Q2 2024 Earnings Summary
- Significant Revenue Growth Expected in Second Half Driven by Top Customers and New Wins: Harmonic anticipates strong revenue growth in the second half of the year, with substantial contributions from their top two customers and new Tier 1 wins like Telecentro. This growth is supported by increasing order rates and a strong backlog, giving confidence in their projections.
- Competitive Advantage in DOCSIS 4.0 Technology Leading to Market Leadership: Harmonic believes it has a significant lead in DOCSIS 4.0 technology, supporting both Full Duplex (FDX) and Extended Spectrum (FDD) flavors. With products already shipping and in production, this positions them ahead of competitors.
- Improving Margins in the Video SaaS Business Enhancing Profitability: The company's Video SaaS margins are improving due to cost reduction actions and achieving larger scale, with SaaS revenue now at $14 million in Q2. This enhancement in margin profile contributes positively to profitability.
- The company has significant customer concentration risk, with Comcast representing 48% of total revenue in Q2 2024. The loss or delay of orders from major customers like Charter, which came off the 10% customer list in the quarter, could significantly impact revenue.
- Increased competition in broadband from traditional telcos expanding into fixed wireless and fiber-to-the-home may pressure Harmonic's customers, potentially leading to decreased or delayed investments in Harmonic's solutions.
- Only 52% of the backlog is shippable within the next 12 months, indicating potential delays in revenue recognition and long project lead times.
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Revenue Ramp in Second Half
Q: What's driving the significant revenue ramp in H2?
A: Management expects a significant revenue increase in the second half, driven by contributions from their top two broadband customers, along with growth from other customers. They highlighted that July broadband orders exceed all of Q2 bookings, signaling strong demand for shipments in the second half. -
July Orders Exceed Q2 Bookings
Q: Can you elaborate on the magnitude of July orders?
A: In July alone, they booked broadband orders that far exceed the total broadband bookings in Q2, with these orders scheduled for shipment in the second half of the year. -
Customer Contributions: Comcast and Charter
Q: Are Comcast and Charter driving the revenue ramp?
A: While management couldn't provide specifics, they indicated that both top two customers are contributing significantly to the second-half revenue, with growth from both and additional traction from other customers. -
Broadband Lead Times Decreasing
Q: How are broadband lead times affecting orders?
A: Lead times for non-custom broadband products are decreasing from previous levels of 50 weeks, allowing customers to place orders with shorter lead times. This shift is reflected in the recent uptick in orders. -
Competitive Position in DOCSIS 4.0
Q: What's your competitive position in DOCSIS 4.0 hardware?
A: Management believes they have a unique leadership position in DOCSIS 4.0, with support for both flavors (full duplex and extended spectrum). They feel they have a significant lead over competitors. -
SaaS Video Business Gross Margins Improving
Q: Are SaaS gross margins improving compared to appliances?
A: Yes, the SaaS video business margins are improving due to cost reduction actions and achieving larger scale, reaching $14 million in Q2. Margins are now better compared to the combined appliance margin including new products and SLAs. -
Impact of Olympics on Video Business
Q: Will the Olympics materially impact SaaS video revenue?
A: No, the Olympics will be immaterial to revenue due to the commercial model, which is based on minutes streamed, number of events, viewers, and impressions. The event won't significantly move the numbers. -
Excess Inventory at Large Customers
Q: Is excess inventory at large customers still an issue?
A: Management indicated that with one customer just starting to ramp and another transitioning to FDX, they are progressing as planned. Excess inventory is not currently highlighted as a concern. -
DOCSIS 3.1 Enhanced and Modem Availability
Q: What's the status of DOCSIS 3.1 Enhanced deployments?
A: All shipped Remote PHY equipment is extended 3.1 capable, with software releases available. However, deployments await the availability of new modems, which are expected later this year, as modem availability is the dependent issue.
Research analysts covering HARMONIC.