Harmonic Inc (HLIT) 2015 Q2 法說會逐字稿

Welcome to the Q2 2015 Harmonic earnings conference call.

My name is Eric, and I'll be your operator for today's call.

(Operator Instructions)

Please note that this conference is being recorded.

I will now turn the call over to Blair King, Harmonic's Director of Investor Relations.

Blair, you may begin.

Thank you, Eric.

Hello, everyone, and thank you for joining us today for Harmonic's second quarter 2015 earnings conference call.

My name is Blair King.

With me at our headquarters in San Jose, California are Patrick Harshman, our CEO, Carolyn Aver, our CFO, and Peter Alexander, our CMO.

I'd like to point out that in addition the audio portion of this call, we have also provided slides for this webcast.

Which you can see by going to the Investor Relations page on harmonicinc.com, and clicking on the second quarter of 2015 Preliminary Results call button.

Now turning to slide 2. Let me remind you that during this call, we will provide projections and other forward-looking statements regarding future events or the future financial performance of the Company.

We must caution you that such statements are current expectations, and actual events or results may differ materially.

We refer you to the documents that Harmonic files with the SEC.

Including their most recent 10-Q and 10-K reports, and the Forward-Looking Statement section of today's preliminary results press release.

These documents identify important risk factors that could cause actual results differ materially from those contained in our projections or forward-looking statements.

Please note that unless otherwise indicated, the financial metrics we provide you on this call are determined on a non-GAAP basis.

These items 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 operations.

Some of this information is included the press release, and the remainder of the information will be available in recorded version of this call on our website.

With that, I will now turn the call over to our CEO, Patrick Harshman.

Patrick?

Thanks, Blair, and thanks, everyone, for joining us today.

Turning now to our slide 3. Today, we reported our results for the second quarter of 2015.

Reflecting real progress on our strategic agenda, strong year-over-year earnings growth and gross margin expansion, but also an unexpectedly challenging cable spending environment.

Revenue in the quarter was $103 million, down 1% sequentially, but above the midpoint of our guidance range.

Underneath this headline, it's very much a tale of two businesses.

Positively, our video business grew 13%.

Driven by an accelerated adoption of our VOS platform, by both service provider and media customers.

On the other hand, our cable edge business was down 28%, following a record first quarter of revenue and bookings.

Some decline was expected following the big first quarter, but other market factors accentuated the effect.

Correspondingly, bookings in the quarter were $99 million.

Slightly above our first-quarter's result, but below what we expected.

Again, the consequence of markedly slower cable spending.

Outside of cable, we were pleased to see strong global bookings momentum in our video business across all of the customer verticals: satellite, telco, broadcast, and media.

And we're also pleased by the sustained strong gross margin of 53% in the quarter, and down slightly from last quarter, but up a solid 3% from a year ago.

Reflecting our product strategy, our powerful new intellectual property, and improving competitive differentiation.

Earnings were $0.05 share, flat against last quarter's results, but more than double that of a year ago.

Reflecting both the improving operating leverage we're building into the business, and the earnings growth we're targeting for 2015 and beyond.

And finally here, we generated a healthy $12 million in cash from operations during the quarter.

And so with that overview, let's turn to slide four, and take a closer look at our video business.

Where we delivered solid sequential and year-over-year increases in revenue, and bookings, and operating margin.

Underpinning these encouraging video results is a market environment that is slowly starting to improve, and growing momentum behind our newest products.

And while I'd say we're still the early innings of demonstrating the true power of our next-generation video architecture.

It's increasingly clear that Harmonic's VOS platform is a real winner.

VOS bookings in the period were nearly three times our first quarter's bookings, and roughly six times those of the fourth quarter.

Led in large part by an accelerating rate of adoption, and by tier 1 service providers across North America, Europe, and Asia.

All in, nearly two dozen customers adopted the platform for the first time in the quarter.

While several existing VOS customers came back to us to either extend network functionality, or add channel capacity.

We've talked with you previously about the business model and technology changes playing out in the video marketplace, and the corresponding spending doldrums.

In this context, it was particularly encouraging during the quarter to see several tier 1 service providers leverage our new platform, and to extend pay-TV viewership beyond traditional distribution models.

That is multi-casting linear broadcast channel lineups through unmanaged IP networks to hybrid set-top boxes and smart TVs.

Similarly, we also saw increased Ultra HD and HEVC compression activity breaking loose.

In here as well, we secured important new business with key tier 1 service providers.

Notably, Harmonic's expanded intellectual property and compression and predictive technologies were on display in several highly visible Ultra HD shoot-outs, where we demonstrated superior video quality at approximately half the bit rate of our closest competitor.

Finally, of particularly note during the quarter and also related to Ultra HD.

We passed a key milestone by shipping the industry's first Ultra HD encoders with high dynamic range.

Enabling a significantly wider color range and enhanced luminance levels, that many of our customers now believe is vital to the commercial success of Ultra HD.

So on that note, let's turn to slide 5 and talk about the key market themes driving our video business through the back half of the year, and our progress executing on the strategic milestones that we previously outlined.

As evidenced by the VOS momentum we saw in the second quarter, the adoption of network function virtualization to produce and deliver live pay-TV seems to be really getting traction.

Here both new and existing customers continue to turn their attention toward IT paradigms in general, and Harmonic's VOS system in particular, to leverage our newest innovations in video quality, compression, and OpEx savings while saving functional integration.

Many of our customers continue to educate themselves and evaluate the technology, growing momentum toward virtualization is clearly evidenced by our rapidly expanding VOS customer base.

The pipeline for linear over-the-top channels delivered directly to consumers by broadcasting media companies is also expanding.

As I highlighted on the previous slide, we're now seeing healthy incremental demand stemming from a consolidation of video chain functions for simultaneous origination and delivery of linear broadcast and multi-screen services.

And with respect to Ultra HD or 4K, we see growing television sales and consumer interest.

A gradually maturing ecosystem, new test channel launches, and continuous innovation in video quality and bandwidth efficiencies.

Although we remain in the early days of adoption here, Harmonic's is demonstrating a solid early lead in the market amidst a noticeable increase in trial activity and live test [on our] channel deployments.

And closely related to Ultra HD, although with even broader near-term applications, we're also seeing growing market interest in new HEVC compression standards.

And particularly in the context of nascent linear over-the-top and mobile services, where CDN costs are exploding and wireless bandwidth is really at a premium.

Many of the world's leading media and telecom companies are now actively considering leveraging HEVC to recompress existing services, to dramatically expand reach and reduce distribution costs.

And finally, regarding video market dynamics.

Although the underlying demand trends are clearly improving across geographies, we remain cautious about both the continuing potential for industry consolidation related delays and the strong US dollar overseas.

So with that as background on video market dynamics, let's now pivot to our video business milestones.

We continue to make meaningful progress advancing the adoption of our VOS platform, and collapsing the time it takes to convert bookings to revenue.

And we're adding customers at an accelerating rate, while exploiting our unique horizontal technology portfolio to transform customers' operations and take share in the process.

Moving now to 4K and Ultra HD deployments.

The aggregate demand is still modest, but we're now winning new business across all of our end market verticals.

Leveraging superior video quality at substantially reduced bid rates, and bolstering our ability to outpace market growth, as this multi-year investment wave stats to hit full stride.

And finally here, the second quarter was also strong for our production and playout products.

As the operational efficiency value proposition of our Polaris Suite drove new business with several broadcast and media companies.

So in summary, we think we've turned the corner with our video business.

And we expect sequential video growth and margin expansion through the back half of 2015 and into 2016.

So with that, let's now turn to slide 6 and talk about our Cable Edge business.

As I mentioned a moment ago, following a record first quarter of revenue and bookings, we experienced softer demand for our Cable Edge products.

As some customers absorb the network capacity recently purchased from us, and slackened demand in the context of industry consolidation.

Now I want to be clear, that while we expect these consolidation dynamics to weigh on Cable Edge revenue in the near-term, probably for the balance of 2015.

Recent customer feedback on our under development DOCSIS 3.1 solution, leave us incrementally more bullish on our mid to long-term opportunity and competitive position here.

As we've discussed for several quarters with you, we embarked on our journey of over three years ago to address a roughly $1.8 billion market opportunity that converged Cable Edge, referred to in the industry as CCAP or converged cable access platform.

Notably, this market opportunity represents nearly six times the traditional edge qual market that we've been addressing.

And some of you know already, this enlarged opportunity is driven by our cable customer's planned disruptive transition to a flexible all IP converge to video and data network.

Well, in the quarter I'm pleased to say we significantly advanced our two-way CCAP program by passing several key internal and customer lab milestones.

And while we still have much work to do in advance of our anticipated mid-2016 DOCSIS 3.1 launch, the feedback we're receiving from key customers is overwhelmingly and increasingly positive.

I've personally met with several key customers in recent months.

And I can tell you that these conversations have considerably strengthened my conviction in Harmonic's ability to be a leading player in the convergency CCAP space.

With respect to our centralized CCAP platform, the NSG Crow, we continue during the quarter to extend our global footprint with key cable operators.

Leveraging the platform's unique marriage of industry-leading density and flexibility.

And here, flexibility means the ability to integrate downstream and take video and DOCSIS data services across the entire RF spectrum.

Something that's unique in the marketplace today.

Turning to distributed CCAP market activity during the quarter.

We saw increasingly strong interest in fiber CCAP architectures as a vehicle to deliver 2A gigabit services.

Punctuated by the early July release by CableLabs of related new CCAP specifications.

And we saw a corresponding growing pipeline of activity in trials for our NSG Exo, particularly internationally.

So with that look at the second quarter, let's now turn to slide 7 for an update on our outlook for the Cable Edge business where, despite near-term headwinds, we see the overall market drivers firmly intact.

Unequivocally, competitive over-the-top and direct-to-consumer streaming services are upping the ante on cable operators to unleash more powerful and user-friendly content navigation guides.

Accelerating the consumption of video-on-demand, and by extension, the video edge [quan] capacity.

And within an intensifying level of competition among service providers to deliver multi-gigabit data rates, the long-term trend of cable operators pushing the envelope with large capacity broadband access technologies including next generation DOCSIS 3.1 CCAP remains in force.

Reaffirming our investment strategy in CCAP and a significantly expanded new market opportunities we move through 2016.

Furthermore, as cable operators grapple with the constraints of legacy HFC networks, there's a growing branch of the CCAP market that will play out as port of a new distributed architecture.

Here, the market remains relatively uncontested, and we're seeing an expanding set of new opportunities.

This is particularly evident in regions where operators were extending their fiber networks to coax wired multi-dwelling buildings, and small businesses and in support of denser Wi-Fi architectures, for which our NSG Exo CMTS is especially well suited.

Finally here, regarding market dynamics.

As I've already noted, cable customer consolidation and planning activities are ongoing and in some cases still in flux.

This coupled with normal edge capacity absorption cycles, cause us to now adopt a more cautious near-term outlook for Cable Edge demand.

So with that, let's now pivot to the milestones by which we're measuring our strategic progress and penetrating the two-way CCAP market.

As I've mentioned, we've continued to expand the NSG Pro footprint, both domestically and internationally.

As a reminder, this is a crucial component of our longer term CCAP strategy, as it broadens the opportunity for future downstream software license sales, while also cementing a deploy base from which to insert our DOCSIS 3.1 two-way technology.

Additionally, we expanded our new NSG Exo customer base during the quarter.

And the field experience we're getting with this distributed two-way CMTS is serving to further advance our DOCSIS expertise, experience, and capabilities.

Finally, of importance to our overall CCAP initiative, we're making meaningful progress in our centralized DOCSIS 3.1 development program.

As I mentioned a moment ago, we passed key milestones in the quarter, and remain on schedule to deliver two-way DOCSIS 3.1 hardware based on our NSG Pro platform to customer labs later this year.

Outstanding work is being done here.

Key customers really like what we're doing.

And we've built a world-class team.

And we look forward to keeping you apprised of our product developments and customer valuation progress.

Let's now turn to slide 8, where I'd like to step back and take a look at the big picture with you.

And while I acknowledge, we've run into speed bumps along the way, I can tell you with high confidence that through several years of investment and close collaboration with our customers, this Company is now better aligned strategically with the future investment profile of our customers than at any other time in our history.

And in video, we're hitting in market well armed with an entirely refreshed technology platform and product portfolio.

And our latest wave of efforts to capitalize on the industry's accelerating investments in compression, virtualization, 4K and over-the-top, were only just beginning to pay off.

In cable, where executing to our DOCSIS CCAP strategy, and carving out a strong position from which to meaningfully penetrate this market over the coming year.

In our cross customer verticals, our differentiation really is taking center stage with unparalleled innovation, powerful service and support capabilities, a compelling total cost of ownership proposition, and a very strong global brand.

And we're increasingly outpacing competitors, as we better leverage our existing intellectual property, and create new intellectual property, to take market share, expand margins, drive operating synergies; and position our Company to further strengthen cash flow, earnings growth, and ultimately enterprise value.

With that, Carolyn, let me now turn the call over to you to talk more about the Q2 results and our financial outlook.

Thank you, Patrick.

Let's move to slide 9.

As Patrick said, our net revenue for the second quarter was $103.1 million.

Above the midpoint of our guidance range, and down approximately 1% from the first quarter's $104 million, and 6% from $109.6 million a year ago.

Our video segment was up $8.9 million sequentially.

While the persistent strength of the US dollar continues to impact the purchasing power of our channel partners and end customers overseas.

The improvement was led by a strong rebound from both our service provider and media customers, and an acceleration of next-generation products and architectures.

This was offset by a decrease in our Cable Edge segment of $9.8 million.

As Patrick mentioned, the decline in our Cable Edge segment is principally related to slower capital spend during the quarter.

Some of which we expected, some of which we did not.

Our bookings for the quarter were $99.3 million, up 2% sequentially, and down 12% from the second quarter of 2014.

On a year-over-year basis, the investment pause in our Cable Edge segment played a significant role.

We are, however, encouraged by the sequential and year-over-year strength of our video bookings across all geographies.

Our book to bill ratio was 0.96, deferred revenue and backlog was $120.6 million at the end of the second quarter, down 1% sequentially, and 9% year-over-year.

The slight sequential decline is principally due to the timing of deferred revenue recognition.

Gross margin was 53.2% in the quarter, above the high and of our guidance range.

A decrease of 70 basis points from the previous quarter, and an increase of 310 basis points from the second quarter of last year.

The year-over-year improvement principally reflects a more favorable mix of our higher-margin video products.

Additionally, we are benefiting from improved margin trend across our blended business as we continue to reduce costs through operational efficiencies and supply chain management, while strategically focusing on innovative products and services that deliver differentiated value to our customers.

We anticipate you'll continue to see more of these improvements in coming quarters.

Non-GAAP operating expenses in the second quarter were $49.6 million within our guidance range, and down slightly from the prior quarter's $49.9 million and from $52.5 million a year ago.

Notably, our 12-month trailing operating expenses have been reduced by nearly $13 million when compared to the prior trailing 12-month period.

Our headcount was 1,019, up 1% from the first quarter and down 2% percent from a year ago.

Non-GAAP net income for this quarter was $4.2 million or $0.05 per diluted share compared with net income of $4.5 million or $0.05 per diluted share in the prior quarter, and net income of $1.8 million or $0.02 per diluted share for the second quarter of 2014.

Now let's move to slide 10, and take a deeper look into the revenue and operating trends of our video segment.

As we've noted, we had an encouraging second quarter in video with revenue up 13% sequentially, led almost equally by our service provider and media customers.

The strength was most pronounced in North America as well as in Europe, which showed encouraging signs of rebounding.

This momentum is principally a result of our customers accelerating the adoption of our VOS platform.

Here, our VOS related products went from one customer in the third quarter of last year, to more than a handful in the fourth, to nearly two dozen in both the first and second quarters of this year.

And we also experienced follow-on orders from our initial customers in the quarter as well.

Looking now at operating margin, the sequential and year-over-year improvements of 6.4% and 5.8% respectively reflect the leverage we've been building into our video business.

Now moving to slide 11, let's take a look into the revenue and operating trends of our Cable Edge segment.

As Patrick addressed, we experience softer demand for our Cable Edge products in the second quarter.

We expected some of our customers to absorb the network capacity they recently purchased from us following a record first-quarter revenue and bookings.

But slower spending due to industry consolidation exacerbated this dynamic.

Consequently, revenue in our Cable Edge segment declined 28% sequentially to $24.9 million.

This decline spanned all geographic regions.

Looking at the Cable Edge segment more broadly, through the first half of the year, we've achieved modest growth year over year.

This is led by the advancement of our CCAP enabled products, which through the first half of the year are up approximately 17% over the first half of last year reflecting strong growth in North America and EMEA regions.

This growth is particularly notable, as it broadens the opportunity for future software license sales and an installed base from which to insert our DOCSIS 3.1 two-way capabilities beginning in mid-2016.

So notwithstanding the ebbs and flows of customer spending patterns, the underlying fundamentals of our Cable Edge business remain quite compelling.

Turning to operating margins.

The lower revenue in the quarter combined with a less favorable mix of software licenses and continued strong R&D spend in support of our two-way DOCSIS initiatives, drove our operating margin in the Cable Edge segment down 16 points to 1.4% in the quarter.

Moving now to slide 12, let's take a deeper look into the sequential revenue trends in the second quarter.

From a geographic perspective, revenue from the Americas was essentially flat from the first quarter.

The strongly improved video revenue driven by broadcast media and non cable service providers was offset by a decline in Cable Edge.

While the decline in the Cable Edge segment was global, it was most pronounced in North America.

Although several pockets within the EMEA region remain challenging, revenue grew 11% sequentially.

And here to, we're encouraged by the momentum of our service provider customers as they accelerate the adoption of next-generation video infrastructure.

The APAC region declined 18% in revenue, with softer demand across all product categories.

Although we exited the quarter with a book and bill well above 1 for the region and see improving demand trends for both our video and Cable Edge products.

Broadcast and media revenue was up 8% sequentially, with a significant increase from our customers in North America.

The strength more than offset the softer revenue in EMEA and the APAC regions.

Finally, notwithstanding the significantly improved performance of our video segment, service provider revenue declined 6% sequentially broadly reflecting the investment pause in our Cable Edge segment.

Comcast was our only greater than 10% customer in the second quarter, accounting for approximately 11% of revenue.

Now moving to slide 13, we continue to drive a healthy balance sheet.

We ended the quarter with a cash balance of $105.1 million, up $3.2 million from the prior quarter reflecting approximately $11.6 million of cash from operations, and $7 million used to repurchase shares.

Our receivable balance was $76.1 million.

DSOs were 67 days, flat from the prior quarter, but also reflecting a stronger mix of international sales in the quarter.

Inventory was $31.2 million, down slightly from the prior period with a modest sequential improvement to inventory turns at 6.2 times, compared to 6.1 times in the first quarter of this year.

Significantly, we have returned over $243 million to our shareholders in the from of share repurchases since the second quarter of 2012 leaving our shares outstanding at the end of the second quarter at 88.5 million, a 34% reduction over the same period of time.

Now let's turn to our outlook on slide 14.

We believe similar trends impacting revenue and bookings in the second quarter will likely continue into the third quarter.

While we anticipate another sequential improvement in our video business, with several technology transitions beginning to gain momentum across our satellite, telco, broadcast and media verticals, consolidation in the cable industry is creating investment timing uncertainty for us in the near-term.

We therefore expect our third-quarter revenue to be in the range of $92 million to $102 million.

While the near-term outlook for the Cable Edge business makes it unlikely that we will grow revenue this year.

We remain actively engaged with our customers and anticipate addressing the significantly larger CCAP market opportunity in mid-2016.

In video, we believe the demand trends we saw in Q2, as well as our bookings forecast, provides a base for continued sequential and year-over-year growth for the balance of this year.

And we're optimistic that the improved demand trends we're seeing in the market will continue into 2016.

Non-GAAP gross margin in the third-quarter is anticipated to be in the range of 53% to 54%, due to an expected favorable mix of higher-margin video product revenue.

And, as we continue to deliver more of our value in software, we now anticipate margin expansion to 54% or better for the year and are targeting further gross margin expansion into 2016.

For the third quarter of this year, we have targeted our non-GAAP operating expenses to be within a range of $49 million to $50 million.

We are on track to deliver our previously announced $10 million to $15 million reduction for full-year 2015, when compared to operating expenses in 2014 with a bias towards the midpoint of the range.

Looking beyond the fourth quarter, we continue to see opportunities to further reduce operating expenses, and believe we can achieve additional synergies in 2016.

Finally, we anticipate our non-GAAP tax rate for the third quarter to be 21%, subject to our domestic versus international split.

With that, I'll turn the call back over to Patrick for his closing comments.

Thanks, Carolyn.

Just let me summarize simply by saying that we're advancing our strategic agenda in both lines of business.

In our video business, our second-quarter results, particularly regarding the adoption of our newest products, caused to forecast sequential video growth for the balance of the year, and have a positive initial outlook for next year.

In Cable Edge, we're executing on our new DOCSIS product initiatives.

And near-term market headwinds do not diminish our confidence and our ability to significantly penetrate the larger CCAP market opportunity.

Nevertheless, there is no question that we're working within an challenging operating environment with persistent currency headwinds overseas, and consolidation dynamics creating heightened levels of [object] timing uncertainty, consequently impacting our outlook for the third quarter of this year.

That being said, we're encouraged by the strong year-over-year margin and earnings growth delivered in the first half of the year.

And we enter the second half fully committed to leveraging our opportunities to carry this momentum forward, and to drive the earnings growth we're targeting for the full year.

With that, will conclude our prepared remarks and open it up for your questions.

(Operator Instructions)

James Kisner, Jefferies.

So pressing on this cable weakness a little bit here.

In the past, you shared some proportion of bookings that were on the NSG Pro, I think last quarter they were greater than 50%.

Is it still the case?

Just wondering if you're seeing any kind of volume loss at all as -- or business loss as folks transition Edge QAMs, legacy Edge QAMs, to CCAP.

Could there be any weakness from that in addition to just the absorption?

Just any kind of perspective there would be helpful, thanks.

James, no real change in the mix of platforms.

As you correctly point out, our Edge sales are split.

Our downstream Edge QAMs are split between our newer NSG Pro platform and legacy platforms, and we saw sales of both platforms in the quarter.

And notably for us, strategically, we continue to see an expanded footprint with the new NSG Pro platform.

As we said, the slow down that we saw we attribute to a combination of a little bit of digestion after what was a remarkably strong first quarter, and frankly, a couple strong quarters leading up to that.

But also a real pause and some changes as we saw some replanning and evaluation going on around couple of different M&A scenarios.

That helps.

So from a modeling perspective, Q4 is, I would say, usually up.

Any thoughts at all now, should we be modeling this flat?

Might you see a little bit of a seasonal pickup in Q4?

Or any advice at all on how we should think about Q4?

Look, we're positive on the video side of the business, and as we said, we anticipate sequential growth through Q3 and Q4.

The picture is admittedly and regrettably a little bit more murky on the Cable Edge side.

We've regrettably, but I think understandably, have taken a conservative stance on the Cable Edge business in the third quarter.

Visibility isn't great on the fourth quarter.

I would say I'm cautiously optimistic that we will see a rebound above third-quarter levels.

And as you say, historically Q4 is somewhat better, and I see no reason why that shouldn't be the case this year.

All right.

Thanks very much for taking my questions.

I appreciate it.

Tim Quillen, Stephens.

I was just noticing the phenomenon within your video business, where the service revenue has grown meaningfully faster than their product side.

And I noticed that you give us an alternate presentation on net revenue, and the video business looks a little bit better when you combine the two.

But what's going on there that would cause the service revenue to grow in a period of time where the product business is declining?

Tim, I think it's a few things.

One, it's the continued buildup of support revenue.

And we do a good job at renewing that, and then you get incrementally more every new year with new sales.

So as an installed base grows, you would expect the SLA piece to continue to grow.

Two, I think we have done a better job at monetizing our professional services.

I think we've always done a good job of helping our customers on the service side, but really over the last year or two, we've been better at monetizing that as well.

And then, our video product sales are up, right, this quarter, so that's definitely a component of it.

Right, fair.

And then on the VOS side, and obviously on the number of bookings, you're having some momentum.

Can you give us any sense of what the dollar amounts are?

Is it bigger than a breadbasket?

It is.

I don't think we want to get into dollars, but it was certainly up significantly.

How about this, would you expect VOS sales or VOS-related sales to be a meaningful component of video revenue in the back half of the year?

Meaning, would it the greater than 5%?

Greater than 10%?

Of video revenue?

Definitely.

Of video revenue, okay.

Yes, definitely.

I think we feel like even though the number of customers were the same, it took a big step forward and I think we feel like we're over the hump of the transition.

So yes, it's meaningful.

And is there any sense of how the current quarter is shaping up in terms of the VOS pipeline or VOS demand?

Your numbers have gone so strongly the right way in terms of that bookings momentum.

I'm afraid to extrapolate any trends there, but are you continuing --

I don't think we would encourage you, Tim, to extrapolate 13% at quarter.

But on the other hand, we've made I think for us an uncharacteristically strong statement that we expect sequential growth in that video business in the third and then onto the fourth quarter.

And that's based on, as your question suggested, very real pipeline data and very real market activity.

There's been a little bit of a drought out there for a variety of reasons, some about technology transition some about macroeconomic dynamics.

But the net result is, is that there is, in our view, there's pent-up demand, and that's now starting to come through.

In request for quotations, designs, RFPs, what have you.

So the pipeline of opportunity that we see is healthier than it's been for some time.

And it's going to be independent of us.

And then coming back to us, we think that we are at the right place at the right time with this VOS platform that is really powerful.

And just to amplify Carolyn's statements, while we prefer not to give the exact percentage it's already north of 10%.

And it's a real meaningful contributor, and we expect it to become only more so over the coming periods.

That's great.

And then just lastly, was Comcast a 10% customer?

And if so, what percent of revenue did it represent?

Thank you.

They were, and 11%.

Thank you.

Greg Mesniaeff, Drexel Hamilton.

Just a quick question on the Cable Edge guidance, and results that you gave.

Two questions really, in the second quarter, the weakness that you reported.

Is that in any way related to any market share dynamics, or is that really -- that that element is basically fixed, and it's purely a macro set of events?

That's part one.

We think it's the latter, Greg.

And I'll just remind you, let me just step back, I don't know, 18 months ago or so, we saw a couple really week Edge QAM quarters.

And frankly, we received a lot of the same questions, hey, has the technology moved, has the market moved, have you guys lost it, et cetera.

And we said no, there's a certain amount of cyclicality here, and we think that there is a self-inflicted pause in the market as customers wait for our new NSG Pro platform to come out.

Well, lo and behold, we've released that platform.

And as you know from our results, we had a really strong 2014 that worked its way all the way into a record Q1 of 2015.

So we've seen the pattern of consumption and absorption, if you will, before.

And that we primarily attribute the second-quarter to absorption.

But secondarily, as we said, we also anticipated, frankly, more activity and more work around coming out of some of the M&A activity taking place in the global cable environment, and that didn't quite transpire the way we had expected.

We think those opportunities will come back to us in due course.

But we think that that M&A related slow down has had an additional impact here.

But we don't think we've lost any market share in the process, nor do we think that our products or and our capabilities are any less relevant.

Okay, got you.

And then part two of my question is, you alluded to perhaps a ramp in CCAP sometime in 2016.

Is that consistent with what you've been thinking all along, or is that a push out due to the macro M&A issues that have been obviously playing out recently?

Greg, it's consistent with what we've been thinking and planning ever since at some point it became clear that 3.1 was the real entry point.

And as you know, we've entered the market as we said we would with the distributed 3.0 solution.

The fact is though, that as we've talked to most of our large customers, 3.0 is not the pivot point, frankly, to introducing a new technology supplier.

Our customers have been candid with us, and we've been candid externally.

And hence, we opt, from a centralized perspective, we turned the ship and we are leaning in heavily to 3.1.

And we think that there's a lot of desire and momentum pull for 3.1 from the customer base, and we're committed to be right there as soon as it's possible to be delivered.

So we think that that is only possible, not only for us, but for others in the industry around the middle of next year.

And we expect to be there right with the other players as 3.1 becomes a deployable reality.

Got you.

That's helpful.

Thank you.

Simon Leopold, Raymond James.

A handful of things I'd like to run through.

One is, just to be able to think about the old segmentation.

Can you give us a rough estimate of what video processing was within the video reporting segment?

If Carolyn has got something more specific to weigh in, but I would say not significantly different than historic proportion.

I'll give you the color, Simon, that it was actually a somewhat stronger than historically normal quarter from a production and playout perspective.

But that's kind of at the edges.

In general, the video processing is a portion of the of the whole -- is consistent with the last several quarters' average when we were breaking out that level of detail within video.

And I guess if I could add to that, I would say, even over the last few quarters while we've had a dip in video, the production and playout portion remained fairly steady.

It was really video products that decline, and -- (multiple speakers), yes, and it's really those products that rebounded this quarter.

Video processing.

And that's consistent with our dialogue around a pause, trying to figure out HEVC, trying to figure out Ultra HD, and also trying to figure out the virtualization and how to best really master the operationalization of that.

And within the commentary you offered, the Edge products, which were down very sharply this quarter sequentially from a very, very strong March.

The commentary and the guidance put together suggests that the September quarter could be down sequentially on the order of 20% or more, given that you're expecting the video business to be up.

I want to make sure I'm getting that, and I'm trying to understand why it goes down further from the depressed level in June, is what I'm trying to get at.

The turn down that we saw didn't happen from the very beginning of the quarter.

So I think we do acknowledge that there is possible further down side on the Cable Edge business in the quarter.

And It's not our -- 20%.

I'm trying to go through the math quickly in my head, and I guess that seems more than what we would anticipate in a down side scenario.

I guess put differently, even in the worst case, I don't imagine down another 20%, Simon.

That being said, I do want to emphasize that on the video side, as I entered a moment ago and in the context of someone else's question, while we do expect video to improve, probably not another 13%.

And while it's encouraging to see the external factors, demand factors having flipped, it's actually off to the races.

So with HEVC and Ultra HD and the like, we think that there's going to be same steady ramp and demand on the video side.

And therefore, we expect the video to continuously increase, not at the same pace as we saw this past quarter.

And in this quarter, you made some repurchases.

Just if you could update us on what the outstanding stock repurchase program is and how to think about the share count for September?

Basically what was the share count as you exited June since what's reported as the average for the quarter?

Exit was $88.5 million.

And I think you should -- we did taper the share repurchase into this year as we got closer to $100 million in cash.

And all things equal, we would think about repurchasing in the same levels over the last couple of quarters.

So with continued repurchase, we still have -- I don't have the number right off the top of my head.

We have plenty of room left in our repurchase pool, if you will, and we expect to continue to repurchase it at I would say current levels.

Okay.

And then just one last one, a longer-term trending question.

You talked about some of the Ultra HD and the 8K initiatives are really laying the groundwork.

When would you expect that product cycle to be a meaningful contributor, something that you would be able to call out as driving revenue?

Is that something that's second-half 2016 or 2017?

How should we think about the best guess of the timing of that product cycle driven by Ultra high def and 8K?

Simon, this is Peter.

To be honest, the products are combined in a sense that it's all VOS based.

Now, when a significant portion of VOS sales could be attributed to Ultra high def, depends on the rate at which that market accelerates.

We're still very early in that market, so it's too early to tell, but we certainly see it continuing to develop.

We have IBC coming up in September, and I think we will get more indicators there as to how things are going.

It seems on a fairly regular basis, you are seeing news around Ultra HD.

But it's fair to say that we wouldn't anticipate it being a large percentage of the total, even next year or a meaningful percentage even next year.

And if I could, -- thank you.

That's why we also call out HEVC compression.

Historically, the two have been really linked together.

But an interesting dynamic is that we now see a number of operators, cable, telco, as well as some broadcast and media companies looking to use HEVC in the near term for traditional HD and even SD content as they look to drive better efficiencies in their mobile networks and in their streaming infrastructure, et cetera.

So we do have a view.

We've had a couple of announced customers using HEVC technology for those services, and so we do have a view now that HEVC will be more of a near-term driver even before Ultra HD really kicks in.

Thank you.

Simon, we have $56 million left on our repurchase.

Let us end the Q&A session there.

And let me simply conclude by thanking you again for joining us, and reiterating that we believe our technology vision, our strategy, our focus on execution, and the opportunity in front of us as being both real and very compelling.

We remain well positioned and firmly committed to delivering earnings growth this year, as well as well into the future.

We really do appreciate your support, and we look forward to keeping you updated on our progress.

Thank you very much, everyone.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.