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Welcome to the First Quarter 2025 Harmonic Earnings Conference Call. My name is Lisa, and I will be your operator for today's conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is also being recorded. I will now turn the call over to David Hanover, Investor Relations. David, you may begin.

Thank you, Lisa. Hello, everyone, and thank you for joining us today for Harmonic's first quarter 2025 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. 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 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. 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. We will also discuss historical financial and other statistical information regarding our business and operation, 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?

Thanks, David, and welcome everyone to our first quarter 2025 earnings call. Before we get into the specifics in each of our businesses, I would like to provide a high-level update on how we're executing on our long-term growth plans and navigating tariffs and the current macroeconomics environment. Today, we delivered another strong quarter, advancing our long-term growth strategy. Revenue reached $133 million as we exceeded our Video revenue expectations. We also generated adjusted EBITDA of $21 million, again ahead of our previous outlook. Complementing this, strong operating cash flow lifted our cash balance to $149 million at quarter end. That's even after the $36 million, we returned to shareholders through share repurchases. We closed the quarter with backlog and deferred revenue at $485 million, underscoring the durability of our business model. In 2025, we're continuing to navigate the current industry shift to Unified 4.0. As we noted on our last earnings call, we expect 2025 will be a below trend revenue year for broadband due to Unified 4.0 timing and its effect on customer deployments. Now, potential tariff exposure has contributed to this outlook. Having said that, with our technology and market share leadership position on Unified 4.0, our progress year to date has been in line with our expectations. Therefore, we continue to expect resumed revenue growth in 2026 with Unified 4.0 and existing customer ramps as recently reflected on a Dell’Oro analyst report, which supports this future long-term growth outlook. Turning to Slide number 5. Our broadband vision is becoming a reality. We are seeing rapid adoption of next-generation virtualized platforms across both DOCSIS and Fiber networks, and I will highlight some of that for us today. Turning to Slide number 6. As we continue to execute on our broadband growth strategy, the revenue in this segment was $84.9 million for the quarter, representing 7.6% growth year-over-year and gross margin expanded to 55.5%, reflecting a favorable product mix. We ended the quarter with 129 cOS deployments in production, managing 33.9 million connected modems and approximately 0.25 million remote PHY devices, a testament to the scalability and maturity of our virtualized access platform. Based on our progress to date, we expect to bring at least nine new customers, one in prior quarters into production during the second quarter, further expanding the reach of our cOS platform. Our customer diversification keeps accelerating. This quarter, we added seven new logos, a sound and a second top-five North American MSO upgrading to Unified 4.0 and a Tier 1 Latin American operator launching a major fiber upgrade. Rest of world bookings were also strong and we expect that momentum to continue further expanding our global installed base. Industry trends are amplifying this progress. As cable operators pursue broadened subscriber growth, they are shifting to virtualized access platform that deliver higher speeds and reliability while lowering operating cost. Harmonics' proven deployment record, field tested Unified 4.0 capabilities and converged DOCSIS and Fiber architecture help operators compete, deploy faster and scale with confidence. Fiber is the major pillar of our broadband strategy, and the momentum we are seeing here is unmistakable. We booked a record quarter, lending three new pure fiber wins and completing eight expansion projects with existing customers. First, a Tier 1 Latin American operator selected Harmonic for a nationwide upgrade, based on the density and performance of our remote OLT solution and our industry-leading power efficiency. Second, one of our largest North American customers have expanded its deployment with our virtual BNG and remote OLT solution on the very same distributed access network it already runs for virtual CMTS and DAA, another proof point of the power of convergence on cOS. And third, our open ONU strategy is proving its value in the field. Earlier this quarter, an operator seamlessly migrated from D

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 financials I'll be referring to on this call are provided on a non-GAAP basis. As David mentioned earlier, our Q1 press release and earnings presentation include reconciliations of the non-GAAP financial measures to GAAP. Both of these are available on our website. Looking at some of our first quarter highlights here on Slide 10, our results reflect strong execution as we exceeded expectations for Video revenue, as well as gross margin and adjusted EBITDA in both of our businesses. Total company revenue increased 9% year-over-year to $133.1 million, and EPS rose from $0 to $0.11, driven by higher-than-anticipated profitability in both of our businesses. We also had strong positive free cash flow during the quarter, which helped to raise our cash balance to $148.7 million at quarter end, a substantial increase of $47.3 million sequentially, even with repurchasing $36.1 million of shares during the quarter under our repurchase program. Looking more closely at our businesses, first quarter broadband revenue and adjusted EBITDA was $84.9 million and $15.9 million, respectively, with both metrics showing growth year-over-year. Video revenue was $48.3 million, up 11.8% year-over-year, while adjusted EBITDA in this business was $5.3 million, reflecting strong revenue momentum and ongoing efficiency improvements. Video SaaS revenue in the quarter was $14.8 million, up 15% year-over-year, as we continue to expand this portion of our business. Moving to Slide 11. I will now briefly review our capital allocation priorities and mention some updates on our progress. One of our priorities is continuing to make targeted investments in order to drive our organic growth. This includes investments to support broadband rest of world growth, new service offerings and funding anticipated working capital needs. As mentioned earlier, we had seven new broadband customer wins during the quarter, including three fiber wins. So, these investments have been paying off. Another priority is returning capital to our shareholders through stock repurchases. In our February earnings call, we announced a new three-year share repurchase program of up to $200 million, which doubled our previous program. In the first quarter, we've repurchased $36.1 million of shares under this new program. As we mentioned on our last call, we expected to fund these purchases with strong free cash flow generation over the next three years, supported by our strong liquidity position. At quarter end, this liquidity position consisted of $148.7 million in cash and $82 million in undrawn credit facility. Therefore, we have ample liquidity to support our capital allocation priorities and to manage through the current economic uncertainties. We intend to continue to opportunistically repurchase shares. As we've 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, macroeconomic conditions, corporate needs and regulatory requirements. And finally, we intend to explore inorganic expansion opportunities. Our approach will be disciplined and targeted with a focus on opportunities that complement our current capabilities and leverage our growing footprint in broadband. Turning back to a more detailed look at our first quarter 2025 financial results on Slide 12. As I mentioned earlier, first quarter total company revenue was $133.1 million. In the quarter, we had two customers representing greater than 10% of total revenue, with Comcast representing 34% of total revenue and Charter representing 12%. Total company Q1 gross margin was 59.4%, above the high end of our guidance range and significantly up both sequentially and year-over-year Broadband Q1 gross margin was 55.5%, up 280 basis points sequentially and 800 basis points year-over-year due predominantly to a higher mix of cOS licenses. Video gross margin in Q1 was 66.4%, up 480 basis points year-over-year. The increase mainly due to the revenue strength related to larger refresh appliance deals and our cost optimization efforts. Moving down the income statement on Slide 13. Q1 '25 total company operating expenses were $60.5 million down 3.6% year-over-year as a result of prior restructuring actions in video. And to briefly reiterate, first quarter 2025 broadband EBITDA was $15.9 million and video EBITDA was $5.3 million. Total company EPS was $0.11. Turning to the order book, Q1 bookings were $113.7 million. The book-to-bill ratio for the quarter was 0.9 times compared to 0.7 times in Q4 2024 and 1.2 times in Q1 2024. As we stated previously, over time, we expect our book-to-bill ratio to normalize and approach the historical benchmark of greater than 1 time, especially as Unified DOCSIS 4.0 in broadband ramps. Turning to the balance sheet on Slide 14. We ended Q1 with cash and cash equivalents of $148.7 million. The quarter-over-quarter change was mainly attributable to strong positive free cash flow of $81.7 million resulting from improved DSO and slightly lower inventory levels. Day sales outstanding at the end of Q1 2025 was 67 compared to 72 in Q4 2024 and 78 in Q1 2024. The sequential decrease was due to strong in quarter collections. Inventory decreased $1.9 million in the quarter, and our days inventory on hand was 103 days. At the end of Q1, total backlog and deferred revenue was $485.1 million, around 51% of our backlog and deferred revenue have customer request dates for shipments of products and for providing services within the next 12 months. Turning to guidance. As we mentioned on our last earnings call, due to market developments around Unified DOCSIS 4.0, some customers have pushed out their deployment timing plans for 2025. We continue to believe this is mainly a timing change and expect these 2025 deployment shifts to create a positive tailwind for us in 2026 as schedules are refined and unified Ford Auto technology deployments accelerate. I'd like to take a couple of minutes to discuss the current tariff situation, its impact on our business and how we are managing through it. In our Video business, we anticipate that tariffs, both current and potential, will have an immaterial impact on our business. First of all, our Video business revenue is geographically diversified, and our U.S. sales are well below half of the revenue. Secondly, we have a flexible supply chain with multiple location options, which we believe will allow us to minimize the tariff impact on the equipment element of our solutions, which is predominantly made up of off-the-shelf servers. In our broadband business, we do anticipate more significant impacts as a result of current and potential tariffs. As noted in our filings, one of our primary third-party manufacturing sites is in Malaysia. This is where we have the vast majority of our broadband node products manufactured. Additionally, a large majority of our broadband sales are to U.S.-based customers. With the current 90-day pause in reciprocal tariffs, we have a certain level of clarity for at least Q2, and today's guidance reflects our current expectations. It's important to note that, to date, we have not seen any change in our customer's behavior due to the tariffs. This continues to be a fluid situation, as we work through options on mitigating the short-term impact, as well as we look at longer-term supply chain options pending a final outcome on what the tariffs will be across different countries. We are actively exploring options to offset tariff sensitivity, including optimizing our supply chain, cost management and taking price actions where appropriate. Our broadband solutions are critical for our customers as they upgrade their networks to address competitive pressures and to avoid subscriber churn. And we are confident that, these current tariff uncertainties will not impact our business over the long term. Now let's review our non-GAAP guidance for 2025 beginning on Slide 15. We are taking a prudent approach to Q2 guidance, given the general macroeconomic factors, I just mentioned. For the full year 2025, we will not be providing updated annual guidance today, due to lack of visibility on the future tariffs and the impact it may have on economic conditions and our customers' behavior for the second half of 2025. Continually shifting tariff policies have made it difficult to forecast and guide with confidence for the full year. For Q2, we expect broadband to deliver revenue between $75 million to $85 million, gross margins between 44% to 45% due to product mix and adjusted EBITDA between $2 million to $6 million. In our guidance, we expect to see continued revenue growth in our Rest of World customers, based on the progress Nimrod mentioned earlier, offset by expected timing shifts by our larger customers. This guidance includes an estimated tariff impact of approximately $3 million in the Q2 margins, almost all of which is related to broadband. We continue to assess and seek to mitigate the tariff impacts both in the short-term and over the long-term. For our Video segment in Q2, we expect revenue in the range of $45 million to $50 million, gross margin in the range of 63% to 64% and adjusted EBITDA to range from $2 million to $4 million. On this slide, we've also provided total company guidance for Q2. In the interest of time, I will let you read through the details. Please also note that our non-GAAP tax rate is 20%. I would like to highlight the total company EPS for the second quarter of 2025 is expected to be in the range of $0 to $0.04. We thank everyone for their attention today. And now I'll turn it back to Nimrod for final remarks, before we open up the call for questions.

Thanks, Walter. In summary, we had a strong Q1 with gross margin and adjusted EBITDA exceeding our expectations in both of our businesses and video revenue that was also higher than we had anticipated. Although the transition to Unified 4.0 in broadband and the current tariff situation is creating some short-term headwinds, as you can tell from our -- update today, we continue to be confident in the long-term growth for our business and in the expected growth rebound for broadband in 2026. With our innovation and technology leadership positions, our strong operating model and proven business execution, our growing roster of customer wins and sizable backlog, we are extremely well-positioned for the future. Walter and I are now happy to take your questions.

Thank you. [Operator Instructions]. Our first question will be coming from the line of Steven Frankel of Rosenblatt Securities. Your line is open.

Good afternoon. Thanks for the opportunity. Last quarter, there were some discussion of this Unified DOCSIS delay having to do with the amplifier piece. Obviously, you don't supply those, but it's critical to the network. Any update in terms of where you think the industry is in getting those unified amplifiers in and tested and tuned?

I would say, according to our original plan, there is no change relative to what we expected at the beginning of the year.

And then, in terms of dealing with the tariffs, given the cash flow and the balance sheet in Q1, does it make any sense to go out and try to buy product ahead of delivery to work around the tariffs, or you're comfortable that, whatever tariffs we end up with, your customers are likely to really share the burden and so you don't need to be aggressive about bringing in WEP?

Hi, Steve. It's Walter. So, with regards specifically to looking at options to bring inventory and forward, especially as we have or currently have a 90 day pause. We definitely are looking at those options. As you noted, we have ample liquidity to bring in product sooner if we think it's advantageous for us and our customers in terms of the potential for additional tariffs post the 90-day pause.

Okay. And then last quick one in terms of fiber where you seem to make some real progress in terms of bookings. When does that fiber business begin to become a material part of revenue in terms of deployments?

So, we did not provide the breakdown, but this is becoming, I would say, a sizable in terms of the revenue. I don't know, Walter, what level of details we can provide on that, but this is certainly sizable. In this quarter, we expanded number of customers, and some of them were pretty big in terms of the booking and even initial revenue volume.

Yes. One thing I would add Steve to Nimrod's comments here is that, we have cable customers that are purchasing both DOCSIS and Fiber and we've talked about that before in terms of penetrating our cable customers with our fiber products as well. So, when we sell those products together, they're not necessarily segregated out. I think with regards to fiber sales to pure-play telcos, that is an area that we continue to gain momentum on and will become more substantial, as we move forward.

Yes, I think the D

And our next question will be coming from the line of Ryan Koontz of Needham. Your line is open.

Great. Thanks. Just trying to double click here on the kind of your second half uncertainty, and trying to understand exactly the source of that. How much of that uncertainty is coming from tariff situation, and how much is coming from technology readiness, whether it's your customers adopting new technology at a different pace or just the DOCSIS 4.0 Unified ecosystem not really being ready yet? Can you kind of help us parse that current visibility or current view of second half?

Sure, Ryan. It's Walter. I'll kick it off. Specifically, with regards to not providing a full year guide this time, this is strictly due to the macroeconomic uncertainty associated with the tariffs and the continuing changes in the tariff rates and potential tariff rates. That's impacted us in terms of having the right level of visibility, as we look through the rest of the year. As of today, we don't have all of the revenue for the year committed in backlog, as you would imagine. And therefore, as we look at the tariff uncertainty and all of the tariff fluctuations, and remember this is 26 days old that we've been involved in this situation, and things have continued to change over that period of time. It puts us in a position where, depending on what happens next and the handling of these tariffs, we could see customers potentially delay orders or have some timing shift in orders, especially if the tariffs are significant, and we'll need to sit down with customers and discuss pricing going forward associated with products. So, this is the uncertainty that's been put in front of us. It's all related to that, and we just don't feel comfortable that we can provide a confident guide for the full year, based on what we see ahead of us and where we are right now, 26 days into this situation with regards to tariffs. In my prepared remarks today, we talked about our business and provided some color around a large majority of our broadband business does go to The U.S. It comes from Asia. So those are the key facts in terms of what we're dealing with, as we go through this. It's everybody in the industry is going through it, obviously out of our control, but we're managing it effectively in terms of what we can do in the short-term to address the tariffs that are in place right now, as well as looking longer-term. But really, we need to see what those final rules are, before we start making any decisions with regards to supply chains for the longer term. I think the other thing to really note here is that, and I mentioned it in the prepared remarks, that the fundamentals are strong. You heard it today from Nimrod in terms of our wins, our progress with regards to our long-term strategy. None of that has changed. Our customers in terms of their situation around competitive pressure and needing to upgrade the network or face subscriber loss, that hasn't changed. So, we feel very good about our business and in the long-term in the business. I think we all are facing some short-term headwinds and uncertainty, all associated with regards to the macroeconomic uncertainty and the situation around tariffs.

That's really helpful, Walter. Thank you. And just a clarification on your comment about the nodes and sourcing that technology. Obviously, the RPDs are coming from a traditional PCB shop, contract manufacturer. But how about the balance of the nodes in terms of the power and mechanicals that are so heavy, and are those also sourced from Malaysia or are they coming from...

Yes. As per the prepared remarks, the vast majority of our product is manufactured out of Malaysia for the broadband business.

And one moment for the next question, please. Our next question is coming from the line of Victor Chiu of Raymond James. Your line is open.

Hi, guys. This is Victor in for Simon Leopold. Just to follow-up on the tariff commentary a bit. Can you tell us kind of what potential options you're looking at in terms of possibly diversifying your manufacturing footprint like you mentioned earlier for the broadband business?

Hi, Victor, it's Walter. Yes, so without getting into a lot of specific details, obviously, there are other options, and I'm sure you've heard it from perhaps other companies out there in terms of looking beyond Asia, looking to nearshore our supply chain potential for doing work in Mexico under The U.S. MCA rules. But this is all preliminary. We really need to understand, what is going to be the permanent tariff environment and then that will allow us to do the appropriate assessment to determine, if there are other options that would be beneficial to us and our customers.

Okay. That's helpful. And then, kind of just excluding the potential impact from tariffs, has there been any change around the visibility of the spending trajectory from your two largest MSO customers at this point in the year versus when you cautioned us against the slower spending last year?

Yes. I would say, Victor, without getting into any specific customers, we mentioned it on the call, and I think we also mentioned it in our quote today. We haven't seen any change in our customers' behavior to date.

Okay. And then just one last one quickly. I'm sorry, what was the mix dynamic in the Broadband segment between 1Q and 2Q that's causing the big drop in the margins?

Certainly. So, let me just bridge the margins for the Q2 guide. In the Q2 guide, we highlighted that, we had put in $3 million approximately for the tariff impact. That's a worst-case scenario. We're working through that right now. So, if you bridge that, which is predominantly almost all of it is to the Broadband business, the delta between Q1 and Q2 would be the mix of cOS licenses in the quarter. Q2 is a below-average type of quarter in terms of the mix of the cOS compared to all the other products. That's the bridge between Q1 and Q2. And you would have seen in our Q4 results the margin levels we were at in broadband. In Q2, when you normalize for that, that's what's causing it to dip down.

[Operator Instructions]. And our next question will be coming from the line of Alyssa Shreves of Barclays. Your line is open.

Hi. This is Alyssa Shreves on for Tim Long from Barclays. I was just looking at the SaaS piece in the Video business. It looks like it was down a little bit quarter-to-quarter. Can you talk a little bit about the customer dynamics you're seeing within this piece of the business, in terms of the kind of overall customer physical health?

Yes. Hi, Alyssa. It's Walter. So, with regards to SaaS, yes, from Q4 to Q1, we were down slightly. There's always a level of seasonality with regards to especially live events and sports. And so, there is no major shift in terms of customers or the portfolio of customers that we have. And when we look at year-over-year growth, as I mentioned during the prepared remarks, it's 15% up year-over-year. One other thing to just comment or provide a little bit more color on, we do expect the SaaS business to grow in 2025. We mentioned that, on our last earnings call and a good part of that growth will come from our partnership with Akamai, that we had announced during the last quarterly call. And we had not any contribution from that in the first quarter.

We expect that to be starting to contribute kind of mid-year and going forward.

Okay. That's really helpful. And then you talked about some of the traditional kind of appliance refresh wins you're seeing. How should we kind of think about where we are in terms of ending with this kind of traditional appliance refresh cycle? Are we still in the middle? How should we kind of think about timing there? Thanks.

Yes. So, we think it's going to continue. That was the level of confidence that we shared in the prepared remarks. It's not like a major industry trend, like, we see on SaaS streaming, but at the same time, we see a good list of reasons for customers to upgrade and refresh for higher density, refreshing the compute infrastructure, new features and capabilities, improved video quality. So, there is a kind of good list of reasons for that. I think one of the other things that is helping us is the fairly big installed base that we have. So, we don't need the entire installed base to go through a refresh at once. In aggregate, we see that continuing.

And our next question will be coming from the line of Tim Savageaux of Northland Capital Markets. Your line is open.

Hi, good afternoon. A couple of questions here, but I'll start on this one first. Last quarter, you talked about amplifier availability or smart amplifier availability, I think, as maybe a gating factor or one factor that could be slowing down deployments, talked about a technology collaboration, aim to address that. I wonder if we can get an update on the status of that situation from your perspective.

Yes. So, I think when we presented that issue, we basically said that, we count on availability of these not smart, but brilliant amplifiers, and we've got dependency on them. We also mentioned that, we collaborate with Sircomm to bring more choice for the market and help to speed up the deployment. What I said earlier is that right now it's progressing according to what we anticipated, when we provided the outlook for the entire year. So, it's going according to the plan.

Okay. And just to real -- I mean, I guess the original plan from a guidance perspective was a pretty decent ramp in broadband or pretty sharp ramp in broadband throughout the year. And it sounds like you would still expect that to be the case at least on barring any other issues. With regard to some of the rest of the business, it looks like, based on spending targets that your other big U.S. customer is planning a pretty aggressive ramp in spending throughout the year. Is that something you see from your perspective? Again, leaving aside product availability, has anything sort of changed there from your standpoint?

Hi, Tim. It's Walter. Maybe I'll take that question. Obviously, we can't guide specifically to any one particular customer. Obviously, we've also read all of the public information associated with our largest customers. So, no specific comment with regards to that piece of it. Obviously, we had a certain expectation. As we entered the year, we've provided our guide now for Q2, which is a prudent guide considering the macroeconomic environment that we're in right now. And we're just not guiding second half, for all of the reasons that I mentioned earlier in the Q&A and the prepared remarks.

Got it. Well, maybe let's wrap up then with just the Q2 guide in broadband. I mean, you'd mentioned having seen no changes in customer behavior and I guess you've called out a potential tariff impact, but is there anything in particular, driving that guidance to be flat to down, given those comments about no changes in customer behavior?

So, I would say two things relative to if you compare that to Q1 or Q2 of last year. So, it's really a timing issue with some of our larger projects related to transitions. We did talk in the past on Unified 4.0 that we're dependent or limited to the pace of that, and also couple of, I would call it, scale-up of projects. The second thing, maybe Walter, you can comment on, how we got prudent around what's kind of book and burn ahead of us.

Yes. So, with the uncertainty, we definitely have a bias to rely a little bit less, on what we call book-and-burn. So, these are opportunities that haven't yet booked that we expect will book and turn to revenue in the quarter. So, just because of the uncertainty potential that some of those orders could be delayed. We've biased ourselves a little bit more to relying more on the backlog and a little bit less on the book-and-burn elements. So, we think that's the prudent thing to do, considering the environment we're in right now that continues to shift by the day.

I'll just add on my earlier comment. This was really expected. This is not something that was discovered for the second quarter. We knew, what we're walking into. I think the book-and-burn conservatism is really something we decided on the kind of last couple of weeks.

Thanks very much.

Okay. Great. Thanks, Tim.

And that does conclude today's Q&A session. I would like to go ahead and turn the call back over to Nimrod Ben-Natan, CEO. Please go ahead for closing remarks.

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.