Harmonic (NASDAQ:HLIT) Chief Financial Officer Walter Jankovic said the company entered the year with strong momentum in its broadband business, pointing to sharp first-quarter growth, rising backlog and increasing diversification beyond its two largest customers.
Speaking at the 21st Annual Needham Technology, Media and Consumer Conference with Needham broadband analyst Ryan Koontz, Jankovic said Harmonic’s continuing operations, which now reflect its broadband business, generated 43% year-over-year revenue growth in the first quarter and 24% sequential growth from the fourth quarter.
The company also reported earnings growth, with earnings per share up about 140% year-over-year, which Jankovic said demonstrated the operating leverage in the business as revenue scales. Free cash flow for the quarter was $30 million, and Harmonic repurchased about $43 million of its shares.
Backlog Supports Higher Outlook
Jankovic said bookings were strong during the quarter and followed a book-to-bill ratio of 3.5 in the fourth quarter. He said Harmonic is sitting on a record level of backlog and deferred revenue, with about 60% expected to convert over the next 12 months.
That backlog helped support Harmonic’s decision to raise its full-year outlook. Jankovic said the company increased full-year revenue guidance by more than 5% at the midpoint and EPS guidance by about 13%.
He also described Harmonic’s second-quarter outlook as supported by momentum across both its top two customers and the broader market. “With the backlog that we have, it’s set up with a high degree of backlog that supports the revenue in the near term,” Jankovic said.
Rest-of-Market Customers Begin Deployments
Asked what is driving stronger activity among rest-of-market customers, Jankovic said many operators had spent time deciding which technology path to take for DOCSIS upgrades. He said those decisions are now being made, as operators face competitive pressure from fiber and fixed wireless access providers.
“They have to compete,” Jankovic said, referring to cable operators’ need to improve service quality, reliability and network speeds. He said the company is seeing momentum build as more rest-of-market customers begin deployments.
Jankovic also pointed to progress in fiber, a strategic focus for Harmonic. He said fiber represented more than 14% of revenue over the trailing four quarters. The company has also announced fiber wins, including one in Venezuela tied to the backhaul of mobile traffic using a fiber-based solution.
Software Mix Lifts Margins
Jankovic said the company’s gross margin strength in the first quarter, and the margin profile implied in second-quarter guidance, reflected a favorable product mix, particularly cOS licenses. cOS is Harmonic’s orchestration software platform.
As more operators roll out networks, they are buying cOS licenses and hardware nodes, Jankovic said. He said Harmonic maintains more than 95% market share in cOS licenses and around 70% share in DOCSIS hardware nodes, above the company’s stated goal of more than 60%.
Customers generally buy cOS licenses before lighting up the network, Jankovic said. While the licenses are sold upfront, Harmonic also generates recurring revenue through software support agreements and services.
The company is also building additional software and intelligence offerings on top of cOS, including Beacon, Pathfinder and Amply. Jankovic said these products are intended to help customers reduce truck rolls, reduce churn, improve reliability and address network issues such as micro-outages.
Supply Chain Remains a Caution Point
Jankovic said Harmonic has secured most of the memory it needs for the year, but at elevated prices. He reiterated that higher memory costs are expected to have about a $6 million net impact in the second half of the year, primarily affecting hardware shipments.
He also cited broader supply chain concerns involving printed circuit boards, aluminum, CPUs and servers. Harmonic sometimes sells servers to rest-of-market customers, although customers may also procure servers directly. Jankovic said the company is being “prudent” and “cautious” in its outlook given supply chain conditions, the macroeconomic backdrop and related uncertainties.
Video Divestiture to Create Pure-Play Broadband Profile
Jankovic said Harmonic expects to close the divestiture of its video business in the second quarter. The business is already reported as held-for-sale and discontinued operations, giving investors a clearer view of the broadband segment.
He said the sale will allow Harmonic to operate as a pure-play broadband provider, streamline operations and redeploy capital into higher-growth areas such as fiber, intelligence software and recurring revenue opportunities.
Discussing longer-term growth, Jankovic said DOCSIS upgrades are only one phase of operator spending. He said later phases include densification, node splitting and Fiber-on-Demand, which allows operators to use Harmonic enclosures for either DOCSIS or fiber-to-the-home deployments. He said that approach lets customers make targeted investments based on return on investment.
On competition, Jankovic said Harmonic does not see its market-share position in cOS changing, though he expects Vistance Networks, the former CommScope/ARRIS business, to appear in more competitive situations. He also said Harmonic remains focused on reducing customer concentration through rest-of-market growth and fiber.
Jankovic said Harmonic’s M&A priorities are aligned with two strategic areas: diversification, particularly in fiber, and the intelligence platform. “The eye is always on, here’s the direction, we’re doing things organically. Is there something we can do inorganically that just speeds it up?” he said.
Summing up the investor message, Jankovic said Harmonic is “off to a great start” and more confident in the year, citing the company’s raised guidance and its focus as a pure-play broadband provider.
About Harmonic (NASDAQ:HLIT)
Harmonic Inc (NASDAQ:HLIT) is a leading provider of video delivery infrastructure that enables service providers, broadcasters and content owners to capture, process and distribute high‐quality video across broadcast, cable, satellite and IP networks. The company’s portfolio spans real‐time video compression solutions, including encoders and transcoders, as well as storage and server products designed for live production, playout and streaming on any device.
Harmonic’s product lines include cable edge QAM modules and set‐top video processing platforms for traditional pay‐TV operators, alongside cloud‐native software for over‐the‐top (OTT) delivery, origin servers and content delivery network (CDN) services.
