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HI

HARMONIC INC (HLIT)·Q3 2024 Earnings Summary

Executive Summary

  • HLIT delivered a record quarter: revenue $195.8M (+54% YoY), GAAP EPS $0.19, non-GAAP EPS $0.26, and Adjusted EBITDA $43.4M, with Broadband up 92% YoY to $145.3M and Video returning to profitability as margins expanded materially .
  • Guidance: Q4 total revenue $205–$220M, non-GAAP EPS $0.33–$0.39; full-year 2024 non-GAAP EPS raised to $0.67–$0.73, while total revenue range tightened to $662–$677M (slightly lower midpoint), Broadband FY revenue tightened to $477–$487M and Video FY to $184–$189M .
  • Key themes: strong execution and technology leadership (Unified DOCSIS 4.0 available to all operators) drove outsized Broadband results; Video profitability improved via rightsizing and favorable mix (XOS appliance deal, SaaS growth) .
  • Watch items for stocks: management signaled potential 2025 Broadband headwinds from customers reevaluating deployment timing amid Unified DOCSIS transition and ecosystem dependency (e.g., FDX amplifiers), partially offset by expected tailwind later as plans solidify .

What Went Well and What Went Wrong

  • What Went Well

    • “Record total company revenue and Adjusted EBITDA, with both broadband and video revenue exceeding expectations” (CEO) .
    • Broadband revenue $145.3M (+92% YoY, +56% QoQ), non-GAAP gross margin 48.3% (+380 bps YoY), driven by product mix and cOS shipments; 121 cOS customers serving 32.0M modems .
    • Video returned to profitability with >10% Adjusted EBITDA margin; SaaS revenue $14.2M (+13.1% YoY) as live sports and XOS appliance deal boosted segment GM to 69% .

  • What Went Wrong

    • Management flagged potential 2025 Broadband revenue headwind: Unified DOCSIS 4.0 transition causing customers to reassess timing; short-term deployment delays expected despite mid-/long-term positives .
    • Ecosystem dependencies (FDX amplifiers, Unified RF front-end) may slow near-term rollout; company noted dependency on amplifier availability as networks move beyond fiber-deep markets .
    • Customer concentration elevated in Q3 (Comcast 51%, Charter 18% of total revenue); while expected to lessen, this concentration is a near-term risk if large accounts adjust orders .

Financial Results

MetricQ3 2023Q2 2024Q3 2024
Total Revenue ($M)$127.2 $138.7 $195.8
GAAP Gross Margin (%)48.5% 52.9% 53.5%
GAAP Operating Income ($M)($8.6) ($15.6) $35.4
GAAP Net Income ($M)($6.5) ($12.5) $21.7
GAAP Diluted EPS($0.06) ($0.11) $0.19
Non-GAAP Net Income ($M)$0.0 $9.3 $29.9
Non-GAAP Diluted EPS$0.00 $0.08 $0.26
Adjusted EBITDA ($M)$3.5 $16.1 $43.4
Adjusted EBITDA Margin (%)2.8% 11.6% 22.2%

Segment revenue and margins:

SegmentQ3 2023 Revenue ($M)Q2 2024 Revenue ($M)Q3 2024 Revenue ($M)Q3 2023 Non-GAAP GM (%)Q2 2024 Non-GAAP GM (%)Q3 2024 Non-GAAP GM (%)
Broadband$75.8 $92.9 $145.3 44.5% 47.6% 48.3%
Video$51.4 $45.8 $50.4 56.9% 64.4% 69.0%

KPIs and operational metrics:

KPIQ3 2023Q2 2024Q3 2024
Bookings ($M)$96.3 $72.4 $171.4
Backlog + Deferred Revenue ($M)$627.2 $613.1 $584.7
Cash & Equivalents ($M)$75.6 $45.9 $58.2
cOS Customers (count)——121
Cable Modems Served (M)—~30 32.0
DSO (days)78 78 80
Inventory Days145 116 73
10% Customers (% of total revenue)—Comcast 48% Comcast 51%, Charter 18%

Consensus vs actual (S&P Global estimates):

MetricQ3 2024 ConsensusQ3 2024 Actual
Revenue ($M)N/A – S&P Global data unavailable$195.8
Non-GAAP EPSN/A – S&P Global data unavailable$0.26

Note: Wall Street consensus values from S&P Global were unavailable at time of analysis.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenue ($M)Q4 2024—$205–$220 Introduced
Non-GAAP EPSQ4 2024—$0.33–$0.39 Introduced
GAAP EPSQ4 2024—$0.26–$0.31 Introduced
Gross Margin (%)Q4 2024—55.4–56.7 Introduced
Adjusted EBITDA ($M)Q4 2024—$55–$64 Introduced
Broadband Revenue ($M)Q4 2024—$160–$170 Introduced
Video Revenue ($M)Q4 2024—$45–$50 Introduced
Total Revenue ($M)FY 2024$645–$695 $662–$677 Tightened, slightly lower midpoint
Non-GAAP EPSFY 2024$0.56–$0.75 $0.67–$0.73 Raised at midpoint
Adjusted EBITDA ($M)FY 2024$102–$131 $119–$127 Raised
Broadband Revenue ($M)FY 2024$460–$500 $477–$487 Tightened; midpoint reaffirmed
Video Revenue ($M)FY 2024$185–$195 $184–$189 Narrowed; slightly lower midpoint
Tax Rate (non-GAAP)Q4/FY 202421% (updated in Q2) 21% Maintained
Shares (diluted, M)Q4 2024—117.8 Introduced

Earnings Call Themes & Trends

TopicQ1 2024 (Prior-2)Q2 2024 (Prior-1)Q3 2024 (Current)Trend
Unified DOCSIS 4.0Highlighted DOCSIS 4.0 interop, record 9.4 Gbps; strong FDX progress, modem availability key Shipped record DOCSIS 4.0 nodes; demo planned; competitive lead asserted Unified available to all operators; strong interest; short-term deployment timing re-evaluation Structural positive; near-term timing headwinds
Broadband customer mixDiversification priority; two >10% customers (Comcast 29%, Charter 17%) One >10% customer (Comcast 48%); rest-of-market wins (Telecentro) Two >10% customers (Comcast 51%, Charter 18%); expect concentration to lessen in Q4 Concentration high near term; diversification improving
Video segmentMacro/appliance headwinds; restructuring initiated; SaaS +11% YoY Video stabilizing; SaaS up 3%; working toward profitability Video profitable with >10% EBITDA margin; SaaS +13% YoY; XOS appliance deal Improving profitability/mix
Live sports & ad techIn-stream personalized ad tech introduced; strong pipeline SaaS growth led by live sports; ad insertion economics immaterial for Olympics Trials of in-stream ad solution in live sports; AI tools showcased at IBC Growing Tier 1 SaaS pipeline
Supply chain/lead timesSupply chain not limiting DOCSIS ramp Lead times shortening; July orders > Q2 broadband bookings; inventory strategy Inventory days fell to 73; expect inventory to rise in Q4; prudent leverage/liquidity Operational execution strong
Fiber strategy/BEADNew fiber wins; 7-digit PO; fiber islands; Beacon AI app Launch remote OLT; Pier/Pearl products; FTTH traction Fiber momentum with hybrid & pure fiber deals; BEAD/BABA alignment for 2025 Expanding fiber opportunity

Management Commentary

  • CEO: “Record total company revenue and Adjusted EBITDA, with both broadband and video revenue exceeding expectations… well-positioned for further future growth” .
  • CEO on Unified DOCSIS 4.0: “Unified is no longer limited to a small group… open to all cable broadband providers… significant positive catalyst” .
  • CFO: “We are reaffirming the midpoint of our prior FY ’24 Broadband revenue guidance… and raising our FY ’24 Broadband EBITDA forecast… refining 2024 Video revenue guidance… raising overall company full year 2024 EBITDA and EPS at the midpoint” .
  • CFO on 2025: “Seeing some customers pushing out deployment timing… creating a short-term Broadband revenue headwind in 2025… mainly a timing shift” .
  • CEO on Video: “Video segment returned to profitability with greater than 10% adjusted EBITDA margin” .

Q&A Highlights

  • 2025 Broadband caution: Management emphasized timing delays as customers evaluate Unified DOCSIS 4.0 requirements (ecosystem integration, RF front-end), creating a near-term revenue headwind; mid-/long-term tailwinds expected as decisions firm up .
  • Margins: Q4 Broadband gross margin uplift driven by cOS product mix; uptick unique to Q4 and not expected to persist at that level into FY25 .
  • Concentration: Two large customers drove Q3; mix expected to diversify in Q4 and beyond as rest-of-market ramps .
  • Ecosystem dependencies: FDX amplifier availability becomes a factor beyond fiber-deep markets; amplifier maturity and availability remain an ecosystem dependency .
  • Video pipeline: Appliance refresh opportunities (XOS) and Tier 1 SaaS expansions (live sports, ad insertion) support continued segment profitability .

Estimates Context

  • S&P Global consensus estimates for Q3 2024 revenue and EPS were unavailable at time of analysis; company noted the quarter exceeded internal guidance for both segments and at consolidated level .
  • Given stronger-than-expected Video gross margins and Broadband mix, sell-side estimates may need to adjust higher for Q4 non-GAAP EPS ($0.33–$0.39) and full-year non-GAAP EPS ($0.67–$0.73), while incorporating potential 2025 Broadband timing headwinds highlighted by management .

Key Takeaways for Investors

  • Execution: HLIT delivered a record quarter across revenue, EPS, and EBITDA, underpinned by Broadband strength and Video profitability—confirming operational leverage and mix benefits .
  • Guidance quality: Q4 and FY24 guidance skews positive (EPS/EBITDA raised; Broadband tightened at midpoint), while total revenue midpoint slightly lowered—suggesting disciplined expectations amidst ecosystem shifts .
  • Structural thesis: Unified DOCSIS 4.0 access for all operators and fiber momentum expand HLIT’s multiyear TAM; leadership in FDX nodes and cOS positions HLIT well for share gains .
  • Near-term risk: 2025 Broadband revenue timing headwind is non-trivial; watch amplifier ecosystem maturity and customer plan finalization in coming months .
  • Mix dynamics: Q4 margins benefit from cOS mix but should normalize thereafter; Video profitability appears sustainable on rightsizing and pipeline (XOS + SaaS/live sports) .
  • Customer concentration: Elevated Q3 concentration in Comcast/Charter should decline as rest-of-market ramps; monitor diversification progress in Q4 .
  • Liquidity and balance sheet: Net leverage target ~2x, ample liquidity, and backlog/deferred revenue of $584.7M provide visibility; inventory management supports fulfillment in H2 .