What Harmonic (HLIT) Said on Its Q3 Earnings Call

Key Points

• Harmonic’s Q3 results surpassed guidance: Revenue rose 64% year over year to $148.8 million, while non-GAAP EPS reached $0.23 and operating profit totaled $33 million. Growth was broad-based, with revenue from “Rest-of-Market” customers more than doubling and accounting for a record 46% of quarterly revenue.
• The company is expanding its fiber and intelligence businesses, adding nine customers across seven countries and ramping products including Pearl-1XL, cOS Loop, SensAI and Beacon. Management expects intelligence offerings to contribute about 10% of revenue within three years.
• Harmonic raised its 2026 outlook for the third time, now forecasting revenue of $545 million to $555 million and non-GAAP EPS of $0.80 to $0.84. However, higher memory and component costs are expected to pressure margins into 2027, while elevated inventory contributed to negative third-quarter free cash flow.

Harmonic NASDAQ: HLIT reported third-quarter 2026 results that exceeded its prior guidance, supported by broad-based customer deployments and more than 100% growth in revenue from customers outside its two largest accounts.

Revenue increased 64% year over year to $148.8 million, above the company’s guidance range of $125 million to $135 million. Non-GAAP net income per share was $0.23, compared with guidance of $0.15 to $0.19, while non-GAAP operating profit reached $33 million, exceeding the company’s $23 million to $28 million outlook.

Chief Executive Officer Nimrod Ben-Natan called the quarter “a breakout one,” citing expansion in DOCSIS and fiber deployments, growth in the company’s intelligence offerings and new customer wins across international markets.

Rest-of-Market Growth Drives Results

Harmonic said revenue from “Rest-of-Market” customers—defined as all customers other than its two largest customers by subscriber count—more than doubled from a year earlier and rose 39% sequentially. The category accounted for a record 46% of total quarterly revenue and more than 60% of bookings during the period.

Chief Financial Officer Walter Jankovic said four customers each represented more than 10% of third-quarter revenue. Harmonic’s two largest customers accounted for 54% of total revenue combined, with the largest representing 37% and the second-largest representing 16%.

“The revenue upside was broad-based and included a number of rest-of-market customers ramping their deployments during the quarter, as well as a seasonal increase in our outside plant services business,” Jankovic said.

Harmonic added nine customers across seven countries during the quarter, including three regional Tier 1 operators. New customer wins included Liberty Latin America for DOCSIS and fiber, Denmark-based TDC for a unified DOCSIS 4.0 upgrade, a Tier 1 operator in Belgium, Japan’s Baycom and Venezuelan fiber provider Fibex.

The company said its deployed cOS footprint now includes 167 customers serving nearly 53 million customer-premises equipment devices. Harmonic also said unified DOCSIS 4.0 products are shipping in volume to a growing number of operators.

Fiber and Intelligence Portfolio Expands

Harmonic said its Pearl-1XL fiber platform, introduced earlier in 2026, is now shipping in volume and posted another strong bookings quarter. Its Oyster+ product is also ramping, according to management.

During the quarter, Harmonic completed a tuck-in acquisition of a vendor-agnostic fiber management and provisioning platform, which it renamed cOS Loop. Ben-Natan said the platform is performing well with its established Brazilian customer base and has generated interest among Harmonic customers in North America and Europe.

The company also highlighted its intelligence business, including SensAI, an open intelligence platform launched in September that is designed to analyze data across networks and vendors. Harmonic said it has begun new customer wins and migrations of existing cloud customers to SensAI.

Beacon, Harmonic’s installed intelligence offering, is now live at 25 operators, up from about 20 in the prior quarter. The company also introduced Recon, a fiber-monitoring technology developed with Comcast that is intended to provide real-time visibility into fiber degradation and cuts.

Ben-Natan said Harmonic expects intelligence to represent about 10% of revenue over the next three years, creating what the company views as an additional recurring revenue stream. The company has identified connectivity, intelligence and edge AI compute as its three long-term growth engines, representing a combined total addressable market opportunity of more than $7 billion by 2030, according to management.

Backlog, Inventory and Capital Allocation

Harmonic ended the quarter with $534 million in backlog and deferred revenue, up 58% from a year earlier but down from $587.6 million in the second quarter due to seasonally lower bookings. The company expects 72% of the period-end total to convert into revenue within the next 12 months.

Overall book-to-bill was 0.7 during the quarter, while Rest-of-Market book-to-bill was approximately 1.0. Jankovic said the third quarter has historically been a lower bookings period and that the company expects book-to-bill to fluctuate quarterly before returning over time to its historical benchmark of greater than one.

Cash flow was affected by higher working capital investment. Harmonic reported negative free cash flow of $5.1 million, which it attributed partly to increased inventory and receivables. Inventory rose $28.3 million in the quarter, while days inventory on hand increased to 120 days from 95 days in the prior quarter as the company secured memory and other supply for expected growth.

Harmonic repaid $75 million on its revolving credit facility during the quarter, leaving $160 million available under the facility as of Oct. 2. The company reported $143 million in cash. It repurchased $4 million of stock during the third quarter and another $16 million following quarter-end under its $200 million repurchase authorization. To date, the company has repurchased $142 million in shares under the program.

Full-Year Outlook Raised Again

Harmonic raised its full-year 2026 outlook for the third time this year. The company now expects revenue of $545 million to $555 million, compared with prior guidance of $505 million to $525 million. It forecast non-GAAP operating profit of $118 million to $124 million and non-GAAP earnings per share of $0.80 to $0.84.

For the fourth quarter, Harmonic expects revenue of $141 million to $151 million, gross margin of 51% to 52%, operating profit of $28 million to $34 million and non-GAAP EPS of $0.19 to $0.23.

Jankovic said fourth-quarter guidance includes about $3 million of increased memory costs that are not expected to be passed through to customers. The company expects elevated memory costs and rising prices for other components, including key silicon and printed circuit boards, to persist into 2027. Harmonic said it plans to mitigate some of those pressures through customer price increases where appropriate.

The company’s full-year outlook includes approximately $7.6 million in stranded costs related to the sale of its video business. Harmonic said it expects at least 30% of the original $10 million in stranded costs to be temporary and eliminated by the end of the second quarter of 2027.

About Harmonic (NASDAQ:HLIT)

Harmonic Inc NASDAQ: HLIT develops broadband access and video-delivery technologies for communications service providers, content providers and broadcasters. Its solutions help operators deliver high-speed internet, television and streaming services across cable, fiber and other network infrastructures.

The company's broadband portfolio includes its CableOS platform, a software-based solution designed to support virtualized broadband access networks, along with technologies for DOCSIS, fiber and hybrid fiber-coaxial networks.

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