Harmonic Inc. (HLIT) Earnings Call Transcript & Summary

Good morning, good afternoon. I'm Sanjay Kalra, Chief Financial Officer of Harmonic. Welcome to Harmonic's 2021 Virtual Cable Access Investor Event. It's great to have you joining us today. I wanted to briefly review the agenda for today's event. Our President and CEO, Patrick Harshman, will kick off and provide a company introduction and key Cable segment investment highlights. Then, Senior Vice President and General Manager, Cable Access Business, Nimrod Ben-Natan, will review cable access market trends and technology. Our Senior Vice President, Cable Access Business Operations, Gil Katz, will then review our business growth strategy, and then I will walk through our long-term financial model. After the presentation, in interest of time, we will take questions from our sell-side analysts. Before we continue, I must mention that today's presentation will include forward-looking statements. Actual results may differ materially from the forward-looking statements. I refer you to our most recent Forms 10-K, 10-Q and 8-Ks filed with SEC for more information on risk factors. I will now hand it over to Patrick. Patrick?

Okay. Thank you very much, Sanjay. Let me have add my welcome. Thanks to all of you for joining us today. We're very happy you could be with us. For those who aren't familiar with the company, with that finally, we'll start off with a brief at-a-glance overview. We actually operate 2 synergistic related but separately operating business units, Cable Access Business unit, which is the subject of our presentation today and the Video Business unit, which we spoke about a week ago, Monday and recording of which -- of that event is found on our website. In both areas, we feel strongly that we've carved out market-leading positions. We're headquartered in Silicon Valley. The midpoint of our revenue guidance for this year is over $450 million, which is up well over 20% year-over-year. We have an amazing brand with leading service provider meeting customers worldwide, over 5,000 of those in North America, Latin America, Europe, Middle East, Africa and Asia Pacific. As of the end of last week, our market capitalization was just over $750 million where we've been recently -- where we're headed. We have really established a position for our company in both business units as a cloud-native innovation leader by virtue of creative and intense investment in cloud-native technology on both the broadband network side as well as the streaming -- video streaming sides of our business, we put ourselves in a position to really revolutionize the way business has been done by our traditional service provider, media customers. And this is really the heart of what we want to discuss with you today specifically related to our Cable Access Business, following our key investment highlights that we hope to convey to you over the course of the next 45 minutes to an hour. The company has positioned itself to directly address a greater than $2 billion market in 2024. And this growth -- this is a growing market, specifically around the areas where we're investing, 40% growth relative to where we are today. We project, and you'll hear from Sanjay in some detail, we project over $0.5 billion segment revenue in 2024. And again, this corresponds to over 40% compounded annual growth rate between now and then. As I mentioned a moment ago, the foundation for this growth and really the way we're positioned in the market, the addressable market we're going after, is transformative cloud-native technology. And here, we really have established an incredibly strong intellectual property and innovation position in the market. We're confident we're well ahead of the competition. And this really leads to the next point, which is this is not just us saying it, but our technology has been embraced and is now being deployed in volume by market and mindshare leading cable and telecom operators globally in North America as well as internationally. And last but definitely not least. Well, our home base is Cable Access and really the DOCSIS platform that we'll talk a lot about. What we've done is incredibly extensible. And a big part of the growing addressable market we'll be talking about is related to the expansion into a fiber access corresponding analytics services. And last but certainly not least, new edge cloud capabilities. All of these extend our opportunity as well as our competitive differentiation. Put together, we think that this is an amazing business that we've reconstructed here over the past several years, and we're incredibly excited about where we've been over the last 18 months with this business and even more so where we're headed over the next 3 years. And with that, let me turn it over to Nimrod Ben-Natan, General Manager of our Cable Access Business and key architect of a lot of these business initiatives. Nimrod?

Thank you, Patrick, and thank you all for joining our meeting today. We think it's a great time to be in the broadband business, and we will share with you a lot of details today. We first will cover our latest view on the expanding and growing addressable market with more details. We will then share with you more details on why this is a perfect timing to be in the -- in this business with Internet consumption exploding with competition getting really aggressive and government funding. And we'll spend much more time on the transformative technology that we brought to market, and we'll explain why this is so unique relative to the competition. And we also want to share with you the latest traction that we have in the market in deploying CableOS globally. And we think you're going to like the news we're going to share with you today on progress that we're making. So let's dive into the market dynamics and trends that we see in the broadband market. And first, our view of the TAM. So today, we're presenting a growing addressable market of slightly more than $2 billion by 2024. The TAM is driven by 3 major components. The first one, the DOCSIS portion, our core business, is largely based on the Dell'Oro Research, while we discount the declining legacy hardware of CCAP although we believe that it can even decline faster, and we'll talk more about that in the next couple of years based on the market dynamics that we see. The second is a fiber-to-the-home while what you see here is a small subset of the well-accepted multibillion-dollar global addressable market, and we will explain what is this subset we're going after. And the third is more of an emerging category. This is the cloud services broken down into 2 components. The first one is the network and service intelligence and analytics to enable best subscriber experience and network availability. And the second one is really about bringing the cloud to the edge of the network to really enable latency sensitive applications, enriching consumers' experience. So we'll get back into the addressable market. But now I want to discuss the kind of the main market dynamics that we see. And I think this is a unique situation where we see 3 key factors driving the industry. Consumption is surging, and this is -- obviously, we've seen a lot of that during COVID, but even post COVID, I think, our consumers are demanding and expecting much more than before, not just in terms of speed and capacity of Internet, but also in terms of availability and quality of experience, such as latency, as an example, probably driven by COVID, but also by other business arguments, we see a lot of telco -- primarily telco operators living behind the aging DSL and really focusing seriously on fiber-to-the-home. And we've seen AT&T and others, and we see that globally. I've seen a recent report where they talk about the overlap of fiber with cable by 2025, and they really talk about 50% of the footprint of cable will have fiber-to-the-home overlap, which will clearly make it a more challenging environment for cable. And last but not least, government funding. We are well aware of the RDOF in North America. We see very similar funding or investment activity going globally, a lot of city carriers in Europe as well. So all in all, all those 3 factors are coming together at the same time, which we think will -- is and will trigger a significant investment by operators to keep up and stay competitive. So specifically for cable, if we look at cable MSOs, I think they had an impressive performance so far, both in terms of subscriber ads as well as revenue from the broadband category. Cable MSOs have been first to deploy and promote gigabit downstream services globally. And this is really paying off for them. That helped them to win the competition, primarily when it came to DSL competition, but also in terms of increasing the ARPU of subscribers by moving them to a more advanced tier of services. Recent reports have shown that I think in North America almost 10% of broadband customers, cable and fiber are taking 1 gigabit and above. So this is really significant. Having said all of that, the cable network is also having some challenges. The diagram we look at is describing about 90% of the global -- 90%, 95% of the global cable architecture, which is fairly limited in upstream bandwidth and also on the downstream, it can go 2 or 3 gigabit per second. It's clearly not the 10 gigabit of the fiber. So that will not be able as is to keep up and compete. The other challenge is that the typical node splits that cable have been doing all along is becoming very costly. It's effectively replicating this same architecture again and again, reusing a lot of aging out of technology that takes a lot of space and power and working with analog optics into the network. You invest all of that, but you end up with the same result of limited spectrum and bandwidth in the network. We believe for that reason, cable MSO, and we're going to see that, we'll move more aggressively into a more modern architecture, but this also explains in our view why -- if you look at the Dell'Oro report, why do you see a decline in the legacy CCAP business, and that can even get a sharper decline with tougher competition against fiber-to-the-home. So if we look at what are the possible solutions for cable MSOs. So the good news is that plenty of solutions, the main densification or node split is something that they keep pushing into the network towards a multi-gigabit DOCSIS and multiple options, and I will review them in more details. Some of them in some locations or surgically or more strategically, can go fiber all the way to the home. And of course, once they do that, they can take advantage of Internet services and mobile backhaul as an add-on service. But once they do that, they create an architecture that is, on the one hand, more advanced, more capable, but more complex to manage. And really to do that, they have to go into a more modern operating environment with disaggregation, virtualization and distribute the components into the network. That gives them the scalability and performance that they want. The good news about what Cable have been doing and developing was CableLabs, which is the standard body of the industry. This is an open architecture. And in many ways, it's very similar to what we are seeing in the wireless market with OpenRAN where you disaggregate the architecture, you have virtual core functions and you have remote radio access equipment and everything is interoperable, which is really what this industry has done. And once you do all of that, you open the door for value-add services. You can provide a higher quality of experience, higher availability, lower latency. And as we're going to talk later in the discussion today, you can also bring a compute to the edge of the network to enable lower latency services like virtual reality or things like that to enrich the experience of your subscribers. And when you look at all these components together, this is really a call for a converged broadband platform, which is really what we have been doing and promoting over the last couple of years. So what Cable can do or, in fact, is doing. So I'll walk you through couple of options that they have. It's a bit of a busy slide, but I think you will appreciate the details here. First and foremost, they go for a broadband converged platform that has virtualization, cloud-native at the foundation of this platform, and they can add different applications based on the specific access technology that they go after. It's disaggregated. So all the edge routing and networking, you can actually pick that from the Juniper or Arista of the world. And whenever they talk about DAA, this is what they refer to. Then you push digital fiber into the network, this would be what Ciena or Infinera would talk about DAA. And this digital fiber could be all the way up to 100 gigabit per second goes into the network. And you can use that to more cost effectively segment the network into smaller and smaller service groups and even upgrade the upstream portion of the network. And this is how Cable can go even up to 1.7 gigabit per second, which is 17x more than what they can get today with existing DOCSIS 3.1 technology. They can take advantage of the very same architecture, but overlay on top of that, a remote OLT functionality such that they serve that into heavy users or MDUs in the proximity of that serving area, which will give them symmetric 10 gigabit. They can even take that a step deeper into the network and really push fiber all the way to what's called the last active of the network. This way, they get as close as possible to customers without really putting fiber all the way into each and every house, which is the highest cost of the upgrade to fiber-to-the-home, but they get the benefits of a passive network that is really close to customers in terms of the fiber distance. Obviously, they can overlay fiber-to-the-home on this fiber deep architecture. Another option, which is in development, is DOCSIS 4.0, you may have heard about. It's in development. Expected to become available late in '24, '25. It does require massive changes in the network. You have to upgrade amplifiers in the networks and taps, and it will require new CPE and new silicon at the edge of the network. So it's in development. The good news is that it will give more bandwidth and it's certainly a possible tool that cable MSOs can look for beyond DOCSIS 3.1. And some of them, of course, can go all the way fiber-to-the-home with symmetric 10 gigabit in new development, in areas where they fill the competitive pressure. But as you can see, many options. But to manage all these options together, it's really important to have a converged broadband platform that will give you a unified platform to really manage all these cases because it's not a greenfield. It's a migration from an architecture that you see up at the top of the slide, into any or combination of the 5 options that we've described here. So why are we winning in this market? So we basically pioneered this network transformation. And we were the first to bring to market a fully virtualized cloud-native cable access solution. The foundation is based on a platform enabling multiaccess technologies. We started with virtual CMTS for DOCSIS and have since expanded into other access technologies such as fiber and PON, inventing this category, which, by the way, we did there similar thing years ago which was the EdgeQAM market was driven by strong conviction that software and virtual network function can be a game changer for the Cable Access networks. There were many skeptics and competitors who said this would not work, will not scale or will not perform. While this was not easy, we were able to prove them wrong and bring this new technology to market and to mass deployments, and we will share more details with you on that, of course. We've also heavily focused on the remote devices to support multiple deployment configurations, both for indoor and outdoor as well as fiber-to-the-home. Having the complete end-to-end solution really helped us to gain a leading position in this market. This effort also resulted with great innovation, both on hardware and software with a very long list of foundational patents that we issued. We believe we are way ahead of the competition with this new transformational technology and we basically believe that we're the only commercial deployment of cloud-native Cable Access platform in production. And as you will see in the next couple of slides, we keep pushing the engine of the innovation towards new and additional capabilities. And there is one more thing. From the very beginning, we had the idea of operating these networks differently with next-generation telemetry and data-driven network and service intelligence, which greatly help our customers achieve better business performance and service availability. So now I want to dive a bit deeper on key areas. One specific one is the fiber-to-the-home. We shared with you a lot of information also previously on our virtual CMTS and DOCSIS market position, but fiber-to-the-home has been a very strong interest from our customers. Many of them have deployed some sort of fiber-to-the-home. In fact, Cable has been doing fiber-to-the-home over Arris for many years because they did not have an IP-based video. But now with PON, obviously with XGS or 10G EPON, they can obviously do that. So they have requested a solution but really wanted something integrated and more seamless to operate relative to the DOCSIS infrastructure that they already have in place. So we have expanded the platform to support fiber and PON. We took advantage of the cloud-native platform that we have and leveraged a lot of our capabilities such as subscriber management, provisioning, and traffic management. There was a lot of synergy with capabilities that we already have. And it gives our customers a single converged platform to operate DOCSIS and PON seamlessly. We already have this new PON capability in production with couple of customers, and we're expecting this category to keep growing through the rest of the year and in the next couple of years. And perhaps one important point, and this is really going back into the early days of inventing this architecture. Everything that we've deployed in terms of DAA is, in fact, owned already, and I will expand a little bit on that later on. The second topic that we want to expand on is the cloud services for network intelligence. We call that a CableOS. It's a unique network and service intelligence that really gives our customers great insight down to the second of what's happening in their network and really help us to take data-driven proactive decisions. We can detect changes in the network even before the customer is aware of that down to the subscriber level. So something that is really, really important. It's all based on an always connected service that we provide. And for our customers, this really gives them greater operation efficiency and scalability in terms of the number of people that they have working on that. And at the end of the day, it reduced the churn and increase customer satisfaction. So as a result, they can increase their ARPU on this service. This is something that is based on an annual subscription, and we sell it on a per subscriber base. This is a fairly new category of cloud services. It is still ramping up with great momentum and customer satisfaction, but we still expect that to grow in the years to come. All right. So when we look at all of that, we can understand the traction that we have in the market. And today, I'm excited to share with you that we have won 2 additional Tier 1 customers. The first is a top 5 North American operator and the second one is an international Tier 1. So this is the plus 2 that you have joining a respectful other 6 operators. But this is a list of very respectful influencers. You can see Comcast, you can see Vodafone, the biggest operators in North America and Europe, respectively. You can also see on this list here, big and small operators. So this is not just limited to Tier 1. You can see a lot of very small operators, including those that are serving rural areas, and we'll see a couple of case studies on that, which basically means that our system can scale up and down very nicely. You can see on the list, both our cable and hybrid operators. So it's not just limited for cable operators. And the latest of Infonetics, not Infonetics, Dell'Oro used to be Infonetics in terms of market share is 100%. We have a position on the virtual CMTS and on the DAA, the components that get distributed into the network, 67%. So a great traction that we have in the market is reflected in this slide. So we also talked about new and emerging edge cloud opportunities. So this is a bit longer term, but since we talk about kind of how we see the market developing towards 2024, this is yet another use case that we can go after, thanks to our cloud-native implementation. And the idea here is instead of accessing services that are always in the cloud, you can see a case where the cloud is coming to the edge. And the idea here is that you can bring services that are sensitive to latency, such as gaming or virtual reality, all the way to the edge of the network. The platform, the cloud-native platform that we have is the foundation to enable all of that. And in fact, just recently, we completed an integration with Google Anthos, which is the solution that Google is enabling service providers to bring cloud into their premise. So specifically, what we do here, we combine that into a growing and significant installed base of compute resources that are at the very edge of the network. There is no lower latency than that that you can think of. And this can help operators to put their own applications, if they want to put DNS for domain name resolution or video caching or open it up for third-party developers that will bring the NBA virtual reality to the edge of the network. So this will result in reaching the broadband experience, and this can also be a revenue upside for operators. The other kind of use case that again can be enabled by that is the case where in fact, everything that the operator is running in their facilities, whether it's a hub side or a data center can, in fact, move to the cloud. And by doing that, they can achieve no-to-minimal facilities for operators that really see facilities as a liability, something that costs them a lot of money or that they need to keep growing. So they can move to the cloud edge of any of the big hyperscalers and get the broadband, in fact, as a service, while focusing on connecting subscribers and consumer premise equipment and of course, managing the service itself, but the network itself can be operated as a service, in fact. So these 2 use cases that we talked about. this is what's the component that we talked about as the cloud services on top of the central network analytics that we already provide and keep growing. So at this point, I want to share with you couple of case studies of different customers that have deployed CableOS and kind of we'll see what was the reason for them to go as CableOS and the benefits that they could get out of that. First, we talked about Vodafone. CableOS helped Vodafone roll out its gigabit service and expand bandwidth capacity using node splits. That same technique that we talked about earlier. Going with a software-based architecture was a priority for Vodafone. As you know, Vodafone is the main supporter of wireless, virtualization and OpenRAN. Just over the last couple of days, they have announced an activity in the U.K. on OpenRAN. The deployment itself has required a very special integration with the domestic outdoor nodes of Germany. And we have achieved this, thanks to the unique very small footprint of our DAA devices, which are extremely, extremely low power, better than anyone in this market. And another capability that we have in all of our and this is really why we can virtually enable fiber-to-the-home with all of our deployed remote devices is the fact that each one of our remote devices has an integrated Internet switch multiple ports of 10 gigabit. So that is the platform that Vodafone and others can seamlessly expand all the installed base into fiber-to-the-home, very, very strong capability. Next is TIGO. Millicom TIGO is a telecom wireless hybrid operator in Latin America. They have deployed CableOS with DAA, distributed architecture to unify their cable broadband service in 9 countries. As a wireless operator, it was important for them to focus on cloud native platform, which will give them the flexibility to expand bandwidth when required while at the same time get operational benefits with the advanced telemetry of CableOS Central, which is really helping Millicom to achieve higher service availability and customer satisfaction. Next is a small cable operator, Intermountain. They have deployed -- they are based in Kentucky. They have deployed CableOS with DAA to serve gigabit speeds while removing complex legacy RF networks, both indoor and outdoor from their facilities and by doing that, save a lot of space and power and simplify their operation. More recently, they took it to the second phase. They have begun enabling the CableOS PON fiber-to-the-home capability, which allows them to operate seamlessly between the DOCSIS and the fiber-to-the-home and they serve initially business services with this capability. Next is a short video we want to share with you about Otelco. Otelco is serving rural communities in, I think, 6 states. So I think best will be to run the video. [Presentation]

This is Otelco serving rural communities, so this isn't the mega scale of the big operators. So you could hear their experience with CableOS. Next, is really not a customer, but rather a recent proof-of-concept that we have done in collaboration with CableLabs. CableLabs is a research and development lab of the cable MSOs and together with Intel. The purpose of this proof-of-concept was to showcase wireless 5G with split option 2, which is one of the mid-haul option for 5G over DOCSIS transport. For the showcase, we've converged on the same distributed compute resource, which was provided by Intel, the DOCSIS virtual CMTS alongside the wireless virtual function. So you can see right in the middle of the chart, you see the virtual CMTS and the RU, DU, these are wireless functions, all on the same -- it's an outdoor node unit, but it's a compute module inside and all of that was running the cloud-native CableOS architecture, we were -- we did not develop the RU and the DU, but we were able in this cloud-native architecture to add additional compute functions right alongside our own. This is going back into our kind of platform strategy. This was presented to the CableLabs community. It's not something that is going to be deployed in the near future but it was important for CableLabs to promote this architecture, and we were able to support them in doing so. So in summary, the market timing is great. And we're seeing a growing and expanding addressable market with fiber and cloud services on top of our core DOCSIS market. We even think that the DOCSIS market can grow for us beyond what's presented in the TAM and the Dell'Oro research because we think that the existing CCAP market can fall off a cliff if the competition is going to put more pressure on cable MSOs, as you could see, they will have to go with something different than what they have today. Our momentum and traction is accelerating with new additional Tier 1s. We talked about that and a growing customer base. And all of that is giving us this leading market position. And we keep pushing the envelope on new technology innovation. We talked about the edge cloud and the cloud services, the network analytics. So we're super excited about the market opportunity, our technology, the timing of the market and the traction that we have. So I look forward to connecting with you again at the Q&A session. Meanwhile, I will turn it over to Gil and Sanjay to expand on our growth strategy and the financial model.

Thanks, Nimrod. For the reasons Nimrod had explained, over the past 5 years, our Cable Access business has delivered strong revenue and strong gross profit growth. Through the end of this year, we are forecasting a revenue CAGR of 48%. This target is using the midpoint of our 2021 revenue guidance, which we shared with you on our previous earnings call. As noted previously, 2019 here excludes the benefit of onetime upfront software revenue of $37.5 million associated with the $175 million CableOS software license agreement that we closed with Comcast that year. To help you understand better where we think Cable Access segment revenue goes from here, and why? Let me hand it over to Gil.

Good morning, everyone. Thank you, Sanjay. I will present to you a similar story as what Nimrod presented to you, but I will give it more the business perspective of the story. We've been working for well over a decade now to get to this breakout moment, becoming a clear partner of broadband solutions for the cable and hybrid operators. We also helped in basically innovating DAA. So here's the story. It was in 2008 during the cable emerging technology show in which we introduced a new technology that we call HectoQAM. This technology allowed a generation of a full spectrum of quantiriers in a small, low power compute module. The following year at the [ younger ] show, a couple of cable operators approached us and asked if we can integrate that technology inside an outdoor node. And in practice, this is really where DAA, what we know today is distributed access architecture, this is how it's actually started. When we analyzed all the benefits of RF generation at a node and digitizing the fiber, we were very excited to find out that in addition to resolving the facilities bottleneck, that, that was really the prime reason we started to research and to develop it. We found out that digitizing the fiber would bring much better fiber efficiency. And we'll improve the RF signal and the speed on the last mile coax. In other words, DAA would bring to the HFC network kind of a new life, but this time, even with better efficiencies and capabilities. Of course, just technology, it's not enough, and we wanted to make sure we needed to make sure that from a total cost of ownership, there is a clear benefit. And really what DAA introduces a completely all new paradigm. The cost saving on labor, real estate and fiber main investment in DAA is a no-brainer. So then the question was, what engine, what technology should we use as an engine to drive that system. At that time, the telecom networking companies were planning SDN and NFV. And we at Harmonic decided to bring SDN and NFV to cable. I was part of that team, Nimrod was part of that team. I'm extremely proud with everything we have done during those years, and excited to see how it was embraced by the industry. As Nimrod mentioned earlier, it's big operators, mega size operators as well as very small operators whether domestic North America or international, they saw the benefit of this technology and adopted it. What you're seeing and you were touched on that and Dell'Oro analysis showed that as well. The big iron CMTS is declining very rapidly. In practice, it's kind of reaching end of life, while investment in vCMTS and DAA is growing in an accelerated way. Nimrod touched on the fact that we -- from the beginning, we thought about it as a multi access platform. We knew that at some point, fiber 2D, whatever it is, will be necessary. And from the beginning, we developed it in a way that's going to be a fiber-to-the-home ready or -- yes. And we're already seeing the adoption, and Nimrod showed one example of a converged platform for both cable and fiber access. In order to help the industry adapt into this architecture, and it's not just learning the technologies also from an operation practice standpoint, we created an organization and tools that takes the cable operators through that -- through that journey. And Nimrod also touched on the fact that having a cloud-native platform at the edge, enabled cable operators to offer new products in a much more economical way, including even compute services close to the end user. So let's see what we have achieved so far. So far, we have deployed -- today, June 2021, we have deployed CableOS with 59 service providers. Currently, our platform is feeding 3.2 million subscribers, providing maximum of roughly 1 gigabit speed. From here, our business will grow in multiple dimensions. First of all, the existing customers that we are serving has more than 50 million subscribers and growing. So what we are planning to do is to expand the vCMTS platform and install more DAA devices that will fit more subscribers in an accelerated way. In parallel, we're already working on 18 new accounts. And when I say working, I'm talking about actively spending time at their labs in different stages of lab integration or even the trials. We believe that -- I don't believe, it's part of the plan, some of them will launch at the end -- in the second part of this year. Some of them will launch in 2022. In parallel to that, our sales team working to increase our pipeline and bring even additional customers. And we believe, at least that's the plan. By the end of 2023, we'll have at least 60 additional deployment with 60 additional accounts. Now this is a great foundation for upselling additional services and starting from densification and node split. So even systems that we just deployed 2 years ago already expanding and adding DAA devices and expanding the vCMTS platform and add to that the additional subscribers that will be connected to the platform in the next few years. Some of our customers already today, expanding from HFC-only to HFC and fiber-to-the-home. Cloud services that been very useful in terms of helping our customer adapting, in a way, became even a new business for us. And down the road, we definitely see DOCSIS 4.0 is another generation, revenue generation and as well as cloud edge. So with all of that, how that translates to the numbers. So this chart, what we can see, the 2 colors here, the dark blue represents revenue from existing customers to date. And the yellow represents the revenue that we will make from the customers that will launch CableOS between now and the end of 2023. So looking at existing customers, we're expecting them to grow revenue from -- our revenue from $178 million in 2021 to $370 million in 2024. That represents about 70% of the expected revenue in 2024. The new customers that we're bringing on board, will generate $160 million revenue in 2024, which represents about 30% of the revenue during that year. Those customers will keep accelerating rollouts and will generate more revenue in the following years. In all cases, both current customers and new customers, we're expecting the revenue to come from simply expanding the platform and serving more and more subscribers as well as adding new products and services on top of the installed base. With that, I would like to hand it back to Sanjay.

Okay. Following on from the revenue projection Gil just shared. Here is our detailed 2024 revenue model with related gross margin and associated market share expectations tied to the TAMs Gil just highlighted, all broken out by major product categories. For our vCMTS software core, we are modeling at least 60% market share, resulting in revenue of approximately $220 million, with an approximately 82.5% gross margin. For our DAA hardware, we model at least 30% market share, resulting in revenue of approximately $175 million at a 35% gross margin. As we move down the table, for the modest subset of fiber-to-the-home we are targeting, we are modeling a market share of at least 15%, resulting in approximately $95 million in revenue, with a blended gross margin of 50%. Our expanding cloud services offering should garner a market share of at least 20%, garnering approximately $30 million in revenue with strong gross margin of 75%. For our nascent edge cloud offering, we are modeling at least a 5% market share by 2024, generating at least $15 million in revenue at 50% gross margin. In aggregate, this model translates into 2024 revenue of at least $530 million at 60% gross margin, compelling growth that we have strong confidence in delivering. This slide summarizes our 2024 target operating model. Corresponding to our growing addressable market and multidimensional growth plan, we see an increasingly attractive financial model taking place. Using 2020 as a baseline for this discussion, when our cable segment reported $136 million in revenue, including $71 million in software and services revenue and $65 million in hardware revenue, our revenue target of over $530 million, translates to a CAGR of over 40%. Given the drivers Nimrod explained, we expect software and services revenue to rise substantially, targeting a CAGR of over 40% and generating over $300 million in revenue in 2024 as we continue to extend our software leadership. Looking at hardware revenue, considering both our strong DAA lead, and our focus on optimizing our overall gross margin. For 2024, we are targeting a CAGR of over 37% to drive revenue of over $230 million. Further, we are targeting non-GAAP gross margin of at least 60% compared to 49% we reported in 2020. This includes software and services gross margin of over 79%, an increase from 64% reported in 2020. As a result of higher software mix, hardware gross margin of 34% compares to 32% we reported in 2020 as we currently assume only modest cost improvements as we scale. Please note, these blended margin targets are based on our current market share expectations. If these should change, we would expect blended gross margin to change accordingly. Turning to adjusted EBITDA margin. We expect to exceed 20% by 2024 compared to 11.2% we delivered in 2020 despite our plan to continue to invest in R&D to more fully open up the fiber-to-the-home, cloud services and edge cloud opportunities. Looking beyond 2024 and considering these newer R&D initiatives, we expect to position ourselves to achieve higher adjusted EBITDA margin in succeeding years as multi-product revenue growth outpaces technology investment growth. Our organization is uniquely positioned and absolutely committed to achieving the objectives we have laid out here. We look forward to updating you on our progress. I'll now turn it over to Patrick for closing remarks.

Okay. Thanks very much, Sanjay, Gil and Nimrod [Technical Difficulty] of key takeaways that we hope you've pulled out of this discussion, that is that we're targeting a greater than $2 billion market in 2024 and that market is comprised of new technology categories that are fast growing. We expect to grow at least as fast as the market and to be able to deliver $500 million of revenue by 2024. The foundation for all of this is our transformative, excuse me, cloud-native technology. We believe strongly that our innovation lead, our intellectual property lead, close collaboration with market-leading customers has put us far ahead of the rest of the market and in an absolute unique position to not only to take advantage, but to drive the transformations we've talked about today. And indeed, I think the collaboration and the endorsement of market-leading operators domestically, internationally, cannot be overstated. And as you heard from Nimrod, we've announced to you just today 2 more Tier 1 names added to the list, I think, making the case even more compelling that the market leaders are going with this architecture and are going with Harmonic. And last but not least, it's very important to, again, highlight that our growth plan with DOCSIS is the foundation, it's where we start. It's not where we're ending up. The DOCSIS work we intend to continue to do over the next several years will be increasingly complemented by new fiber access, analytics services and participation in the edge cloud market opportunity that the broader telecommunication space is just really beginning to look at and plan on how to exploit. Putting it all together, we think we're incredibly well positioned to not only participate but to lead in multi-gigabit broadband. With that, we'll conclude the formal presentation here, and we'll open it up to questions.

[Operator Instructions] Our first question comes from the line of Simon Leopold.

This is Victor Chiu in for Simon. To what degree does the scale or size of a particular cable operator weigh on the decision to shift to a virtual deployment? And maybe help us understand what factors seem to be the most vital for operators when they're making these choices.

Well, so let me try to answer that. We think that any DAA deployment is more likely to go a virtual. Our view is that the legacy hardware base is reaching its end of the road. So whoever is considering to go distributed. Now you may ask why do they want to go distributed, I think I presented a couple of the use cases that will basically take them out of their comfort zone, if you will, within the integrated environment and go into the network to really go higher split as an example or to split the network in a way that their current facilities do not support. Going virtual saves a ton of space, power, it's the platform of the future. So our view is that the main kind of junction or decision is really those that are adding to go DAA.

Our next question comes from the line of Steven Frankel.

How long on average do you think it's going to take a customer to go from -- I mean, let's call it, mid- sized customer to go from initial deployment to final ramp?

Do you want me to take it?

Yes. Go ahead, Gil.

So Midsized, operator, I would say it takes about 4 months to maybe to make the first move, the first connect customers. Once they connect the first customer, they will take an area, and we'll try to cover it within 2 additional months. So a specific region, 2 months. And from there, really based on their budgets and plans and needs we'll expand it for the rest of their network. So it really depends on their pace, but we've seen cases where an operator transition is full footprint within -- once they started within 4 to 6 months, shifted everything and some others, it decided to take a longer time, but it's really depending on their time lines.

And how long for a Tier 1? Is that a multiyear time line for these Tier 1s you're talking to?

Yes. I mean, again, there are 2 time periods to look at one, to have the first cutover, as we call it. And then the second one is once you made the first cutover until you coverage the full footprint. So for Tier 1s, it's over a year of integration and testing and qualification and trialing effort until they connect the first customers. And then really depending on the size of the operator, you can take Comcast, which we announced a couple of years ago already, if not more. We talked today about how many total customers we already connected across all our customers. So you know it's Comcast, let's say, it's about half of it, and you know how many more subscribers they have to connect. So you can see that the first couple of years were kind of slower for them. But from here, it's where things are being ramped up faster. And I believe they spoke already publicly of to what degree they're going to accelerate the deployments this year and the following year. So it's a small ramp in the beginning and then it takes off.

If I could step in and...

And then one follow-up.

And just to clarify, if you would, Steve, just on that. Nimrod spoke today about 2 new and 1 domestic top 5 or North America top 5 and 1 international. Those -- and Gil, correct me if there's more specificity here, but those have already gone through the first phase that you're talking about.

That's correct.

So we're not looking at a year upfront of that, they've gone through that space. We've been working with both of those operators for something on the order of a year. Now they're satisfied. Now they've given us the official green light. And now we're embarking -- we've got the commercial commitment. And now we're embarking on, I think, the second phase that you've talked about here. Is that correct?

Yes, absolutely. Yes.

Okay. Great. So to clarify that announcement today. These 2 Tier 1s are now rolling out. These are something that have you in it before that these were in the order book? Or this is the first time you talked publicly about these 2 customers?

This is the first time, Steve. I mean just to roll back the clock a little bit. We talked I think on our Q4 call in late January, early February, whenever that was, about a top 5 North America win. That's distinct from what we've discussed here today. That on our last earnings call, we talked about a new a Tier 1 international operator that bring those -- that brought us to a total of 6. And then on today's call, we have mentioned 2 new ones that we have not, to my knowledge, mentioned or even hinted at before other than to say we're -- we have other Tier 1s in the pipeline. And that is new commercial commitments award letters from a new North America top 5 and the [indiscernible] international.

[Operator Instructions] Our next question comes from the line of Tim Savageaux.

Great events. And thanks again for the granularity here. And I'm hoping that will continue with this question. And it is the following: As you look at these next 2 one -- sorry, 2 Tier 1 additions, what does that do to the 50 million subscriber number that you've been quoting pretty consistently the last few quarters or so. How does that add to your footprint?

I don't know if we are ready to provide this level of details. Tier 1s, you can think of a top 5 North America, pick the name and how many millions of subscribers they have. The other one is international. It's certainly in the millions but I don't think we are ready at this point. Patrick and Sanjay to provide that exact number.

That's right. We can't -- we won't provide the exact number, but as Nimrod just said, you can kind of do the math and assume the smallest of the top 5 North America, think about a large international operator, we can say that, that 50 million number goes up by at least 10%. Tim, I mean, I want to be clear. I mean in part, yes, it's the expanding footprint that we want to draw attention to in highlighting this. But I think just as importantly is the fact that we think we're winning the mindshare battle, if you will, out there. I think at one point in time, there was a thought or concern that this technology was too complex, maybe only Comcast could do it or maybe only Vodafone could do it. We hope we've showed you here today is that all the way the other end of the spectrum, customers like Otelco, a rural operator can only use the technology, but can see near-term benefits. And at the same time, we see other large scale, large operators, major market cap operators making the move to our platform. So we understand the desire and to kind of do the math on what the subscribers are. And that is an important part of the picture here. But I would say just as important is really is where the momentum is going in the market and where the mindshare and technology pendulum is headed. And I think that's really what Nimrod did an effective job speaking to in his part of today's presentation.

Okay. Fair enough. If I could follow up while I'm still here. And so just to recap there, I do think there's -- we kind of tend to use U.S. and North American interchangeably from time to time. But as you guys know, there's a pretty great degree of variability between what we call Tier 1 across North America. And that's what I was looking to get more color on. Is it accurate to say at this point that you've got 3 of the top 5 North American MSOs that you've announced as customers? Obviously, one being Comcast.

Yes.

Our next question comes from the line of [ Ryan Kunz.]

Thanks for the event, Really helpful there. Could you walk us through your high-level software pricing model there? And how much we should think about as recurring versus license? I assume a lot of it's still kind of capital centric as opposed to SaaS and the SaaS opportunities further out as we get to kind of a network-as-a-service model? Can you kind of walk us through more of that?

So well, obviously, we're not going to get into the details. I'm sure we've got our competition listening. But there is clearly licensing per functionality. And then there is recurring SLA on top of that. And for software it's at the high end of what you can think of SLA. And then the -- if you think of the annuity model, it's really the fact that this network gets segmented again and again. If cable will ever get to the granularity of the network as fiber-to-the-home, they will segment these fiber nodes in the network down to sub-100 subscribers. So that's kind of the recurring nature of that business. The other component we talked about is a subscription as a SaaS, is fairly new. It's growing with a great customer satisfaction. But it's something that we're not yet ready to discuss, but certainly a very sticky component of our business, and we're targeting growth in that category as well. Gil, if you want to... Sorry. Yes, I just want to see if Gil can or want to add anything on top of what I said.

No, I think you covered it all. Yes.

Okay.

Okay. Super helpful. On the -- just a quick follow-up on the hardware. Is that primarily RPDs? Or are you -- is there a component of having to sell server-type hardware in there as well?

It's primarily what's called RPD or RMDs and the outdoor housing that comes along with it. But there could be cases where [ we lease ] then other auxiliary equipment to complete the solution offering, primarily to smaller customers, bigger customers tend to source the more commodity components directly. But the bigger portion is the outdoor units, yes.

Maybe just to add to that in the context of PON, the same RPDs are actually also outdoor switches and has also the PON interface, right? So that's another piece of hardware element that we supply.

Our next question comes from the line of Kyle McNealy.

This is Kyle on for George. It feels like the biggest near-term pain for the cable operators is expanding this upstream bandwidth, as you spoke about. You addressed it partially in your architecture slides. But can you talk a little bit more about how critical DAA deployment is or even Harmonic CableOS adoption is to improving upstream bandwidth? I'm assuming they can do this by just changing to a mid split or a high split, but that may be a tactical change versus a strategic fix. So could you talk a little bit more about that?

Yes. So going to a mid split or a high split is a possibility. The irony is that for many of the deployed systems, once you do that, you have to forklift so many elements in the network such as the analog optics or a digital return, as it's called, you have to totally upgrade that. Some of the integrated [ CMPS ] line cards do not support the full spectrum. So once you go into the refresh of doing all of that, you basically get in trouble and going DAA is a much more beneficial, especially when you think about what's coming next as you think about the kind of the long-term evolution of the network. I'm not saying everybody is doing it overnight, but I'm saying there is a growing sentiment in the industry to go in this direction. If you think about expanding towards fiber-to-the-home or getting ready for DOCSIS 4.0, if you stay still, you will never get there.

Maybe to add on that, even though we touched before. As Nimrod mentioned, to move to the mid split and high split, you need to really to touch big parts of the network all the way from the CMTSs that in the hubs to the nodes and sometimes also the actives on the plant. But let's look for a second on the node and the hubs. What DAA brings is at least 95% saving on real estate. We're talking about orders of magnitude, more space. And you can imagine what's the value of that real estate if they can free that real estate, to use it for edge cloud or for other benefits or even if just do facility collapse, and save operation costs, 95% on real estate. Another very important point, is power. You reduced the power usage by moving to DAA. Plan doesn't change much in terms of power consumption, but in the facilities by over 50%. Sorry, that was if you do centralized remote fiber. But actually, it's also close to 90% saving on power. So it's completely different ball game. So if you go in and do this investment, shifting to mid split, high split, it just doesn't make sense to do it economically, operationally, future-proof, it just doesn't make sense to do it with existing hardware.

[Operator Instructions] We do have a follow-up question from the line of Tim Savageaux.

I wanted to come back on the PON fiber-to-the-home kind of element to the presentation, which I thought might be -- might have been the most incremental in terms of the size of the TAM and the opportunity that you're pursuing, which looks like about a 20% share of a $650 million market. Is that -- I guess, a, how much visibility would you say you had to that currently, right? You started some initial deployments. I think you noted your first volume order a couple of quarters ago, but it sounds like you must have a pretty decent funnel there on the one hand, and is that exclusively composed of cable operators? Or do you see opportunities in other -- among other types of carriers?

So we see that primarily with cable, but also with hybrid operators that have cable and some sort of a telco as well as I would say, those smaller operators that we work with, you can call them [indiscernible]. And in fact, when you think about the art of opportunities, so even big MSOs are going after art in their footprint, which is going to be primarily fiber-to-the-home. Cable, as I mentioned, has been doing fiber-to-the-home. They have been doing RF over glass, which is an aging technology that they no longer want to do it. So right there, they can actually convert from RF over glass, which is DOCSIS over fiber all the way to the home into XGS or 10G EPON to the home on new build, new development that they do. So we definitely see that, and this is all driven by very tight cooperation with customers that are under pressure to kick off a more, I would say, established fiber-to-the-home strategy. Yes, many of them would look at -- am I going to do DOCSIS 4.0, fiber-to-the-home, so we're not saying this is happening overnight, but we have very clear visibility into kind of the strategy that they work on. We have high confidence that CableOS customers that have our devices in the network will start converting or overlaying fiber-to-the-home, and this is what's driving our confidence in this strategy.

Thank you. There are no further questions at this time.

Okay. Well, we'll wrap it up here right on time. I want to thank you all again for joining us today. I hope it comes across loud and clear. We're pleased with what we've achieved so far in this business. We're even more excited about what lies ahead. We have a multipronged growth strategy. We have unique and differentiated technology. And we have some of the top customers in the business working alongside of us. Putting it all together, we think we have an amazing opportunity, and we're looking forward to continuing to execute on. And we're looking forward to continue to update you all on our progress. So until our next update, thank you very much for joining us. Stay well. Looking forward to talking with you all next time. Thanks very much. Good day, everyone.

Thank you.