Welcome to the Q3 2021 Harmonic Earnings Conference Call. My name is Tawanda, and I will be your operator for today's call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask the question during this session, you will need to press star then one on your telephone. Please note that today's conference is being recorded. If you require any further assistance, please press star then zero. 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 Q3 r 2021 Financial Results Conference Call. With me today are Patrick Harshman, President and Chief Executive Officer, and Sanjay Kalra, Chief Financial Officer. Before we begin, I'd like to point out that in addition to our audio portion of the webcast, we've also provided slides to this webcast, which you may see 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 posted on our website and filed with the SEC on Form 8-K. We will also discuss historical, financial, and other statistical information regarding our business and operations, 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. Now I'll turn the call over to our CEO, Patrick Harshman. Patrick.
All right. Thank you, David, and welcome everyone to our Q3 call. Harmonic delivered another quarter of strong financial and strategic results with 33% year-over-year revenue growth and $0.09 EPS. Both our Cable Access and Video segments again contributed materially, each with double-digit revenue growth, positive operating income and important strategic progress. Our Cable Access business delivered 43% top line growth and the number of customers deploying CableOS grew 79% year-over-year. Our Video business was up 26% year-over-year, with streaming SaaS revenue up 69% year-over-year. These results demonstrate continuing strong market momentum for our company, driven by our newest products and services. The combination of this momentum, our near-record backlog and deferred revenue, and an increasingly robust cash position provide a strong foundation for continued growth through the balance of this year and into 2022.
Looking now more closely at our Cable Access segment, it was another record quarter. Segment revenue was $57.6 million, up 43% from a year ago, as 68 operators were deploying our CableOS cable and fiber solution worldwide, up 79% from the Q3 of 2020. This updated end of quarter customer count includes one new international tier one operator. At quarter end, these ongoing deployments had scaled to serve over 3.9 million cable modems, up 77% year-over-year. As Sanjay will address in more detail, the quarter was also characterized by continuing higher supply chain costs, particularly for our industry-leading DAA nodes. It's a very tough environment, and we're proud of the job our supply chain team is doing to keep our node platforms flowing and our customers' programs on track.
As most of you know, we established our market leading position in virtualized cable broadband by investing in R&D, innovating and collaborating with like-minded customers. Our commitment to continuing to invest and innovate was on full display during the Q3 . In the Fiber-to-the-Home arena, we introduced a significant new enhancement to our Fiber-to-the-Home solution, targeted specifically at the rural market. We also closed several new Fiber-to-the-Home wins and made encouraging progress getting our Fiber-to-the-Home solution qualified by a couple of targeted larger operators. Back in the broadband over cable realm, we leveraged our unique software foundation to introduce a new solution we call MAC Anywhere, further extending and solidifying our leadership position in distributed access networks. We also worked closely with an innovative customer to demonstrate groundbreaking progress on a DOCSIS 4.0 solution that's way ahead of the rest of the market.
With our converged software core again being the key to our agility and time to market advantage. Finally, again leveraging our cloud-native core platform, we announced really innovative work done with Google to integrate their Google Cloud Marketplace with our CableOS. This solution enables operators to leverage CableOS to deploy new revenue-generating cloud services at the cable network edge, a truly unique advantage Harmonic has in the marketplace and an opportunity we aim to exploit further as the cloud edge market develops. Summarizing for our Cable Access business, I want to remind you that in June we laid out our three-year vision for the strategic evolution and financial growth of this business.
We identified a greater than $2 billion addressable market and a path for us to leverage our cloud-native and DAA technology leadership to drive a greater than 40% annual growth rate for the next several years. The technology, marketplace, and financial progress we've since achieved, our strong sales pipeline of tier one and smaller operator engagements, and our Q4 guidance, which implies approximately 59% year-over-year growth in 2021, all demonstrate that we remain firmly on track to deliver on our growth vision. Turning now to our Video segment. Here also, we delivered another very solid quarter. Q3 segment revenue was $68.7 million, up 26% year-over-year, and segment gross margin was 61.9%, a new record for this business and further evidence of our transformation to a more software and service-centric business model.
Recurring streaming SaaS revenue grew 69% year-over-year, driven principally by expanding existing customer usage and aided by new customer additions. As with our Cable Access business, in June, we laid out our multi-year Video business strategic plan. This plan has two core elements, taking a leading position in the growing billion-dollar streaming infrastructure market and maximizing revenue and profit from the larger but slowly declining video broadcast market. On the streaming SaaS side of things, 69% revenue growth reflects good progress both domestically and internationally. Overseas, during the Q3 and early in the current Q4 , we secured new streaming SaaS design wins with several Tier 1 media companies. These important new wins are still in the process of launching, creating a healthy pipeline for continued SaaS revenue growth.
Domestically, in addition to scaling our SaaS business with several larger media customers, we announced a new partnership with Jackson Energy Authority to provide a fully hosted video streaming solution branded E+ Premier for smaller and rural cable, broadband, and telecommunications providers. This solution supports a host of advanced capabilities, including targeted ad delivery, enabling smaller operators to stay competitive. We already have several operators on the platform and see this as an important expansion of our addressed market. Regarding the second element of our Video strategic plan, we continue to see a resurgence in broadcast project activity globally, including growing momentum for an investment cycle in moving Video transport from satellite to terrestrial IP networks. We recently won our first multi-million-dollar North American satellite to IP fiber transformation project that was driven by operating efficiency and not by FCC mandate and funding.
We believe this kind of transformation will be a growing trend globally, one that we're well positioned to capitalize on through our new software-based XOS platform. In summary, for our Video business, we delivered another strong quarter characterized by solid revenue growth, gross margin expansion, operating profit, and new wins. The Video sales pipeline and outlook for the remainder of the year remain positive, and looking further ahead, we continue to be confident in our ability to deliver on our multi-year strategy. With that, I'll now turn the call over to you, Sanjay, for a closer look at our financial results and outlook.
Thanks, Patrick, and thank you all for joining us today. Before I discuss our quarterly results and 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 Q3 press release and earnings presentation includes reconciliations of the non-GAAP financial measures to GAAP that are discussed on this call. Both of these are available on our website. Turning to slide 7. Let's start with an overview of our Q3 . We delivered solid results which were ahead of our guidance, including revenue of $126.3 million, up 33.1% year-over-year. Gross margin of 52.8%, a 60 basis point improvement year-over-year. Adjusted EBITDA of $14.8 million or 11.7% of revenue, up 106% year-over-year.
EPS of $0.09, up 200% year-over-year. We ended Q3 with a strong backlog and deferred revenue of $333.3 million, up 54.1% year-over-year. Cash was $128.4 million at the quarter end, up 81% year-over-year, positioning us well for the remainder of this year and into 2022. Now, let's review our Q3 financials in more detail. Turning to slide 8. As mentioned earlier, total company Q3 revenue was $126.3 million, up 11.4% sequentially, and up 33.1% year-over-year. Looking first at our Cable Access business segment.
Revenue for the quarter was $57.6 million, up 15% sequentially, and up 42.9% year-over-year, reflecting both the continued ramp of existing customers and new customer wins. In our Video segment, we reported Q3 revenue of $68.7 million, up 8.5% sequentially, and up 25.8% year-over-year. This year-over-year Video growth reflects solid broadcast demand and strong SaaS revenue growth. During the Q3 , our SaaS revenues grew 69% year-over-year due to increased usage from existing customers and activation of new customers. We ended Q3 2021 with 101 SaaS customers, 36% year-over-year growth. In the quarter, we added eight new SaaS customers, including several new tier one international streaming customers, and saw a churn of nine small deployments.
We had one customer representing greater than 10% of total revenue during the quarter. Comcast contributed 23% of total revenue, compared to 31% in Q2 2021 and 20% in Q3 2020. As mentioned earlier, total company gross margin improved by 60 basis points to 52.8% in Q3 2021, compared to 52.2% in Q3 2020. Cable Access gross margin for Q3 2021 met our expectations at 42% compared to 47% in Q2 2021 and 48.9% in Q3 2020. Extraordinary supply chain costs have depressed margins for both Q2 and Q3 this year relative to last year, with a sequential decline primarily reflecting a higher DAA hardware mix in Q3.
Video segment gross margin was a record 61.9% in Q3 2021, compared to 59.3% in Q2 2021 and 54.6% in the year ago period, reflecting both an improved software mix within our appliance category and expanding SaaS business. Moving down the income statement on slide 9. Q3 2021 operating expenses were $54.9 million, compared to $54.6 million in Q2 2021 and $45.3 million in Q3 2020. The year-over-year increase is primarily due to increased cable access research and development and sales and marketing for both segments as we continue to invest in our growth initiatives.
Operating expenses represented 43.5% of revenue in Q3 2021, compared to 48.1% and 47.8% of revenue in Q2 2021 and Q3 2020 respectively, reflecting our business's inherent operating leverage as revenues ramp. On a sequential basis, Q3 2021 reflects flat operating expenses, while quarterly revenue rose 11.4%. Adjusted EBITDA for Q3 2021 was 11.7% of revenue at $14.8 million, comprised of $5.1 million from Cable Access and $9.7 million from Video. This compares to an adjusted EBITDA of 8.4% of revenue at $9.5 million in Q2 2021, and 7.6% of revenue at $7.2 million in Q3 2020.
This all translates to Q3 2021 EPS of $0.09 per share, compared to $0.05 per share in Q2 2021 and $0.03 for Q3 2020. We ended the quarter with a diluted weighted average share count of 106.4 million, compared to 103.8 million in Q2 2021 and 98.4 million in Q3 2020. The sequential decrease is primarily due to convertible debt dilution of 1.2 million shares and the dilutive effect of outstanding RSUs and options by 0.5 million shares, both resulting from an increase in our average stock price in the quarter. Zero point nine million shares due to weighted effect of stock issued to employees and ESPP shares.
The year-over-year increase reflects the dilution of our convertible debt by 2.8 million shares and the dilutive effect of outstanding RSUs and options by 0.7 million shares, both resulting from an increase in our average stock price during the quarter, and 4.5 million shares due to the weighted effect of stock issued to employees and ESPP shares. Q3 bookings were $114.3 million compared to $186.9 million in Q2 2021 and $100.7 million in Q3 2020. Following record Q2 bookings, we are pleased to report another strong quarter of new bookings, demonstrating robust demand for our solutions. Our book-to-bill ratio was 0.9 in Q3 2021, 1.6 in Q2 2021, and 1.06 in Q3 2020.
Our strong bookings momentum during the past three quarters has generated a year-to-date book-to-bill ratio of 1.1. The year-to-date book-to-bill exceeds one for both segments. Turning to slide 10, we'll now discuss our liquidity position and balance sheet. We ended Q3 with cash of $128.4 million compared to $115.2 million at the end of Q2 2021 and $70.8 million last year. The $13.2 million sequential cash increase is comprised of $15.2 million of cash generated from operations, primarily attributable to both Cable Access and Video segment operating profits and strong collections in the quarter. Net of $2.9 million cash used for purchase of fixed assets and $1.3 million received primarily from stock option exercises.
Our days sales outstanding at the end of Q3 was 54 days compared to 80 days at the end of Q2 2021 and 77 days in Q3 2020. The sequential and year-over-year decrease reflects strong collections in the quarter. Our days inventory on hand was 78 days at the end of Q3, compared to 74 days at the end of Q2 2021 and 73 days at the end of Q3 2020. Reflecting increasing inventory at the end of the quarter as we prepare for heavy Q4 and 2022 shipments. We are also stocking up on constrained inventory at more than normal levels as we manage the supply chain landscape.
At the end of Q3, total backlog and deferred revenue was $333.3 million, up 54.1% year-over-year from $216.2 million at Q3 2020, and a slight decrease of 4% sequentially from $347.2 million at Q2 2021. This near record Q3 backlog and deferred revenue reflects increasing commitments from our large cable customers, growing demand for new broadcast edge appliances, including 5G bandwidth reclamation projects, and growing video streaming SaaS volume commitments. Note that historically, about 80% to 90% of our backlog and deferred revenue gets converted to revenue within a rolling one-year period. As mentioned on previous calls, not included in our backlog is additional contractually agreed CableOS business with three of our initial Tier 1 cable customers.
At the end of Q3 2021, this incremental amount was approximately $136.7 million, down from $145 million last quarter, as approximately $8.3 million went through the purchase order process and therefore moved into bookings. Taking these CableOS contracts into account, we have total future contracted revenues of approximately $470 million, which continues to provide us with a very solid foundation for the remainder of 2021 and into 2022. Now I'll turn to our non-GAAP guidance for 2021, beginning on slide 11. I will now review guidance for our Cable segment for Q4 and the full year. For our Cable Access segment in Q4, we expect revenue in the range of $65 million to $70 million. At the midpoint, this reflects an increase of $12.5 million compared to prior Q4 guidance.
This increase is driven primarily by accelerating deployment momentum with our Tier 1 customers. Gross margin in the range of 40% to 41%. At midpoint, this reflects a decline of 550 basis points versus prior guidance. This is mainly due to increased hardware mix, resulting from incremental hardware revenues based on growing demand from our customers procured at higher than standard costs. Adjusted EBITDA to range from $7.4 million to $9.1 million. At midpoint, this reflects an increase of $2 million versus prior guidance, primarily due to additional gross profit on increased revenues. For the full year 2021, based on our progress to date, we now expect for Cable Access revenues in the range of $214 million to $219 million. At the midpoint of our guidance, this reflects a $17 million increase versus prior full year guidance.
At midpoint, it also reflects 59% revenue growth for the full year, indicative of our business building momentum worldwide. Gross margin in the range of 42.6% to 42.9%, a 175 basis point decline versus prior guidance at the midpoint. This is due to increased hardware mix, resulting from incremental hardware revenues as discussed, and associated higher supply chain-related costs as we have discussed. Supply chain cost increases have been significant this year and make a tough year-over-year comparison, especially as we have prioritized market share gains. Absent supply chain impact, our blended gross margins for the full year are expected to be nearly flat with 2020, despite a much heavier mix of hardware.
In other words, absent supply chain impact, both software and service and hardware margins are expected to improve in 2021 year over year, which is encouraging indication that we are on the right track to achieving our long-term margin expansion targets. Adjusted EBITDA in the range of $21.6 million to $23.3 million, an increase of $2.2 million versus prior guidance at the midpoint. Now I will discuss Video segment guidance. For our Video segment in Q4, we expect revenue in the range of $82 million to $87 million, as we guided previously. Gross margin in the range of 54.5% to 55.5%. At midpoint, this is consistent with our previous guidance. Adjusted EBITDA to range from $9.6 million to $12.7 million.
At midpoint, this reflects a decline of $1.9 million from prior guidance, primarily due to timing of delayed hiring for sales and marketing, originally planned in the Q3 , getting pushed out to the Q4 . For the full year 2021 Video segment results, we now expect revenue in the range of $285 million to $290 million. At the midpoint of our guidance, this reflects a $4.5 million increase versus prior guidance, attributable to both a continued rebound in broadcast market demand and growth in streaming SaaS. Gross margins in the range of 57.3% to 57.7%. At the midpoint of our guidance, this represents a 125 basis point increase over prior guidance, mainly due to product mix.
Adjusted EBITDA in the range of $28.9 million to $32 million, an increase of $4.9 million compared to prior guidance at the midpoint. Slide 12 presents the consolidated total company guidance for Q4 and full year 2021, calculated as the sum of the two segment charts we just reviewed. Reading out these summations, for Q4, we expect revenue in the range of $147 million to $157 million. At midpoint of our guidance, this reflects an increase of $11.5 million versus prior guidance. Gross margin in the range of 47.8% to 49%. At the midpoint of our guidance, this represents a 270 basis point decline over prior guidance, mainly due to product mix and associated higher supply chain costs. Adjusted EBITDA to range from $17 million to $21.8 million.
At midpoint of guidance, this reflects an increase of $0.2 million versus prior guidance. EPS to range from $0.10 to $0.14. At midpoint, there is no impact on what we guided previously. A weighted average diluted share count of approximately 106.9 million. At the end of Q4, cash is expected to range from $125 million to $135 million. At midpoint, this reflects a decline of $5 million, primarily due to increased investment in inventories as we ramp up for 2022 shipments. For the full year, we now expect total company revenue in the range of $499 million to $509 million, reflecting raised expectations at both the low and high end of the range due to strong demand we saw in the Q3 and our updated Q4 expectations for both segments.
Gross margin in the range of 51% to 51.3%. At midpoint of our guidance, this represents a decrease of 25 basis points versus prior guidance at midpoint. Adjusted EBITDA to range from $50.5 million to $55.3 million, an increase of $7 million versus prior guidance at the midpoint. EPS to range from $0.28 to $0.32 per share, a $0.06 or 25% increase compared to the midpoint of prior guidance. An effective tax rate of 10%. A weighted average diluted share count of approximately 105.1 million. Finally, cash at the end of the year is expected to come in between $125 million and $135 million. In summary, during the Q3 , we continued to execute on our long-term strategic priorities and goals.
Our performance and outlook continue to be in line with the multi-year revenue and operating models we shared with you during our Video and Cable Access segment investor events mid-year. We appreciate your attention today and look forward to updating you on our continued progress. With that, thank you, everyone. Now I'll turn it back to Patrick for final remarks before we open up the call for questions.
Okay, thanks, Sanjay. Let's pick up on your closing comments there and review our strategic priorities as we conclude the year and head into 2022. For our Cable Access business, our objectives remain supporting volume deployments with a growing list of tier one customers, winning and scaling with new global operators, and expanding our addressable market through our converged software core DOCSIS and fiber to the premises capabilities. For Video segment, our objectives continue to be accelerating the growth of our streaming SaaS customer base and per-customer usage, capitalizing on the coming transformations of traditional media and broadcast infrastructure, particularly the new edge processing opportunity that we've talked about, and delivering consistent margin expansion, recurring revenue growth, and profitability.
As you've seen in the Q3 , we continue to deliver industry-leading solutions to enable superior subscriber experiences and to create value for our customers and our shareholders. We thank you all for your continuing support. With that, we'd like to open up the call for questions.
Thank you. Ladies and gentlemen, as a reminder to ask a question, you will need to press star then one on your telephone. To withdraw your question, press the pound key. Again, that's star one to ask the question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Steven Frankel with Colliers. Your line is open.
Good afternoon. Thank you for the opportunity. Patrick, let's spend a couple minutes talking about these Tier 1 deployments in Cable Access. Kind of could you characterize your visibility into their deployment plans, and is that improving, as we go through these ramps?
Yes. In short, it is. We're developing increasingly close and collaborative relationships with both existing and new Tier 1 operators, Steve. Through that process, we're gaining better visibility and understanding. At the same time, they're developing better understanding of the capabilities of our technology and how to best handle it operationally. All of that is, I mean, it's work in progress, but visibility continues to improve.
A while back, you threw out this 50 million node number. I wonder if you might update us on, you know, what that universe of even just the Tier 1 customers you have now and how many nodes that might be in as an addressable market.
Yeah, I think it's not nodes, but
Homes, sorry.
Homes, yes.
Yeah, sorry.
You know, I regret I don't have a specific number for you, but I think since we threw that out, it has definitely gone up. You know, well, better for me not to hazard a guess here. You know, it's up. I think since that time, we've added several. We've talked about nine global Tier 1 s, that is top ten customer in the respective geographies, as well as just shy of 70 total customers. Steven, so indeed, the number has gone up, I would say, materially since 50, but I don't have a specific number to give you here today, and I'd like to get back to all of you with an updated count.
Okay. To use a World Series analogy, are we, like, in the bottom of the second inning? Kinda where are we in this rollout?
Well, certainly, we believe so. I mean, although we're pleased on one hand with the growth of the modems we rolled out to, we're still, as of the end of the Q3 , we were just below four. Let's just, you know, assume that the total addressable market of customers we've won is somewhere between 50 million and 60 million modems. I mean, that says we're, you know, something on the order of 7% of being rolled out across just those customers that have already started rolling out CableOS, not to mention customers who are still in our sales pipeline.
I think by any measure, that says we're really still very early innings or inning in terms of the rollout potential in front of us.
Great. You mentioned your first non-FCC mandated win in video distribution. Could you give us some hints in terms of timing and scale and what the pipeline from other operators might look like?
I t's a several million-dollar project. I don't wanna go further than that. The project was won in the Q3 . It's not been deployed. There is no revenue yet. That is still ahead of us. We think it's noteworthy. This is, let me say, a household name kind of operator out there. It's meaningful that they, who has historically used satellite to move video around, and the fact that, on their own nickel, they see enough operating flexibility, efficiency, and in fact, new service delivery opportunities that they are themselves funding, moving off of a satellite and getting onto terrestrial networks.
As we've commented before, while the FCC and the 5G may have been kind of the catalyst for some of this activity in the market, we think it's an architecture that makes a ton of sense, from a strategic flexibility point of view, as well as from an economic point of view. We think it's simply gonna be a growing trend worldwide. We're still, again, to use the previous analogy, very early innings on this thing. We continue to be optimistic about it, both in terms of a trend in the market that's gonna drive overall spending and in terms of our competitive positioning by virtue of our software-based edge platform.
Thank you. One last quick one, and you've mentioned this number before. How many of those 101 SaaS customers have not launched yet on the video side?
I believe they'll be around 15% to 20%.
Okay. Thank you, Sanjay. I'll jump back in the queue.
Sure.
All right. Thank you.
Thank you. Our next question comes from the line of Simon Leopold with Raymond James. Your line is open.
Thanks for taking the question. I wanted to see if you could give us a little bit of help in terms of how to think about the gross margin for 2022, because what you've highlighted in the prepared remarks looks like some elements of supply chain, but a lot of what's pressuring gross margin in the Q4 sounds like a hardware mix aspect. I just wanna see if maybe you can bridge to some of the commentary you had offered us back in June to how to think about the overall gross margin trend in 2022 as you see it today.
Thanks for the question, Simon. I mean, let me first address when we say mix, and specifically, I don't want you or anyone else to think, "Oh, well, it's more hardware and less software." In fact, what it is, it's simply more hardware. When we presented our three-year model, we actually assumed in by 2024, our global share of DAA hardware would be around 30% from a market share perspective. I ndeed, even from the beginning of this, so we've spoken publicly about it, we expected in our in most of our initial or many of our initial CableOS deployments, our core software with several ours, as well as our competitors' hardware kind of hanging off of our software, if you will, being fed by our software.
What we're seeing right now is a trend where we're getting much larger market share. We're seeing our hardware used. We think we're way above 30% in short, and that is driving both revenue upside, gross and profit upside, as well as a relative mix difference, but by no means any less software than was originally anticipated. Now coming back to your specific question, I think maybe if I slightly reframe it, the question becomes. Well, in 2022, will Harmonic continue to win more or much more than its fair share of hardware revenue? I think that's something we're still trying to assess is the durability of customers' preference for our hardware versus competitors.
I think that will be manifest in our guidance for 2022, both at the top line and corresponding to that, to the gross margin line. I think it is important to understand that even in a scenario where, you know, we see ourselves for a longer period of time capturing a much greater market share of hardware, that doesn't imply lower gross profit. It's kind of the original business we talked about in our three-year plan, plus some incremental hardware, albeit at low margin. I hope that's not too much of a long or complicated answer, Simon. I'll pause there and see if that makes sense to you.
No, it makes sense. The gross margin percent may be lower, but the profitability, the EBITDA earnings you're coming away with on higher revenue is basically a tailwind.
That's right.
Okay, great. No, I get it.
I mean, of course, the elephant in the room, that's kind of what's happening strategically apart from anything to do with supply chain. You know, you and everyone else probably on this call has heard more than you care to hear about supply chain, so I don't want to belabor all of it. That continues to be a you know, somewhat dynamic headwind as we go into next year. I think we don't think that's a permanent fixture in our business, but it certainly will be a headwind for most, if not all of next year. That also will weigh into the guidance that we'll eventually provide for 2022.
That all makes sense. If you could give us any updates you have on your participation in RDOF-related projects, whether you're contributing in the Q4 and your longer term outlook for RDOF as a opportunity?
Yeah. We envision modest contribution in the Q4 , but growing contribution in 2022. To be clear, where our point of entry or our area of go-to-market focus is on those cable operators who are doing RDOF work or hybrid operators who kind of operate both, you know, fiber or historically twisted pair as well as cable infrastructure. We're not going for the entirety of the RDOF space, but we're going through what I think is a growing subset of it, which are those, the RDOF opportunity being addressed by people who have some play in cable. There, you know, the main thrust is qualification of our Fiber- to- the- Home solution alongside DOCSIS.
As I mentioned in the prepared remarks, we're pretty encouraged with the progress we're making. We're by virtue of the wins that we have so far, we're gaining credibility. A lot of prospective customers are looking to see how well the early rollout of the technology is going. We're working with a couple of larger customers who have the potential to do quite a bit in RDOF. They're, it's a kind of a different dynamic or process, but we're working on getting our Fiber- to- the- Home solution qualified there.
I'd call it cautious optimism that they will be rolling out too, you know, taking advantage of RDOF in 2022, and it will be part of their solution. But certainly more to come on that.
Great. Then one last one. Not looking for the tutorial right now on cable architecture, but last week, we did hear one of the larger operators talking about high splits, and that stimulated a lot of questions. Could you help folks understand what does that mean in terms of an opportunity for Harmonic if an operator chooses to upgrade through high splits? Thank you.
Well, before I get to the specific question, I understand it may be confusing. I mean, there's a toolbox right now of options that cable operators are looking at long and short term. So there's just multiple directions that they can go. I'll tell you, I think that our software core is really coming into focus, is a very big strategic advantage. Because of what it means is, without kind of having to wait for new hardware, develop new hardware, we can kind of pivot or expand to address, to basically reprogram the functionality of our solution, to handle these use cases.
When you come to now specifically high-split and mid-split before that, in fact, I think in prepared remarks a couple of quarters ago, we talked about early work we did there with a large customer and how we jumped on that, I think ahead of the rest of the market. In short, we think we have a great solution for high-split. It dovetails perfectly into what CableOS is all about. We see that as a specific competitive advantage or a specific instance of the broader competitive advantage we have with the flexibility of our CableOS platform.
Thank you very much.
All right. Thank you.
Thank you. Our next question comes from the line of Ryan Koontz with Needham & Company. Your line is open.
Hi. Thanks for the question, and great quarter, guys. Quick first one. Are you seeing any customers at all express interest in going with a multi-source CMTS core software, or is it primarily single source predominantly?
Primarily single source.
Yeah. Okay, good. A more complex question as we kind of peel back the onion on the gross margin recovery here. How much of this is transitory versus permanent change and do you look at pricing adjustments to, you know, account for your permanent cost changes? I mean, where are you in that cycle right now in terms of thinking about that?
I think we see, Ryan, what's going on now is primarily transitory. The next thing I would say is what we've learned is that we don't know what we don't know. We don't have a time limit on it. I think one of the advantages of our position or this market is that, you know, we're not dealing with thousands of customers. We have strong strategic relationships with large customers. They're well aware of what's going on. That creates the opportunity to have open, transparent discussions about, you know, how to ensure the health of their deployment plans and their pipeline.
As part of that, absolutely, pricing adjustments are absolutely on the table. You know, whether those pricing adjustments, you know, become permanent or not, I think is very much related to how this whole thing plays out. Hopefully, that gives you a little bit of a flavor of the way we're thinking about it addressing it.
Okay, great. On the competitive front, with regards to the hardware side of, you know, RPDs and such, any change to the competitive environment there? Sounds like you're winning more share than you thought, so sounds like you're more confident in your competitive position.
Yeah, I think that that's right. In a nutshell, that is correct.
Okay. Helpful. Thank you.
All right. Thank you.
Thank you. Our next question comes from the line of Tim Savageaux with Northland Capital Markets. Your line is open.
Good afternoon. I'll add my congratulations. I actually did wanna start with a supply question. While recognizing you're seeing some cost pressures from a, you know, top-line standpoint, you've arguably managed this about as well as anybody has. I wanna try and dig into that a little bit more in terms of, you know, I guess, to what do we attribute the, you know, your ability to ship pretty significantly? I see inventories are up, and for once, that's a good thing, right?
You know, the fact that a lot of the hardware products are based on standardized platforms or just overall kind of supply chain execution, you know, any comment on the node side as to, you know, putting aside the cost pressures for a moment, how you're able to do such a good job managing the supply chain? I have a follow-up.
I very much appreciate the question. You know, I think we have done a pretty good job, but we're not sitting here pounding our chest. I t's come at the expense really of heavier expenses. I think maybe one advantage that we had, Tim, is we went into the year with an aggressive posture. We weren't 100% sure, but we felt that there was upside on the year, and we were ready to put money behind that hypothesis really before this whole supply chain thing blew up. We were already kind of leaning into our supply chain. We were looking at how we can pull in components, et cetera. That was the mode that we were in.
The situation got tougher, and we had to pull in hard and get even more aggressive, you know, we weren't starting from zero, if you will. The car was already, you know, the effort, the lean in was already pretty significant, I would say. I think that's one fact. You know, associated with that, we, as I communicated a quarter or two ago, or Sanjay did, we had no qualms, you know, at all. We wasted no time thinking about, you know, optimizing to the nth degree, cost versus, you know, getting it done. We've been very clear, internally and strategically that our number one priority is accelerating deployments, accelerating market share gains, et cetera.
You know, when confronted with, let's say an opportunity to bring more things in or accelerate at a cost, I don't wanna say we've been indifferent to cost, but we've leaned into spending more when necessary. The third thing I would say, though, is that I just have to give kudos to our team. We have a supply chain team that has. I mean, maybe same thing with our peers and competitors, but I can tell you from firsthand experience, our supply chain team has just been excellent this year. This team has worked around the clock feverishly.
I mean, we have people who have literally, during the middle of COVID, have spent months in other parts of the world, you know, under very different, difficult, you know, quarantine conditions, et cetera, doing whatever it takes to get it done. I'll take the opportunity to really acknowledge the tremendous effort of our team and the conviction and the commitment to deliver good results. I think that is, as you pointed out, I think that's really come through. None of that is to say we won't have further, you know, challenges ahead or that we think we're out of the woods. Every day, almost, it seems, brings another challenge as we play Whac-A-Mole here. To date, I think we've done very well, and there's a combination of those three things that I mentioned.
Great. Thanks for that. I guess a couple of questions on the Cable Access business, and that'll be it for me. One, you appear to be diversifying a bit, and obviously you saw nice growth sequentially in Cable Access and a lower contribution from Comcast, which is always good to see. In that context, you know, if you talk about your nine Tier 1s, I think now nine, I think you commented last quarter that maybe half of, you know, those customers were kind of, you know, meaningfully or if not fully up and running. You know, do we see more of that in terms of providing that diversification of the business, you know, broadly in Cable Access?
Maybe in the quarter as you look forward, you know, is the PON opportunity starting to contribute or, you know, do you expect it to sometime soon? Any comments on the size of that pipeline? Thanks.
Yeah. Well, in short, yes, we think that, as additional tier ones come online and more broadly, as the total number of customers grows, you will see the continued diversification of the, you know, of the revenue. I mean, that being said, the big guys are big. As long as they're rolling, you know, that will represent a good part of the business, which is not bad news at all. I think, you know, I think the cable industry, for better or worse, is inherently concentrated. Hence our intense focus strategically on tier ones from day one. As we get a bigger basket of tier ones, which we aim to continue to do, I think you'll see some diversification amongst them.
No doubt about it, you know, the top 10 or 15 customers we have will command an outsized position in our market. You can see, you know, the power or what it means when they're accelerating. Regarding the PON effort, we are very encouraged by what's happening there. You know, that being said, we're still very much on the on-ramp of that business. You know, comparing that business, as I think ahead to 2022, comparing that business, which I think will begin to grow in 2022 more substantially. The question is, as a percentage, does it take the growth of cable? I'm not sure.
Long term, there's no doubt about it. Having a strong position in fiber is great strategically, great financially, and that's absolutely where we're headed. As both things kind of scale and ramp though, I think it'll take a little bit more time for the Fiber- to-the- Home to kind of get its head above the parapet financially, so to speak. We remain incredibly strategically focused on it and continue to see fiber as a very important not only diversification, but additional growth lever for our business.
Okay, thanks very much.
All right. Thank you, Tim.
Thank you. Our next question comes from the line of Kyle McNealy with Jefferies. Your line is open.
Hi, thanks very much for the question. Great job with the results, particularly for Cable Access. I'm wondering if you could parse out for us what the budget position looks like across your cable customers, the extent that you can have visibility into it, what it looked like entering Q4, and how much of the increased Q4 outlook might be coming from any kind of budget flush versus general increased momentum or share gain in your cable business. Were there any specific larger customers that you've seen an uptick in Q4 orders that you'd consider to be some type of budget flush? Thanks.
You know, I think it's still early in Q4 to characterize what's happening is budget flush or not. You know, frankly, as Sanjay outlined, we came into the quarter with strong backlog and deferred revenue. The majority of the orders that we'll take this quarter, we actually anticipate to be for 2022. It's not quite that black and white. Particularly in the context of the supply chain issues the whole industry has been working with, we've been encouraging our customers to, you know, to be looking and working ahead. Now, that being said, it's true that Q4 on both sides of our business is historically strong.
Indeed, whether you call it budget flush or catch-up, some amount of that activity is, I think, part of the historic seasonality in Q4. Relative to any other year right now, I mean, Sanjay, chime in if you see it any differently, but I don't think we see any difference in the historic seasonality pattern.
No, there's nothing. I mean, what we saw last year or the year before is very similar to what we are seeing this time in Q4. It's very similar.
Okay.
Coming back, I guess part of your question is, well, where is the uptick? We think it's more to do with just growing a deployment momentum kind of regardless of the, you know, of the quarter. Maybe a modest impact for you know seasonality. But more than that, it's just a continuing momentum with a broader base of cable customers.
Okay, that's great to hear. Just one follow-up. Is there any way for you to quantify at all how much revenue you think you weren't able to ship this quarter due to the supply chain issues and constraints that you would've otherwise been able to ship in the quarter?
Well, we can't quantify that. I think, as Patrick earlier mentioned, we are trying to address all of our customer demands, and we have done that in all the quarters, and especially Q4, as we are raising the guidance further to what we said earlier three months ago, which itself was a raise as well. I think we are marching on the path to address all of our customer demands.
Okay, fair enough. Thanks so much.
All right.
Thank you.
Thank you.
I'm not showing any further questions in the queue. I would now like to turn the call back over to management for closing remarks.
All right. Well, thank you very much for your time today, and more generally, your support. We remain excited about our business, excited about the progress we're making, and we look forward to updating you again soon. With that, we'll say a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.