Harmonic Inc at Needham Technology & Media Conference (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ryan Koontz - Needham & Company, LLC - Analyst : Awesome, perfect. So, Patrick, let's just start out with some housekeeping, talk a little bit about the quarter. And you guys delivered a really nice Q1, had a nice beat in a challenging supply chain environment. Can you walk us through some of the puts-and-takes there on the top line?

Question: Ryan Koontz - Needham & Company, LLC - Analyst : Truly. I think a lot of investors were. I mean, you have guided the gross margin to come down quite a bit, kind of just troughing here in terms of the cable access hardware. And it sounds like it came in a little better than you had feared, and you really had some solid perspective that it should be improved from here going forward.

Question: Ryan Koontz - Needham & Company, LLC - Analyst : Right. And across the different business lines, were there particular products that were strong in Q1 that you can reflect on?

Question: Ryan Koontz - Needham & Company, LLC - Analyst : That's great. And your big Tier 1 customers have been a real focus for investors, I know, on the cable front, especially in addition to Comcast. And it's nice to see that number of Tier 1s that are in deployment mode stepped up. I know it's a real highlight for me that you stepped up from the three that were in volume up to, I think you said, five. Is that right?

Question: Ryan Koontz - Needham & Company, LLC - Analyst : That's great. I mean, Comcast has been very vocal of late the last few quarters about their ability to drive down costs and advance features and speed within that architecture. It's just really attributed to Harmonic delivering there, so it's really terrific.

Question: Ryan Koontz - Needham & Company, LLC - Analyst : Yeah. Can you expand on that little bit and more? I mean, when your customers look at your product versus what they have been deploying from other traditional legacy vendors, what jumps off the page at them that makes it so compelling to make such a radical change?

Question: Ryan Koontz - Needham & Company, LLC - Analyst : It's pretty revolutionary for a network operator to think about having the extensibility of a cloud to run their network as opposed to some fixed processes on a board, which I've always worked for decades past, so --

Question: Ryan Koontz - Needham & Company, LLC - Analyst : And so your hardware that you're selling is truly disaggregated, obviously. It's not even embedded at all. It's disaggregated from your software control plane. So on the hardware side, what's been going on there? Is it moving the cable modem from the network side out into the neighborhood? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 16, 2022 / 7:45PM, HLIT.OQ - Harmonic Inc at Needham Technology & Media Conference (Virtual)

Question: Ryan Koontz - Needham & Company, LLC - Analyst : And open as well, right? Because you can qualify other -- you have qualified other hardware vendors into your ecosystem.

Question: Ryan Koontz - Needham & Company, LLC - Analyst : I mean, I'm sure you could ship more hardware. You have probably certainly demand, I'm sure, for more hardware than you can get through the pipe right now. Does that also apply to the software to at least some degree that you could recognize more software revenue if you could ship more hardware?

Question: Ryan Koontz - Needham & Company, LLC - Analyst : Right.

Question: Ryan Koontz - Needham & Company, LLC - Analyst : Got you. Yeah, it makes sense. How about on the other side of the business? The video side, which historically that was who Harmonic was, certainly a decade ago. And today, that business is also evolving, you mentioned, toward a SaaS platform. And you still sell, I believe, some hardware there that's --

Question: Ryan Koontz - Needham & Company, LLC - Analyst : Right. And your specialty on the video processing side sounds like very heavily around live sports, is where (multiple speakers)

Question: Ryan Koontz - Needham & Company, LLC - Analyst : Right, right. Great. So maybe kind of step back, talking about your backlog a little bit and the macro. It sounds like a very strong demand environment. You've got great visibility with this big backlog. And you guys had a nice guide for the year. How should investors think about risk at this point and your visibility for the year?

Question: Ryan Koontz - Needham & Company, LLC - Analyst : Sure. And I think you have already taken on some risk from the macro in terms of Russia/Ukraine, is that right, in terms of (multiple speakers)

Question: Ryan Koontz - Needham & Company, LLC - Analyst : Yeah. And when you think about your current customers you have in hand, you have contracts with, I think you have said you have about 10% of their cable modems. Their end subscriber cable modems enable it to [supply] on your platform?

Question: Ryan Koontz - Needham & Company, LLC - Analyst : Great. And as far as your mix of products today, I mean do you feel like that's relatively stable and in line with what investors should think about over the next year?

Question: Ryan Koontz - Needham & Company, LLC - Analyst : Yeah. It sounds like there's some nice leverage to achieve in the model with the top line. It's certainly OpEx. I think you are planning to not grow as fast as revenue. Is that correct? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 16, 2022 / 7:45PM, HLIT.OQ - Harmonic Inc at Needham Technology & Media Conference (Virtual)

Question: Ryan Koontz - Needham & Company, LLC - Analyst : Yeah. Another big area that you have been alluding to is fiber to home. And it is still very, very early days there obviously for the cable operators. But it sounds like you are in a really remarkable position there to tap into a big new opportunity.

Question: Ryan Koontz - Needham & Company, LLC - Analyst : Right. I think you are fairly unique in that as well.

Question: Ryan Koontz - Needham & Company, LLC - Analyst : Yeah. That's neat. So from an R&D perspective here, Patrick, are there any kind of hints you can provide in terms of the areas that you're putting most of your emphasis on here going forward? Obviously, the hardware evolution and driving cost out, I'm sure, is taking a lot, and just kind of writing that next wave of switching fabrics is just going to be an ongoing development plan. But maybe on the software side, what are the key areas that are important to you to turn over the next year on the R&D front?

Question: Ryan Koontz - Needham & Company, LLC - Analyst : That's great. I mean, the unified OS across all these different platforms and different ways of packaging it is really unique, and you guys are really ahead of everybody. So speaking of that, competitively, what kind of shifts have you seen there in the competitive environment over the last year as you had more success? Obviously, you've taken share in hardware and just dominating on the next-gen software side. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 16, 2022 / 7:45PM, HLIT.OQ - Harmonic Inc at Needham Technology & Media Conference (Virtual)

Question: Ryan Koontz - Needham & Company, LLC - Analyst : Yeah. I mean, your Tier 1 cable wins speak for themselves. You are executing on that. A lot of investors, I think, don't really understand how complex onboarding an entirely new technology or architecture is to the care -- to a big operator. And I know every vendor has taken their lumps in that process, and you guys have just done a great job of just heads down and moving through the long arduous process in a lot of cases.

Question: Ryan Koontz - Needham & Company, LLC - Analyst : Super exciting. With that, Patrick, I think we will wrap it up. Do you have any final comments you wanted to say and wrap it up?

Question: Ryan Koontz - Needham & Company, LLC - Analyst : For sure. Excellent. Thanks, Patrick, for joining. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 16, 2022 / 7:45PM, HLIT.OQ - Harmonic Inc at Needham Technology & Media Conference (Virtual)