Harmonic Q4 2024 Earnings Report

Harmonic EPS Results

• Actual EPS: $0.38
• Consensus EPS: $0.37
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: N/A

Harmonic Revenue Results

• Actual Revenue: $195.76 million
• Expected Revenue: $212.45 million
• Beat/Miss: Missed by -$16.69 million
• YoY Revenue Growth: N/A

Harmonic Announcement Details

• Quarter: Q4 2024
• Date: 2/10/2025
• Time: After Market Closes
• Conference Call Date: Monday, February 10, 2025
• Conference Call Time: 5:00PM ET

Harmonic (NASDAQ:HLIT) (NASDAQ: HLIT) develops broadband access and video delivery solutions for communications and media companies. Its broadband portfolio includes the CableOS platform, which supports virtualized and software-based cable access networks, along with technologies for fiber, hybrid fiber-coaxial and distributed access architectures. These solutions are designed to help service providers expand network capacity, improve operating flexibility and deliver high-speed broadband services.

Harmonic also provides video infrastructure and software for broadcasters, streaming providers, pay-TV operators and other media organizations. Its offerings support video processing, distribution, cloud-based playout, streaming, over-the-top services and the delivery of live and on-demand programming across multiple screens and networks.

Founded in 1988 and headquartered in San Jose, California, Harmonic serves customers in North America, Europe, Asia-Pacific and other international markets. The company’s customers include cable and telecommunications operators, broadcasters, satellite providers, content owners and streaming businesses.

Harmonic Q4 2024 Earnings Call Transcript

Key Takeaways

• In 2024, Harmonic delivered all-time record fourth-quarter and full-year results, driving broadband revenue up 33% year over year to $171 million and returning its video segment to profitability.
• For 2025, the company forecasts a below-trend broadband year due to the timing of Unified DOCSIS 4.0 rollouts and ecosystem readiness, while expecting robust cash flow and authorizing a new $200 million share repurchase program.
• Looking to 2026 and beyond, Harmonic anticipates a return to above-trend growth fueled by full implementation of Unified DOCSIS 4.0, expanded fiber deployments, and a 13% CAGR in the virtual CMTS/DAA market.
• Harmonic’s broadband strategy centers on its COS platform’s unified DOCSIS/fiber capabilities and expanded professional services, which supported over 50% sequential revenue growth in the rest-of-world segment and five new customer wins in Q4.
• In the video business, the company is executing hybrid on-prem/cloud solutions with its XOS appliance lines and an accelerating SaaS transformation, achieving $15.1 million in Q4 SaaS revenue (+47% YoY) and announcing a strategic partnership with Akamai.

Presentation

[Operator]

Welcome to the Fourth Quarter and Full Year 2024 Harmonic's Earnings Conference Call. My name is Victor, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised.

[Operator]

To withdraw your question, please press star one one again. Please note that this conference is being recorded. I will now turn the call over to David Hanover, Investor Relations. David, you may begin.

[David Hanover, Head of Investor Relations at Harmonic]

Thank you, Operator. Hello, everyone, and thank you for joining us today for Harmonic's Fourth Quarter and Full Year 2024 Financial Results Conference Call. With me today are Nimrod Ben-Natan, President and CEO, and Walter Jankovic, Chief Financial Officer. Before we begin, I'd like to point out that in addition to the audio portion of the webcast, we've also provided slides for this webcast, which you may view by going to our webcast on our Investor Relations website.

[David Hanover, Head of Investor Relations at Harmonic]

Now turning to slide two. 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 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.

[David Hanover, Head of Investor Relations at Harmonic]

These documents identify important risk factors which can cause actual results to differ materially from those contained in our projections or forward-looking statements. And please note that unless otherwise indicated, the financial metrics we provide you on this call are determined on a non-GAAP basis. These metrics, together with corresponding GAAP numbers and a reconciliation to GAAP, are contained in today's press release, which we have posted on our website and filed with the SEC on Form 8-K.

[David Hanover, Head of Investor Relations at Harmonic]

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. And now I'll turn the call over to our CEO, Nimrod Ben-Natan. Nimrod?

[Nimrod Ben-Natan, President and CEO at Harmonic]

Thanks, David, and welcome everyone to our fourth quarter earnings call. I'd like to start today with an update on how we're executing on our long-term growth plans. First, regarding our 2024 commitments, we delivered all-time record fourth quarter and full year 2024 results with strong growth in our Broadband segment, driven by our growing leadership in DOCSIS 4.0 technology and our increasing market share. At the same time, we return our video segment to profitability, underscoring our operational focus.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Next, as we look into 2025, we're navigating an industry-wide transition to Unified DOCSIS 4.0. While this change is expected to result in a below-trend year for Broadband revenue due to the timing of the rollout and ecosystem dependencies, our technology leadership position in Unified DOCSIS 4.0 remains clear.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Despite the anticipated short-term headwinds in Broadband during 2025, we expect our robust operating model to continue to generate strong cash flow. At the same time, we've also set the stage for enhanced shareholder returns with a new $200 million three-year share repurchase program.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Looking ahead to 2026 and beyond, we anticipate a return to above-trend growth driven by the full implementation of Unified DOCSIS 4.0 and ongoing customer ramp-ups. This trend has also been noted recently in an analyst report from Dell'Oro, reinforcing our positive long-term outlook, and I will expand on that shortly.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Let's now move to slide number five, our 2024 highlights. 2024 was a record year, and I would like to highlight four key achievements that set the stage for our future success.

[Nimrod Ben-Natan, President and CEO at Harmonic]

First, we demonstrated a strong ability to ramp up our operations in both the third and the fourth quarter, positioning us very well for future growth. Second, we successfully delivered on our expectation for both the fourth quarter and the full year of 2024 with a growing footprint of DOCSIS 4.0 and fiber deployments.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Third, in the fourth quarter, we saw strong revenue growth in our broadband Rest of World customer base, exceeding 50% compared to the prior quarter, and we also added five new customers during the quarter, and finally, our video streaming SaaS segment is poised for growth, thanks in part to the momentum provided by our collaboration with Akamai that we announced earlier today.

[Nimrod Ben-Natan, President and CEO at Harmonic]

These highlights from 2024 underscore our strong performance and show how we have built a solid foundation for the next phase of our journey.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Before we dive into our broadband update, I would like to start today with a big-picture view of this business. We are recognized as a clear leader in next-generation cable access technologies, driven by a proven track record of innovation and successful execution over multiple years. Serving the world's largest operators has helped us secure a leading market share, underscoring the trust and confidence our customers demonstrate in our innovative solutions.

[Nimrod Ben-Natan, President and CEO at Harmonic]

So even with the near-term industry-wide challenges in 2025, the overall growth trajectory for Broadband remains positive. We are guiding 2025 forecasts prudently, taking into account these near-term factors and positioning ourselves to capitalize on market momentum in 2026 and beyond.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Ultimately, our expertise, track record, and strategic approach reinforce why we're well-prepared to remain a leader in the evolving broadband landscape. The broadband industry is at a pivotal turning point.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Service providers are facing increasing competition from telco and fixed wireless access providers, challenging both their market share and convergence opportunities. To stay ahead, operators must modernize their networks with DAA and virtual CMTS.

[Nimrod Ben-Natan, President and CEO at Harmonic]

These technologies drive business growth by improving network reliability, enhancing downstream and upstream speeds, lowering operating costs, reducing latency, and ensuring fiber optionality.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Harmonic is at the forefront of this transition, helping our customers future-proof their network for constantly changing consumer demands. Beyond competition from other service providers, cable operators must also contend with an ever-growing demand for bandwidth and higher expectations for subscribers' quality of experience.

[Nimrod Ben-Natan, President and CEO at Harmonic]

The surge in live sports streaming, major gaming releases, and AI-driven applications and agents are prompting operators to accelerate network evolution towards a modern virtualized platform, combining advanced DOCSIS with targeted fiber optionality where necessary.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Unified DOCSIS 4.0 offers a major upgrade opportunity for cable broadband networks, unlocking a range of symmetrical speed boosts that put cable on par with fiber operators. In addition, advanced capabilities like low latency and AI powered by new unified silicon help operators stay one step ahead in an increasingly competitive market.

[Nimrod Ben-Natan, President and CEO at Harmonic]

At Harmonic, we are collaborating closely with our customers to optimize migration strategies tailored for each network's unique requirements and service goals. Fiber optionality has always been a core element of our platform strategy. We designed our broadband solutions so that operators can easily add fiber services, no matter their network topology or architecture, by leveraging the cOS platform and remote devices.

[Nimrod Ben-Natan, President and CEO at Harmonic]

This approach not only ensures flexibility but also delivers significant financial and operational benefits. A key differentiator of cOS is its ability to power both fiber and DOCSIS technologies simultaneously within the same network.

[Nimrod Ben-Natan, President and CEO at Harmonic]

This capability accelerates the evolution to fiber in existing footprints while enabling a smooth shift to fiber-focused expansion. Our customers are finding it a highly effective way to modernize and future-proof their broadband networks. Let's now move to slide 11. Our broadband vision, which is centered on accelerating the adoption of next-generation virtualized broadband networks. By leveraging both DOCSIS and fiber technologies, we aim to deliver unparalleled speed, reliability, and operational simplicity.

[Nimrod Ben-Natan, President and CEO at Harmonic]

This vision is perfectly aligned with our customers' priorities, equipping them with the services and tools they need to better drive growth and stay ahead in an ever-evolving competitive market landscape. Now, I would like to review the outlook for the cable broadband market according to a recent analyst report from Dell'Oro.

[Nimrod Ben-Natan, President and CEO at Harmonic]

First, let's look at the dark blue line, which represents the virtual CMTS and DAA market.

[Nimrod Ben-Natan, President and CEO at Harmonic]

You will see it climb steadily over time and captures nearly the majority of the total broadband cable market by 2028 when it reaches nearly $1.2 billion. This clearly shows the industry's shift towards virtualized and distributed access architecture. Second, even with the strong long-term outlook, this report recognizes that there are some headwinds in 2025. These are driven primarily by operator readiness and the transition to Unified DOCSIS 4.0.

[Nimrod Ben-Natan, President and CEO at Harmonic]

As a result, we see a slight dip or plateau in spending while providers prepare for the next major technology upgrade. Third, these short-term ups and downs are not unusual. The chart highlights similar cycles in the past, especially during previous DOCSIS technology transitions, while clearly illustrating the market's long-term growth trajectory.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Finally, even with the expected 2025 pause, the overall average CAGR for the virtual CMTS DAA market from 2023 to 2028 is around 13%, a solid double-digit growth rate that underscores the growth opportunity of virtualized and distributed access solutions. Turning to slide 13, the broadband's strategic imperatives are built around four key areas: customer diversification, technology leadership, fiber growth, and cloud services.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Let's start with customer diversification. Our focus here is on expanding revenue beyond our top two customers. In the Rest of the World market, we saw a fourth quarter revenue grow by over 50% compared to the previous quarter. We also secured five new wins, including significant deals with Blue Stream Fiber in the U.S. and IPKO in the EMEA region.

[Nimrod Ben-Natan, President and CEO at Harmonic]

To help our customers speed up the rollout of the new DOCSIS technology, we are now offering our customers extended professional services to help them more quickly operationalize their next-generation broadband infrastructure.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Looking ahead, we expect the Rest of World segment to deliver even more substantial growth in 2025 as we win new accounts and see them expand the scope of their engagement with Harmonic.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Now, let's talk about technology leadership. We're making significant strides with the rollout of DOCSIS 4.0, which features a Unified Core and supports both Full Duplex and FDD through our new Unified Remote Devices. Our cOS platform plays a critical role by seamlessly orchestrating all formats of DOCSIS and fiber. Plus, our differentiated fiber offering, including our Open ONU, high-density, and versatile OLTs and virtual platform, ensures we remain ahead of the curve in innovation and market demand.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Moving on to fiber growth, our strategy is to help our cable customers migrate cost-effectively and expand into fiber. Over 30% of our current DOCSIS customers are now purchasing our fiber solution, which validates our fiber optionality product strategy and positions us for future growth as they expand their fiber footprint.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Looking forward, we see significant opportunity from our second-generation remote switch, the Jetty-2, which is forward-compatible with 25GS-PON and is now available in shipping imminently. This module is compatible with our deployed base of nodes as well as a wide range of third-party nodes.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Additionally, a previously announced LATAM Tier 1 operator launched our high-density Pier Remote OLT into production, leveraging their existing DOCSIS network and outdoor nodes. They use our solution to deliver GPON and DOCSIS for residential applications while seeding their footprint with 10G PON to address competitive pressure and enterprise opportunities.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Finally, I want to highlight our cloud services, which provide our customers with network insights and telemetry to improve network reliability and subscriber satisfaction. This offering also includes our edge compute functions, such as the Beacon Speed Maximizer, which is now rolling out.

[Nimrod Ben-Natan, President and CEO at Harmonic]

In 2024, we achieved a 47% year-over-year revenue growth with our cloud offerings. This robust performance underscores the strengths and scalability of our cloud strategy, and we will continue expanding the services and capabilities offered by our cloud services.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Turning to slide 14, I would like to share our video market update. Traditionally, broadcast workflows ran on dedicated appliances while streaming depended on the cloud for flexibility and scalability. Now, those lines are blurring. Broadcasters are moving some channels to the cloud for disaster recovery and pop-ups, and streaming providers want broadcast-like reliability and sometimes bring workflows on-prem to manage cost.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Although the cloud can be expensive for constant use and requires specific expertise, it's great for occasional events, offers lower upfront costs, and lets you spin up new technology quickly. That's why we're seeing a great demand for hybrid solutions. Keep core channels on-prem while moving additional or short-term workloads to the cloud. This demand for hybrid works well for us, as Harmonic excels at both.

[Nimrod Ben-Natan, President and CEO at Harmonic]

We have deep experience with broadcast appliances and a robust cloud-native platform. Our hybrid solutions give customers the best of both worlds, providing seamless migration between on-prem and cloud while meeting broadcast standards in any environment.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Turning to slide 15, let's look at our two strategic imperatives for our video business: Appliance Profitability and SaaS Transformation. On the Appliance side, we're executing with clear focus on our core XOS and Spectrum product lines.

[Nimrod Ben-Natan, President and CEO at Harmonic]

We're innovating around them to enable more functional consolidation, greater scalability, and advanced use cases. This concentrated approach is already showing results. Our pipeline of larger deals in the fourth quarter of 2024 and into 2025 is growing, and we're entering 2025 with an improved backlog.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Turning to the SaaS streaming, we're continuing to see strong momentum and are taking steps to increase this even further. We just announced a notable partnership with Akamai for video streaming, and our fourth quarter SaaS revenue stands at $15.1 million. We expect further growth in 2025 with the real impact of these sales efforts ramping into 2026 as recurring revenue builds over time.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Overall, these two pillars, appliance profitability and SaaS transformation, are working together to create strong operating leverage and position us for sustained success as we move forward.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Now, let me turn it over to Walter for a deeper discussion of our financials, results, and outlook.

[Walter Jankovic, CFO at Harmonic]

Thanks, Nimrod, and thank you all for joining us today. Before I discuss our quarterly results and outlook, I'd like to remind everyone the financial statements I'll be referring to on this call are provided on a non-GAAP basis. As David mentioned earlier, our Q4 press release and earnings presentation include reconciliations of the non-GAAP financial measures to GAAP.

[Walter Jankovic, CFO at Harmonic]

Both of these are available on our website. Looking at some of our fourth quarter highlights here on slide 17, we delivered record quarterly total company revenue, adjusted EBITDA, and EPS. Total company revenue increased 33% year-over-year to $222.2 million. EPS rose 246% to $0.45, and our cash balance reached $101.5 million, up $43.3 million sequentially.

[Walter Jankovic, CFO at Harmonic]

Broadband revenue and EBITDA reached record levels to $171 million and $64.1 million, respectively.

[Walter Jankovic, CFO at Harmonic]

Video revenue was $51.1 million, and video EBITDA was $7.8 million as we continue to improve efficiencies in that business. Video SaaS revenue in the quarter was $15.1 million, up 15% year-over-year. Before we review our detailed fourth quarter financials and provide Q1 and full year 2025 guidance, I want to put our top line and profitability results in perspective by reviewing the past five years as shown on slide 18.

[Walter Jankovic, CFO at Harmonic]

In this time span, we've delivered solid total company revenue growth and rapid broadband growth, with similar trends in EBITDA during this same period. While we expect a decline for both total company and broadband revenue in 2025 due to recent market dynamics, we expect revenue growth to resume in 2026 for both of these.

[Walter Jankovic, CFO at Harmonic]

As Nimrod highlighted earlier, the overall market growth for our part of the cable access market is estimated to be 13% CAGR from 2023 to 2028. We are cautiously managing our broadband business based on a more conservative growth rate in the low double digits. Having said that, we are extremely well-positioned with our strong market share and technology leadership to capitalize on expected growth in 2026 and beyond.

[Walter Jankovic, CFO at Harmonic]

I will now briefly review our capital allocation priorities on slide 19. One of our priorities is driving organic growth. This includes investments to support broadband Rest of World growth, new service offerings, and funding anticipated working capital needs. Another priority is returning capital to our shareholders through stock repurchases.

[Walter Jankovic, CFO at Harmonic]

Today, we announced a new three-year share repurchase program of up to $200 million, which doubles our previous program and reflects our extreme confidence in the business.

[Walter Jankovic, CFO at Harmonic]

We will fund these repurchases with expected free cash flow over the next three years and our strong liquidity position of $101.5 million in cash and $82 million in undrawn credit facility at the end of 2024.

[Walter Jankovic, CFO at Harmonic]

In December 2024, we increased our current credit facility by $40 million to $200 million, which includes a $160 million revolving credit line and a $40 million delayed draw term loan. Therefore, we have ample liquidity to support our capital allocation priorities.

[Walter Jankovic, CFO at Harmonic]

During Q4, we did not purchase any of our common stock under our prior repurchase program. In 2025, we intend to opportunistically repurchase shares when we believe our stock is undervalued relative to the strength of our business, thereby creating value for our long-term shareholders.

[Walter Jankovic, CFO at Harmonic]

As we said previously, the timing and amount of any stock repurchases will depend on a variety of factors, including the price of Harmonic's common stock, market conditions, corporate needs, and regulatory requirements. Additionally, we will continue to prudently manage our balance sheet with the goal of maintaining overall net leverage of two times or less and available liquidity of no less than $100 million going forward.

[Walter Jankovic, CFO at Harmonic]

And finally, we intend to explore inorganic expansion opportunities that complement and leverage our growing footprint in broadband. Turning back to our fourth quarter 2024 financial results on slide 20. In the fourth quarter, we had two customers representing greater than 10% of total revenue, with Comcast representing 43% of total revenue and Charter representing 24%. Total company Q4 gross margin was 56.1%, at the higher end of our guidance and significantly up both sequentially and year-over-year.

[Walter Jankovic, CFO at Harmonic]

Broadband Q4 gross margin was 52.7%, up 440 basis points sequentially and 1,030 basis points year-over-year due predominantly to a higher mix of cOS licenses, partially offset by inventory provisions taken related to the current Unified DOCSIS 4.0 transition.

[Walter Jankovic, CFO at Harmonic]

Video gross margin in Q4 was 67.4%, up 280 basis points year-over-year, the increase mainly due to a favorable product mix coupled with our restructuring efforts in this business. Moving down the income statement on slide 21, Q4 2024 operating expenses were $61.5 million, down 3% year-over-year.

[Walter Jankovic, CFO at Harmonic]

In the quarter, we had an unrealized non-cash foreign exchange gain of approximately $5.8 million as a result of intercompany balances that we don't expect to settle in the short term. This is reflected in our other expense income line of the P&L and in our adjusted EBITDA. Turning to the order book, Q4 bookings were $150 million.

[Walter Jankovic, CFO at Harmonic]

The book-to-bill ratio for the quarter was 0.7, compared to 0.9 in Q3 2024 and 1.2 in Q4 2023. The 0.7 book-to-bill ratio was due to the sharp increase in broadband revenue in the quarter and the expected outlook for early 2025. As we stated previously, over time, we expect our book-to-bill ratio to normalize and approach the historical benchmark of greater than one, especially as Unified DOCSIS 4.0 and broadband ramps.

[Walter Jankovic, CFO at Harmonic]

Turning to the balance sheet on slide 22, we ended Q4 with cash and cash equivalents of $101.5 million. The quarter-over-quarter change was mainly attributed to strong positive free cash flow of $46.2 million, resulting from higher income, improved DSO, and lower inventory levels. Days sales outstanding at the end of Q4 2024 was 72 days, compared to 80 days in Q3 2024 and 76 days in Q4 2023.

[Walter Jankovic, CFO at Harmonic]

The sequential decrease was due to strong inquiry collections performance and timing of shipments. Our Days inventory on hand was 59 days at the end of Q4 2024, compared to 73 days at the end of Q3 2024 and 89 days at the end of Q4 2023. Inventory decreased $9.9 million in the quarter due to lower receipts and higher inventory provisions, mainly in broadband.

[Walter Jankovic, CFO at Harmonic]

At the end of Q4 2024, total backlog and deferred revenue was $496.3 million. Around 57% of our backlog and deferred revenue has customer request dates for shipments of products and for providing services within the next 12 months. Turning to guidance, as we've mentioned previously, due to recent market developments around Unified DOCSIS 4.0, we have seen some customers pushing out their deployment timing plans for 2025.

[Walter Jankovic, CFO at Harmonic]

We believe this is mainly a timing shift and expect that these 2025 deployment delays to create a positive tailwind for us in 2026 as schedules are refined and Unified 4.0 technology deployments accelerate.

[Walter Jankovic, CFO at Harmonic]

Now, let's review our non-GAAP guidance for 2025, beginning on slide 23. We're taking a prudent approach given the factors I just mentioned. For Q1, we expect broadband to deliver revenue between $80-$90 million, gross margins between 52%-54% due to product mix, and adjusted EBITDA between $9-$15 million.

[Walter Jankovic, CFO at Harmonic]

For the full year 2025, we expect broadband revenue between $400-$450 million, gross margins between 51%-54%, and adjusted EBITDA between $77-$106 million. Of note, we saw reduced order forecasts from some of our broadband customers last month, and our current conservative outlook reflects this and the ongoing Unified 4.0 technology transition.

[Walter Jankovic, CFO at Harmonic]

For our Video segment in Q1, we expect revenue in the range of $40-$45 million, gross margin in the range of 64%-65%, and adjusted EBITDA to range from $0-$2 million. For the full year, we expect Video revenue between $185-$195 million, gross margins between 63%-65%, and adjusted EBITDA to range from $8-$17 million.

[Walter Jankovic, CFO at Harmonic]

On slide 24, we have provided the total company guidance for Q1 and full year 2025. In the interest of time, I will let you read through the details. Please also note that our non-GAAP tax rate for 2025 is 20%. I would like to highlight that the total company EPS for full year 2025 is expected to be in the range of $0.43-$0.68.

[Walter Jankovic, CFO at Harmonic]

As mentioned earlier, subsequent to our Q3 earnings call, we have seen additional demand forecast reductions, which are factored into this guidance. Before closing, as you can tell from today's remarks, we provided more content on this earnings call than we typically do.

[Walter Jankovic, CFO at Harmonic]

We felt it was important to do so given the current industry dynamics and how they relate to our 2025 guidance and our outlook for 2026. We appreciate you giving us this extra time today, and on future calls, we'll return to a more normal level of detail.

[Walter Jankovic, CFO at Harmonic]

In summary, our strong fourth quarter results, including record quarterly total company revenue and adjusted EBITDA, reflect the substantial progress we've made. In broadband, we have proven our technological capabilities and ability to scale to our customers' needs.

[Walter Jankovic, CFO at Harmonic]

Our technology leadership position has never been stronger, and we believe this puts us in a strong position to capitalize on the long-term growth opportunities we see in broadband DOCSIS 4.0 and fiber. Thank you, everyone, for your attention today, and now I'll turn it back to Nimrod for final remarks before we open up the call for questions.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Thank you, Walter, so in conclusion, we had a record 2024, a testament to our technology leadership, strong operating model, and proven execution. We are navigating the expected 2025 broadband headwinds thoughtfully and positioning ourselves for the growth rebound we anticipate in 2026.

[Nimrod Ben-Natan, President and CEO at Harmonic]

The short-term challenges do not alter our long-term trajectory. We remain confident in our market-leading positions, the strengths of our products, and our ability to execute on both our broadband and video strategy. Thank you for your attention throughout this presentation.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Walter and I are now happy to take your questions.

[Operator]

Thank you, and at this time, we'll conduct a question-and-answer session. As a reminder to ask a question, you will need to press star one one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please limit yourself to one question and one follow-up in the interest of time.

[Operator]

Please stand by while we compile the Q&A roster. One moment for our first question. Our first question will come from the line of Simon Leopold from Raymond James. Your line is now open.

[Simon Leopold, Managing Director and Senior Equity Research Analyst at Raymond James]

Thanks for taking the question.

[Simon Leopold, Managing Director and Senior Equity Research Analyst at Raymond James]

I guess one of the things I'm trying to get my head around here is, in terms of this outlook, how much is broad market trends and how much of your outlook, specifically in the cable-edge segment, is reflective of market share shifts? How are you thinking about market share versus market trends? Thank you.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Yeah, so we think this is mostly a market trend. We believe our market share on virtual CMTS remains very strong, north of 90%, and on Remote devices, north of 60%. We don't see any market share loss.

[Nimrod Ben-Natan, President and CEO at Harmonic]

I would say quite the opposite as we get into more, although this is going to be, I would say, developing slowly into the year and getting stronger at the second half of the year. The more we win on Unified 4.0, more customers are going there.

[Nimrod Ben-Natan, President and CEO at Harmonic]

We're going to, in our mind, increase our market share given our strengths in the end-to-end solution for Unified. So, the short answer is a market trend more so than market share. We feel very confident about our market share position.

[Walter Jankovic, CFO at Harmonic]

And just to add to Nimrod, and just to add to Nimrod's point, I mean, you'll see it reported, I'm sure, shortly from Dell'Oro in terms of the quarterly market share, but we feel very good in terms of where the last few quarters have gone in terms of our market share position.

[Simon Leopold, Managing Director and Senior Equity Research Analyst at Raymond James]

And then I guess the related question is then, is how much of this is reflective of patterns among your two lead customers? Is one behaving differently, or are they sort of moving in sync? How should we think about those behaviors? I'm assuming one is maybe slowing to a greater extent than another.

[Simon Leopold, Managing Director and Senior Equity Research Analyst at Raymond James]

Any color you could offer, I'd appreciate.

[Nimrod Ben-Natan, President and CEO at Harmonic]

We cannot provide the specifics both of them reported recently. Both of them discussed at some level the development of their initiatives. One has specifically noted an increase in the overall CapEx category, which we are a subset of that. There are many other network elements that they spend money on.

[Nimrod Ben-Natan, President and CEO at Harmonic]

The other one was talking about the expansion into DOCSIS 4.0 and the kind of percentage of completion of their mid-split initiative. They both have different dynamics. We cannot specifically comment on one versus the other in terms of the impact on what we see in 2025.

[Nimrod Ben-Natan, President and CEO at Harmonic]

We also have the Rest of the World dynamics, which we provided details on expectation for that to kind of grow and expand during the course of the year.

[Simon Leopold, Managing Director and Senior Equity Research Analyst at Raymond James]

Thanks for taking the questions.

[Operator]

One moment for our next question.

[Operator]

Our next question will come from the line of Ryan Koontz from Needham. Your line is open.

[Ryan Koontz, Senior Analyst and Managing Director at Needham]

Great. Thanks for the question. With regards to maybe what's changed in your comments around the ecosystem readiness, and you've mentioned before about the Full Duplex amplifiers that are a real challenge for the industry. Can you kind of reflect broadly on what you see happening across the broader cable industry as it relates to making these full duplex amps work versus moving forward in an ESD model or even in DOCSIS 3.1 for now and then coming back and doing the DOCSIS 4.0 cleanup later? Thanks.

[Nimrod Ben-Natan, President and CEO at Harmonic]

Yeah. So first of all, no dependency on customers that are rolling out DOCSIS 3.1 or Extended Spectrum in DOCSIS 4.0.

[Nimrod Ben-Natan, President and CEO at Harmonic]

It primarily impacts those that want to take advantage of the Full Duplex or the Flexible FDD, what's called FDD that you can dynamically change the split. In such case, you will need these types of amplifiers. As we said previously, these are not just smart amplifiers. These are, in fact, brilliant amplifiers. And they require quite a significant integration, ecosystem integration into the network to fully operationalize them. And it takes time.

[Nimrod Ben-Natan, President and CEO at Harmonic]

The volume of these devices relative to our devices is a factor of 1 to 17. You have 17 times more of these devices. And these are outdoor. Once you put them, the majority of the investment is to put them out there. So, there is quite a lot of effort to fully operationalize that. And this is what we have been talking about previously.

[Nimrod Ben-Natan, President and CEO at Harmonic]

At the same time, you may recall that we mentioned Sercomm getting into that space. And later on, we announced a partnership with them, a technological partnership with them. And we're very encouraged with the progress made. And we think that this is going to help the ecosystem move faster to fully operationalize these brilliant amplifiers.

[Ryan Koontz, Senior Analyst and Managing Director at Needham]

That's really helpful, Nimrod. Thank you. And maybe just in terms of your metrics, you quoted, I think, 1.3 million new cable modems served, which is the lowest in a few years, but yet also reported record revenue in broadband. Can you help us kind of true that up in terms of what's happening there? Are these hardware shipments in advance of activations or some kind of other revenue recognition going on in the quarter? Thanks.

[Walter Jankovic, CFO at Harmonic]

I'll address that, Ryan. Thanks. Yeah.

[Walter Jankovic, CFO at Harmonic]

So absolutely, the cable modems getting activated come after folks are picking up equipment and licenses. So, you kind of answered your own question there.

[Ryan Koontz, Senior Analyst and Managing Director at Needham]

Got it. All right. Thank you. And your earlier comment about inventory, was that similar to this too, but inventory stacking up at some customers ahead?

[Walter Jankovic, CFO at Harmonic]

No. Our comments on inventory was with regards to taking an inventory provision related to the transition to Unified DOCSIS 4.0. We had certain 3.1 inventory, a specific type that we took a $5 million provision on, roughly $5 million provision on in Q4. That was the comment earlier.

[Ryan Koontz, Senior Analyst and Managing Director at Needham]

Perfect. Thanks so much. Appreciate it both.

[Walter Jankovic, CFO at Harmonic]

Okay. Thanks, Ryan.

[Operator]

Thank you. One moment for our next question. Next question will come from Steven Frankel from Rosenblatt Securities. Your line is open.

[Steven Frankel, Director of Research and Senior Research Analyst at Rosenblatt Securities]

Talk about a question about Unified DOCSIS.

[Steven Frankel, Director of Research and Senior Research Analyst at Rosenblatt Securities]

And when do you think there will be an availability of chips to go into things like amplifiers?

[Nimrod Ben-Natan, President and CEO at Harmonic]

Oh, the chip, though. The silicon is available. There is no dependency on availability of silicon. What I was talking about is how you put the product together and how you put all the firmware and software to operationalize that, how you get the deployment teams fully mustering the deployment and troubleshooting of that. So it's more of how you put that into the system together more so than the silicon. The silicon itself is fully available.

[Steven Frankel, Director of Research and Senior Research Analyst at Rosenblatt Securities]

Okay. And kind of like a couple of other previous questions, I'm trying to square up what were fairly bullish full-year spending plans by your two biggest customers with your forecast, which is kind of the opposite of that. So what am I missing?

[Steven Frankel, Director of Research and Senior Research Analyst at Rosenblatt Securities]

Are they doing other things in their network buildout that doesn't involve you, or you're just not going to factor that buildout in until you see the orders?

[Nimrod Ben-Natan, President and CEO at Harmonic]

So, when you look at major MSOs, CapEx in this network evolution category, it includes our piece of technology, but it also includes amplifiers. It includes a lot of labor to put it out there into the network. Depending on the type of upgrade that you do, if you do extended spectrum, you go and replace all the passive and taps in the network itself, which is a lot of labor effort.

[Nimrod Ben-Natan, President and CEO at Harmonic]

So, holistically, when you look at that, we are a portion of that. And in any given year, it's not necessarily that they spend equally on all parts.

[Steven Frankel, Director of Research and Senior Research Analyst at Rosenblatt Securities]

And could you give us any more color about these recent inventory or order reductions that you've heard about in the last month? And is there any rationale for that that you could share?

[Walter Jankovic, CFO at Harmonic]

Yeah. Yeah, Steve, it's Walter. Maybe I'll address that one. Our belief is those demand pushouts are all related to the market dynamics we talked about in terms of the transition over to Unified 4.0 as well as the other ecosystem dependency. So, I believe it's all related to that. And we saw that, as I mentioned in the prepared remarks, we saw that here in January.

[Walter Jankovic, CFO at Harmonic]

So, we've now have all of our forecasts. We believe those forecasts are now settled out. And as we mentioned on the call today, we're prudently guiding based on the market dynamics and the transitions we spoke about for 2025.

[Steven Frankel, Director of Research and Senior Research Analyst at Rosenblatt Securities]

All right. Thank you.

[Walter Jankovic, CFO at Harmonic]

Thank you.

[Operator]

And as a reminder, that's all we have for questions. One moment for our next question. Our next question will come from the line of Tim Savageaux from Northland Capital Markets. Your line is open.

[Tim Savageaux, Managing Director and Senior Research Analyst at Northland Capital Markets]

Hey, good afternoon. Just a couple of questions here. Looking at the increase in gross margin forecast or guidance for calendar 2025, I assume that's a result of, well, maybe a higher mix of video overall. But within broadband, it would appear to be a higher mix of routing versus nodes. Would you confirm that? And would it be fair to say that substantially all the revenue declines that you're forecasting for broadband next year are on the node side? Based on how I'm looking at my numbers.

[Walter Jankovic, CFO at Harmonic]

Yeah. Yeah. Hey, Tim, it's Walter.

[Walter Jankovic, CFO at Harmonic]

But yes, you have noticed that if you look at the midpoint of our broadband guide on gross margins as compared to the full year 2024 broadband gross margins, we're up about 290 basis points. And that shift in mix is most significantly related to cOS platform as compared to nodes. When we look at the mix with the revenue dropping, you are correct in assuming it's a lower mix of nodes and an increased mix with regards to licenses.

[Tim Savageaux, Managing Director and Senior Research Analyst at Northland Capital Markets]

If I can just dig in on that a little bit more, increased mix, would it be fair to say that the revenue of the license side is looking about flat?

[Walter Jankovic, CFO at Harmonic]

Oh, in terms of the revenue profile?

[Tim Savageaux, Managing Director and Senior Research Analyst at Northland Capital Markets]

I think it's 2025 over 2024.

[Walter Jankovic, CFO at Harmonic]

I think it would be slightly up, even at a nominal dollar basis.

[Tim Savageaux, Managing Director and Senior Research Analyst at Northland Capital Markets]

Yep. All right. Well, that's interesting.

[Tim Savageaux, Managing Director and Senior Research Analyst at Northland Capital Markets]

And you mentioned kind of managing the business prudently, although it seems like you're forecasting a pretty solid increase in OpEx on the broadband side despite the revenue declines. I wonder if you could give us a little more color on what's driving that.

[Walter Jankovic, CFO at Harmonic]

Yeah. Correct, Tim. As you know, on the video side of the business, we instituted our cost optimization through 2024. So, now we're going to get the full-year benefit of that in 2025. And you're correct in terms of the direction on the broadband OpEx is increasing.

[Walter Jankovic, CFO at Harmonic]

And the major reason for that is that, as we mentioned earlier, Rest of World customer growth in 2025 and supporting all of those customers, basically building up the support structure on that OpEx. So, we have broadband OpEx moving upward in 2025 over 2024.

[Nimrod Ben-Natan, President and CEO at Harmonic]

And maybe I can add on that.

[Nimrod Ben-Natan, President and CEO at Harmonic]

We mentioned on the last quarter that we expect Rogers to start deploying towards the second half of the year. That's an integration effort that we're investing. We have in the pipeline quite a few sizable opportunities that we're expecting to secure this year. They all require some level of effort, both from an engineering point of view and integration and support. So, put it all together, that requires that incremental expense.

[Tim Savageaux, Managing Director and Senior Research Analyst at Northland Capital Markets]

Okay. Got it. And last one from me. Walter, I think you're quite specific, but talking about broadband, I guess on a medium-term basis, I mean, you're kind of revising the growth profile. I think you said double digits or low double digits. And I know we're looking solidly over 30% or sorry, 20% before.

[Tim Savageaux, Managing Director and Senior Research Analyst at Northland Capital Markets]

I mean, is that a function of what you're seeing this year and factoring that in, or is there something changed in the market to alter your overall sense of growth rate?

[Walter Jankovic, CFO at Harmonic]

Yes, certainly. And just to, first of all, make sure it was crystal clear, as we've shown on the chart today, the overall market for the Dell'Oro report from 2023 to 2028 for the cable access part that's related to virtualized CMTS, DAA, and Remote OLTs is increasing at a 13% CAGR if you go over that period of time.

[Walter Jankovic, CFO at Harmonic]

And our comments, the comments we made during prepared remarks, are around us managing our business and looking at it over the same time period and a low double-digit kind of growth rate from that 2023 to 2028 span using that type of CAGR.

[Walter Jankovic, CFO at Harmonic]

The relevance of that is that from a cost structure standpoint, from the things we control, we're managing the business that way. As you can appreciate, very difficult to, by going out two years, three years, to know exactly what a year is going to look like.

[Walter Jankovic, CFO at Harmonic]

I think our focus right now is making sure that we continue to grow our market share, that we do the right thing from a cost standpoint, and that we capitalize on the opportunities that are ahead of us when that revenue comes based on the timing of our customers and their deployment plans. I wanted to address that first.

[Walter Jankovic, CFO at Harmonic]

Now, your question as compared to prior CAGR rates that were out there, I think there have been some market revisions, the market analyst revisions from the prior views that were out there, and especially over the medium term.

[Walter Jankovic, CFO at Harmonic]

And what I mean by that is 2025, 2026, we're seeing a drop-off. So, I think we're managing our things that we control very cautiously, and we'll be ready for whenever the customer's deployment timings work out over the next few years. So, that's what I meant by that. And I also just wanted to provide you a little color on what has changed.

[Tim Savageaux, Managing Director and Senior Research Analyst at Northland Capital Markets]

Nope. Appreciate it. Thanks very much.

[Walter Jankovic, CFO at Harmonic]

Okay. Thanks, Tim.

[Operator]

Thank you. I'm not showing any further questions at this time. I'd like to call back over to Nimrod for any closing remarks.

[Nimrod Ben-Natan, President and CEO at Harmonic]

We appreciate your continued interest in Harmonic and look forward to updating you on our progress in the future. Thank you all for joining the call. Have a good day.

[Operator]

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Participants

Executives

• David Hanover, Head of Investor Relations
• Nimrod Ben-Natan, President and CEO
• Walter Jankovic, CFO

Analysts

• Simon Leopold, Managing Director and Senior Equity Research Analyst at Raymond James
• Ryan Koontz, Senior Analyst and Managing Director at Needham
• Steven Frankel, Director of Research and Senior Research Analyst at Rosenblatt Securities
• Tim Savageaux, Managing Director and Senior Research Analyst at Northland Capital Markets