gonna impact us more in the second half of the year, as I highlighted during the earnings call.
We expect to have about a $6 million net impact from the memory-
Yeah
as we go into the second half as a result of the elevated pricing.
On your hardware shipments.
On the hardware shipments, as you look at, you know, 2027, We don't see the prices coming down.
Yeah.
You know, I think that's gonna continue to be a headwind a cross the industry. Beyond the memory, there's, you know, concerns around supply chain with regards to PCBs.
Yep
with regards to aluminum, CPUs, servers.
Servers.
People getting-
Yeah, you sell servers sometimes.
'cause sometimes we sell servers to our rest of market customers. Regardless, they need servers either procured-
Either from you or-
direct or from us, but at the end of the day, they need that in order to get their deployments moving at the pace they want to. These are, you know, wide issues that are impacting in several different ways, that's why we mentioned during the call on Monday that, you know, we're being, you know, prudent, cautious about, you know, our view because of the supply chain. We see the customers.
Yeah.
Deployments happening. We've got to be mindful with regards to the supply chain as well as the macroeconomic situation and all the other things that are going around.
Yeah
out there.
Yeah. Sounds pretty familiar. A lot of hardware companies are being conservative about that second half, when supply looks like it's gonna get tighter, hoping they can do better.
That's right.
Yeah. Great. You just finished a pretty big transaction of divesting the video business. Process that started a few years back, you're about to get it done, I guess.
Yes, it's.
about to close.
our expectation is we're gonna close here in Q2.
We'll move forward as a pure play broadband provider.
Yeah. Phenomenal. Can you walk us through how that changes your profile on the income statement? You're reporting, I think, separately now already.
We already are since we filed our Q4 results. It went into held-for-sale discontinued operations that way investors can see the broadband business at its fullest, as well as all the disclosures associated with it, so there's much more visibility into that business.
Yeah.
How it changes us is quite dramatic. First of all, broadband is a faster growing business.
Yeah.
Now you see the full growth rate of the broadband business, as we've just talked about a few minutes ago. As a pure play, it allows us to, A, focus on streamlining in terms of, you know, our operations to be all focused in on broadband. The other thing that the transaction allows us to do is redeploy our capital.
By selling off that business, redeploy that capital into the faster growing broadband business into some key strategic areas that we're focused on. You've heard us talk about some of the organic investments we're making.
Yeah
in regards to our fiber business
Sure
Product launches there, but also our intelligence platform and some of the recurring revenue.
Yeah
opportunities that we see in the market. It's gonna make us a lot sharper in terms of our focus.
Yeah
redeploying our capital in those areas where we see growth potential.
Got it. cOS is sold on a license basis, but you'll have add-ons that could be subscriptions.
That's right.
kind of concept of-
That's right. When we sell our licenses today, they're sold as a license, and then you've got recurring revenue because you've got SLA support.
Yep
For that software. Also we've got services that are recurring revenue services that we're adding on. If you think about it, over the last, like, 12 months or so, we've announced Beacon.
Yep.
We've announced Pathfinder. We just announced Amply, which is amplifier orchestrate. We don't do amplifiers.
Yeah
The orchestration and software element of it.
You can be the brain of the amplifiers.
Exactly. You're looking at that intelligence platform.
Yeah
that can drive you into a new area of TAM. Usually we look at TAM, it's the CapEx spend of the service providers.
When you're talking about, this element, you're getting into the OpEx side of their business.
Yeah
Driving value, and the kind of value to drive is from the data-
Right
From the insights, to proactively deliver value to the customer by reducing truck rolls, reducing churn on the network. How much does a customer cost to acquire, how much does it cost you when you lose a customer?
By being able to pinpoint and improve customer reliability, improve, you know, reduce downtime on the network. M Icro outages and things of that nature, that creates a lot of value.
Yeah
for our customer, creates value to the subscriber. We're focused around that part of our capability. Building on to our cOS orchestration.
intelligent platform that goes on top of it to drive that kind of value, and drive yet another growth vector outside of the CapEx TAM.
Yeah. Well, you're the natural aggregation point in the network to collect all that data that sits downstream from you, so it's a very strategic spot to hold.
Absolutely.
You know, let's shift to talk about the industry a little bit. You know, DOCSIS 4.0 Is this big catalyst for the industry, getting moving on, you know, upgrades. Finally, we've had some kind of fits and starts. You know, I think we're now marching, the whole industry's marching in the same direction now.
Yep.
You know, how do you, how should investors think about your TAM? you know, per year, how are you sizing the TAM up right now relative to your core products that you sell and some of your newer products?
Okay. Yeah, let me zoom out and talk a little bit about, you know, phases of deployments and i nvestment from the service provider angle. Right now, as you noted, Ryan, I mean, you know, we've got everybody starting and migrating. You've had some big customers who started before.
Yeah
Continue to migrate and upgrade their network. You've got a lot of this rest of market now moving and upgrading, and creating the network. When they're doing the upgrades, let it be to DOCSIS 4.0 or 3.1, but upgrading, virtualizing, and all the rest of it.
Mm-hmm, mm-hmm.
You've got a CapEx spend that these operators are spending on the software, the nodes, but also the amplifiers.
Yeah
in the network, and many of these networks are being upgraded, and all the installation costs that go with that. You do this big upgrade, you're gonna have elevated CapEx during that phase.
Sure.
Obviously, we don't participate in that amplifier or installation part of it, but we do in the other elements of it.
Correct.
You go through this phase of migration. What's the next phase? The next phase is, you know, business as usual.
They return to spending on the network now that they've completed the amps, the installation work, the passives. Now they're focused around densification.
Yep.
Splitting nodes, putting more nodes out there to improve speeds and feeds to the customer, but also Fiber-on-Demand. We've got m any customers who are already starting that journey on Fiber-on-Demand, where out of one of our enclosures, you can either do DOCSIS or y ou can do Fiber to the Home. You can be more precise about where you make your targeted investment.
Right
where you're gonna get the fastest ROI. It gives flexibility. I think one of our customers was quoted in Light Reading a week or two ago, Optimum talking about their network build, and how Harmonic is playing into that network build in regards to areas like that. That's the next phase.
Yeah
In terms of densification, more fiber, buy these Altice.
Was that Altice?
Formerly. Formerly Altice.
Formerly Altice. Yeah.
Yeah. Optimum.
That's a big move.
Optimum. You've got that phase that continues to spend, and our view is, out of that spend of the operator, our participation rate is higher.
Yeah.
'Cause again, we don't do installation, we don't do amplifiers. Eventually, you know, we're not gonna stop at these speeds.
Sure.
We never have. We were talking about it today, 25 years ago was the 1- Meg modem. We thought. Hey, if you get a Meg, you're golden.
Yeah.
The reality is, it just continues to get uplifted.
Yeah
uplifted from there. What are today's macro trends? It's AI.
Upstream load that AI puts on the traffic, and if you think about more people doing more things with AI from home, we were talking to some folks in the room today that, you know, they'll run agents overnight so they get all their data and reports in the morning. That's gonna require and strain the network. You can see how the demand.
Yeah
The continued evolution of the network. The intelligent platform layer, you don't make a big investment in cOS.
In the orchestration without going after what I'll call lower hanging fruit of improving your OpEx, how you deliver your service to the customer. That's another vector of growth and spend. You know, we haven't talked much about the telco environment, but we've introduced a number of products specifically for that market as well in terms of fiber for the telco service provider.
Right.
Leveraging our cOS platform, leveraging our remote OLT, and some of our hardened remote OLT devices that we've recently announced.
Yeah, for some of those really distant rural areas, they really need that OLT.
The suburbs.
just to get the reach.
Rural are key use cases for some of those products.
Beyond DOCSIS 4.0, you're saying that is the path forward then really to upsell fiber, sell into the intelligence layer.
That's right.
How should investors think about kind of, question I get about you guys often is kind of terminal value. How do you think about, you know, when the DOCSIS 4.0 Upgrades really begin to slow down, what is your monetization?
The monetization is densification, and it's fiber-.
Yeah
Fiber-on-Demand.
Yeah.
Eventually, we see, you know, our view is we see the, cable operators moving and migrating with leveraging the investment they've made.
Yeah.
It's a kind of a seamless transition.
Yeah
moving over to fiber.
Same OS from that perspective too.
Yeah, exactly.
It's not disruptive.
It's not, you don't have to go and put a whole new platform in place. You leverage what you have, and you upgrade accordingly, and you upgrade on a, you know, targeted basis across the network, which we think is very compelling. This is the way we look at the multi-phases of spend and how we will participate in that spend and continue to grow the company in terms of the key vectors that we're focused on today.
That's great. You know, with some changes in the competitive landscape a little bit here with Vistance Networks, the former CommScope, former ARRIS, now divesting the RUCKUS piece.
Yeah.
You know, they're talking about M&A. You know, you've got another third player in Vecima out of Canada that's kind of a tier two-ish type player. It's really a three-horse race. How are you thinking about that competitive landscape, and how are you thinking about, you know, M&A with your enhanced balance sheet now post post video divestiture?
Sure. Let me just start with the competitive landscape first.
We'll talk a little bit about the M&A priorities. In terms of the, competitive landscape out there, you know, we don't see our position changing in terms of our market share position on cOS.
We continue to get new wins with customers. We'll talk about that in a second, a little bit more. From our perspective, our focus is more on diversification.
You know, I think one of the things that's impacted us is our customer concentration.
For sure.
We continue to focus on rest of market and fiber as ways to diversify the business. You know, specifically I'll talk about the, you know, Vistance c ertainly with the RUCKUS. Now they're just a pure play Aurora Networks.
Right
In terms of competitors, definitely they're gonna likely show up in more places in terms of competing.
You know, we feel very confident with our position. I think there was some commentary, a couple weeks ago with regards to one of our European customers.
Yeah.
A win that Vistance had with that customer around the vCMTS platform.
Mm-hmm, mm-hmm.
That's been a customer of ours for many years.
Yeah, I recall.
We've had you know, just this last quarter in Q1, multi-millions of orders coming in from that customer.
Oh, good.
We are continuing to strategically do things with the customer. I think at ANGA we'll have something to show over there.
Which is a big European show.
The European show.
next week. The fact of the matter is that customer's always kind of been focused on a dual vendor, even at the orchestration. Not many do.
Which is kind of odd.
that customer has.
It's unique.
Has, which is fine. I think the commentary was that, you know.
Yeah
We're being displaced. I think we're in a very strong position with that customer.
Yeah
We see that as continuing to have a good, strong relationship with them.
I mean, being second source for one of those deals doesn't sound like that great of a business opportunity, to be honest, right? I mean, it's all the work and a little bit of the payoff.
Well, you know, as you know, Ryan, I mean, once you put your orchestration in place, you've got.
Yeah
all your back office connection.
It's a lot of work.
There's a lot of heavy lifting.
That's what I'm saying.
You've been around the industry, so you understand that, but for just generally, for investors out there, it's like putting in an ERP.
It's not the ERP, it's everything that ties into the ERP.
Yeah
that you're setting up there, so it's a big investment for a customer.
There's a reason companies don't run two ERPs on purpose.
Correct.
Yeah. I wanted to ask you too about M&A.
Sure. Yeah, on the M&A front, I think in our recent call, we've been very focused around two vectors in terms of what are our strategic priorities for the company. One is diversification across the piece, and with an eye on fiber, 'cause we see the customer base and we're.
Okay
look at how do we diversify so we have less customer concentration. That is a area of focus. You're seeing it in our organic investments-
Yeah
in terms of what we're doing in the fiber product space. Then the second vector is around the intelligent platform.
Sure
and how we can. The eye is always on, you know, here's the direction, we're doing things organically. Is there something we can do inorganically that just speeds it up?
Yeah.
Right? gets us to the place. we're really focused on those priorities.
What we would be interested in looking at.
Sure. On the intelligence layer, do you see, maybe more opportunity to take a bigger piece of that pie in rest of market?
Oh, absolutely.
Maybe you would see at a monster tier 1 that probably wants to do.
Well.
more in house.
He, yeah, you, exactly.
what do you see?
I think you hit the nail on the head. With larger customers who've got bigger organizations.
Yeah
they've got the capability. They may use us for certain things.
Yeah
They've got the capability for rest of market. We would look there for h igher wallet share.
Definitely
In terms of those customers. We see that as a exciting opportunity to really expand out our rest of market, customers and diversify on that front as well.
Yeah, great. You started to tell us about some of the newer customer activities that may have been announced or you've been talking about on your recent calls.
Yeah, we've had, well, a number of fiber wins.
Yeah.
That's why, you know, we can continue.
Talked about Venezuela.
to highlight.
So.
Yeah, there's one that we announced this morning in terms of Venezuela, and that's a specific use case for-
Okay
backhaul of.
I see.
mobile traffic.
Yeah.
Right? Here's, you know, service provider carriers-.
Yeah
that are using their wireless network and to offload traffic leveraging a fiber type of solution.
That's where we play in there.
Yeah
specifically. There's many different use cases. You know, we talked a little bit before about, you know, broadband in terms of Fiber- to- the- Home. You've got the BEAD use cases, which are rural, which are nicely aligned with our remote hardened OLTs.
Yeah
out in the-
Yeah
in the field.
Those are basically just switches out there, right.
Yeah
with your product.
High density out there. The benefit of those are instead of having to do a street cabinet and getting permitted in the way it's often done, you can send these out on poles out.
Yeah.
They're very small units, compact, and get a lot of capacity out to the end customer.
You can kind of pay as you grow, I think, too.
Yeah
with your model of, pluggables.
Absolutely.
Yeah.
Absolutely. Those are key elements, yeah.
Yeah. Any other customer announcements that you guys have highlighted of late?
No, I think we talked about Optimum.
Yeah
we're in the Light Reading, recently. We see that as very exciting in terms of, you know, partnering with them in terms of their build-out.
That's a customer that's mainly focused on trying to convert from coax to fiber, and now they're going back going, "Well, there's still a lot of value in coax.
Sure. You, it's not a one or the other. There are opportunities in terms of really leveraging and doing the migration, and it just demonstrates the seamlessness of the solution that we have.
Great. Well, you know, really nice to have you for Fireside, and anything you wanted to say in wrapping up in terms of the key investor message around.
I think the key investor message is, you know, we're off to a great start this year.
Sure.
You know, we're more confident in the year, hence the reason for raising our guidance, and we're very clear on what, where we're going as a pure play broadband provider. It's exciting times. The team's really excited about the opportunities ahead of us, as well as the traction we're getting in the market.
Yeah.
So.
I am too.
All right.
Thank you.
Appreciate it. Thanks, Ryan.