Welcome to the First Quarter 2020 Harmonic Earnings Conference Call. My name is Olivia and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Michael Smiley, Investor Relations. Michael you may begin.

Thank you, Olivia. Hello, everyone, thank you for joining us today for Harmonic's first quarter 2020 financial results conference call. With me today are Patrick Harshman, President and Chief Executive Officer; and Sanjay Kalra, our Chief Financial Officer. Before we begin, I'd like to point out that in addition to the audio portion of this webcast, we've also provided slides which you can see by going to our webcast or our Investor Relations website. Now, turning to slide 2. During this call, we will provide projections and other forward-looking statements regarding future events or future financial performance of the Company. Such statements are only current expectations and actual event or results may differ materially. We refer you to documents Harmonic files with the SEC including our most recent 10-Q and 10-K reports in the forward-looking statements section of today's preliminary results press release. These documents identify important risk factors which can cause actual results to differ materially from those contained in our projections or forward-looking statements. And please note that unless otherwise indicated, the financial metrics we provide you on this call are determined on a non-GAAP basis. These metrics together with corresponding GAAP numbers and a reconciliation to GAAP are contained in today's press release, which we’ve 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, and some of this information is included in the press release. The remainder of the information will be available on a recorded version of this call or on our website. Now I’ll turn the call over to our CEO, Patrick Harshman. Patrick?

Well, thanks Michael and welcome everyone to our first quarter call. Before delving into our recent business results and outlook, I'd like to briefly address the extraordinary situation we all find ourselves in. Harmonic is a people-first business, and we're deeply grateful for the support our employees and their families have received from essential service providers and local governments around the globe, and our sympathies are with those who have been most impacted by the crisis. We're proud of the role we play in enabling vital broadband and video streaming services worldwide and appreciative of the continuing strong partnerships with our many customers and suppliers. I'm particularly thankful for the extraordinary efforts being made by our employees to continue to support our customers and drive our business forward. As most of you know, several years ago Harmonic embarked on a journey to reinvent our company through new cloud native technology and services. It can be as transformative for our customers as for our own business. While the COVID-19 crisis has presented unexpected challenges, it's also shining a light on the power of our virtualized CableOS and cloud-based video streaming solutions, which have held up extremely well under increased operational pressures, providing our customers unprecedented real-time agility and scalability as they respond to heavy network utilization and expansion opportunities. Although we have real near-term challenges to overcome, our key customers are fundamentally healthy, and our technology position is both powerful and unique particularly our Cable Access and Video SaaS Solutions. Our objective is to emerge from this crisis stronger and even better positioned. Turning now to the first quarter results. COVID-19 impacted our global business during the final three weeks of March and our business in Asia-Pacific throughout the entire quarter. Resulting revenue was $78.4 million, down 2.1% year-over-year and non-GAAP EPS was negative $0.10. We nonetheless maintained a solid balance sheet. Our Cable Access segment performed relatively well despite the late quarter disruption with both revenue and key deployment metrics up strongly year-over-year. Our Video segment performance was more heavily impacted as several video appliance shipments and integration projects planned for March were delayed. On the other hand, our recurring revenue in Video SaaS and support services performed quite well. Taking a closer look now at our Cable Access segment, we did have a solid quarter. Revenue was $24 million, up over 85% year-over-year. We're now commercially deployed with 27 cable operators, up 17% sequentially and CableOS is actively serving over 1.3 million cable modems, up 30% sequentially. These are good results for a quarter that is typically seasonally slow and were both shipments and deployments were somewhat impacted by COVID-19; specifically in March we saw several ongoing CableOS deployments initially paused, restarts and then proceed at a somewhat slower pace following the implementation of appropriate safety precautions. Looking ahead, the mid and long-term outlook remains positive evidenced by a strong project pipeline, although we do expect continued modest impact and deployment to new design wind velocity in the second quarter. Cable broadband is a healthy end market and we're fortunate to have several cable industry leaders as foundational CableOS customers. Considering only the 27 operators who have already qualified and deployed CableOS, our addressable service footprint opportunity is now over 45 million modems served, creating a clear line of sight for significant expansion with already onboard customers. The fact that we saw only modest disruption in CableOS rollout activities in March is a testament to the commitment of both our and our customers' teams and the core software advantages of CableOS which can be remotely configured, operated and supported in a way this industry has never seen before. Elaborating on this and this is important in terms of competitive differentiation. We see accelerating demand for further broadband network segmentation to address significantly increased upstream traffic from applications such as Zoom. The latest data from the NCTA indicates that U.S. cable upstream peak traffic is up over 35% since early March, nearly doubling the downstream peak growth of 19%. Unlike downstream gigabit expansion, upstream expansion requires different tools and techniques. This is historically much more costly and complex and this is where CableOS really shines. Our new centralized shell and the industry’s only two by four remote PHY node, when coupled with our scalable virtualized core are absolute game changers for cable operators planning upstream expansion, including in traditional centralized CMTS architectures. It's no coincidence that during the first quarter we received our first material purchase order for our new centralized shell product from one of our tier one customers. The significant milestone on the road to expansion across the entire deployment footprints of our customers. Based on extensive customer conversations, our current expectation is that existing CableOS accounts will continue with modestly slow rollout work through the second quarter, reaccelerating in the second half of the year, driven in part by even more aggressive upstream bandwidth investment. The near-term outlook is somewhat more variable when it comes to new accounts we're still working to open, but we have seen qualification activities slow at a couple of these accounts as they tactically respond to urgent operational challenges. We've also seen excellent progress continue to be made with several other target new customers, in particular larger prospects who are well equipped to manage tactical challenges while also executing on the strategic broadband initiatives. Again, the unique software foundation of CableOS is a game-changer in terms of being able to advance these technology qualifications and trials remotely. We anticipate continuing to bring new customers on board in the second quarter, likely with a slower initial rollout than originally planned with deployment acceleration then happening in the second half of the year. So summarizing this CableOS update, we delivered a strong first quarter. Our strategic growth plan continues to execute well and while COVID-19 creates near-term headwinds and risks, the fundamentals in the mid-term outlook for the Cable Access business are clearly positive with the trend of virtualization likely now accelerated even more favorably for our solutions. Turning now to our Video segments. Here we saw a greater COVID-19 impact. Segment revenue was $54.4 million, down 19% year-over-year as our video appliances and integration sales fell well below our original expectations. Specifically during March, we saw several high confidence deals get delayed. We encountered situations where deals were signed but customers’ warehouses had been closed so the shipments weren't possible. We were unable to complete some field deployment projects as the customer facilities became closed. And on the supply chain realm, we contended with server constraints and a significant jump in shipment costs. Our Video segment does business with a broad range of customer types all over the world including traditional broadcasters, traditional pay TV players, media companies and news streaming-first customers. Among these, it was sales of our higher margin broadcast service for broadcasters and media companies as well as business across all customer categories in Asia that were hardest hit. We do not believe we lost anticipated deals for competitive reasons, nor do we believe these deals will permanently disappear. Indeed so far in April, we've seen a couple of deals that were delayed subsequently booked. We're now seeing appliance activity begin to pick back up in parts of Asia. As we look ahead, considering all of these facts together with extensive customer and channel partner conversations, our current expectation is that second quarter planned sales activity will continue at a depressed level before rebounding in the second half of the year as customer facility lockdowns loosen. Now in contrast to appliances and associated onsite integration activity, the recurring revenue component of our Video business remains solid throughout the quarter. That is our SaaS offerings that run on public and private clouds and our support services. In fact, we're seeing an acceleration of demand for our SaaS for video streaming services. During the quarter, we added nine new streaming SaaS customers, up 19% sequentially and 80% year-over-year. Among these new wins were two new tier one players, one a prominent international telecommunications company and the other a prominent domestic broadcast media company. So remarkably, the international tier one deal was signed in March and the service is already on-air, running on Microsoft Azure and streaming to consumers. This rollout speed and efficiency highlights why we're seeing growing interest in cloud-based SaaS platforms for premium video services and why we now anticipate that the current crisis will further accelerate industry transformation to SaaS models. In turn, accelerating our core video segment strategy. While SaaS deals come without the upfront revenue and profit of our traditional appliance sales which exacerbates near-term revenue headwinds, the long-term recurring revenue model we are building is ultimately more profitable, stable and value-enhancing. Harmonic is uniquely positioned to lead the premium video streaming SaaS market and we're leaning into the opportunity more aggressively than ever. At quarter end, we had over 7,300 cloud-based linear channels deployed globally, up 56% sequentially. I want to share a couple of additional data points that underpin this video SaaS momentum. During the quarter, we streamed on average over 38 petabytes a month from various cloud platforms which is up over 200% year-over-year; a strong statement of growth and scale. We continue to leverage our unique multi-cloud capability and partnerships with Microsoft Azure, Google cloud platform and our deployment expertise on AWS. And we're leveraging the scale gains and strategic relationships together with increased customer word-of-mouth as part of a revamped outbound marketing push. I encourage you to check out our recently redesigned website highlighting both video streaming and Cable Access. In summary, for our video segment. COVID-19 impacted the traditional appliances part of our business in the first quarter and based on extensive customer dialogue we expect more of the same in the second quarter followed by a rebound and catch up on pent-up demand. In parallel, we're seeing a pickup in streaming SaaS demand and we now see an opportunity to further accelerate execution of our video value creation strategy. We're determined and confident that we will successfully navigate through the current challenging conditions and come out the other side even stronger. With that I'll turn the call over to you, Sanjay, for a more detailed discussion of our financial results and outlook.

Thanks Patrick and thank you all for joining our call this afternoon. Before I share with you our quarterly results and outlook, I would like to remind you that the financial results as referring to are provided on a non-GAAP basis. For the first quarter of 2020, we had mixed financial results impacted by the effects of COVID-19, reporting revenue of $78.4 million and $0.10 EPS loss. While we are disappointed by the overall impact of this health pandemic on our financial results, there were some clear bright spots. We improved our recurring SaaS and services revenue by 10.5% year-over-year, maintained reasonable gross margins at 48.9% and have strong backlog in deferred revenue of $207.9 million. Further, we maintained a solid balance sheet with cash at $71.7 million and unused available line of credit of $25 million reflecting a total available cash of $96.7 million, positioning us well for the challenging pandemic environment we are in. Turning to slide 8, let's take a closer look at our Q1 revenue and gross margin. Revenue was $78.4 million compared to $122.2 million in Q4, 2019 and $80.1 million in Q1 2019. The revenue decline reflects both typical seasonality and the impact of COVID-19 which I will cover momentarily. Cable Access segment revenue was $24 million compared to $43 million in Q4, 2019 and $12.9 million in the year-ago period reflecting significant progress ramping CableOS over the past year and expected sequential decline after a very strong fourth quarter. In our Video segment, we reported revenues of $54.4 million compared to $79.2 million in Q4 and $67.2 million in the year-ago period. Together with the typical seasonality, our video business was more strongly impacted by COVID-19 as we experienced reduced appliance demand in March. Additionally, as anticipated the ongoing transition from video appliance to SaaS resulted in year-over-year top line and backlog impacts. As a reminder, we have been successfully and steadily transitioning our Video segments to a more profitable recurring SaaS and services business. In this regard, Q1 was another quarter of solid strategic execution. We again had two greater than 10% revenue customers during the quarter. Comcast contributed 17% and Vodafone contributed 12% of total revenue. Gross margin was 48.9% in Q1 2020 compared to 52.3% in Q4 2019 and 54.5% in Q1 2019. Cable Access gross margin came in at 43.3% in Q1 compared to 38.3% in Q4 and 39.3% in the year-ago period reflecting improved software mix. Video segment gross margin was 51.3% in Q1 compared to 60% in Q4 and 57.5% a year-ago period. The decrease in video margins is primarily due to the impact of COVID-19. We experienced both; lower contribution from high-margin appliance and integration services and higher operating costs particularly significantly increased freight charges during March. Our recurring revenue base continues to be a highlight growing through CableOS support services for our expanding CableOS customer support and also cloud-based video SaaS. During the first quarter, recurring SaaS and services revenue was 39.1% of our total revenue, up from 29.7% in Q4 2019 and 34.6% in Q1 2019. SaaS and services revenue was $30.7 million in Q1 compared to $36.3 million in Q4 2019 and $27.7 million in Q1 2019. The sequential decrease reflected seasonality in service renewals while the year-over-year growth was driven by both; video SaaS and cable support. SaaS and services gross margins were 51.3% in Q1 2020, 63.7% in Q4 2019 and 51.3% in Q1 2019 with the decline driven principally by the increasing mix of Cable Access support services and associated ramp of CableOS support expenses in anticipation of significant further growth. Our video support services margins were also impacted by incremental costs including freight incurred during March. We made substantial progress in expanding our video SaaS customer base in the quarter, which will feed further growth of our recurring revenue base; an important element of strong backlog and deferred revenue position I will discuss momentarily. The negative top line and cost impacts from COVID-19 resulted in an operating loss in the quarter. Our Q1 operating loss was $9.5 million comprised of $3.2 million from our Cable Access segment and $6.3 million from our Video segment. This Q1 operating loss of $9.5 million compares to an operating profit of 14.8 million in Q4 2019 and $3.8 million operating loss in Q1 2019. This translated to Q1 EPS of $0.10 loss per share compared to Q4 EPS of $0.12 profit and EPS of $0.05 loss in Q1 2019. We ended the quarter with a weighted average share count of 95.6 million compared to 97.5 million in Q4 and 88.2 million in Q1 2019. The year-over-year increase is due to the issuance of 3.2 million shares to Comcast for exercise of warrants and 3.7 million shares for our employee stock purchase plan and performance-based compensation during the year. Q1 bookings were $76.3 million compared to $140.1 million in Q4 2019 and $81 million in Q1 2019 resulting in a book to bill ratio of 0.97 in Q1. Sequentially bookings were lower due to seasonality and the 5.8% year-over-year decline was a result of COVID-19 with the biggest product impact felt on our video appliances and the largest impacts in APAC and EMEA regions. We will now move to our liquidity position and balance sheet on slide 10. We ended Q1 with cash of $71.7 million, this compares to $93.1 million at the end of Q4, 69.9 million at the end of Q1 2019. This cash decrease of $21.4 million is comprised of $11 million use in operations and as planned $11.2 million use for capital purchases, primarily the purchases of fixed assets. Approximately $10 million of this was related to our new Silicon Valley headquarters which is under construction. Net of $1.7 million cash generated from financing activities, primarily stock auction exercises and ESPP purchases. Our current San Jose headquarters lease was set to expire in April 2020, because of COVID-19 we are still in the process of making phased asset additions and leasehold improvements for the new headquarter facility and consequently we have entered a month-to-month extension of our current lease. For the new facility, as previously disclosed, we’ve signed a 10-year lease and we expect to incur a total CapEx of $20 million of which $3 million was incurred in 2019. $10 million was incurred in Q1 2020 with the remaining $7 million expected to be incurred in Q2 2020. Once we move to the new lease facility, we will reduce our annual cash outflow for rent by $5 million and annual pre-depreciation OpEx by $2 million. So this headquarter location continues to be a strongly accretive move for us. Our days sales outstanding at the end of Q1 was 107 days compared to 65 days in Q4 and 66 days at the end of Q1 2019. The significant sequential increase reflects a timing difference of accounts receivable from customers. We expect to return to normal DSO levels in the next quarter. Our days of inventory on hand was 78 days at the end of Q1 compared to 45 days at the end of Q4 and 72 days at the end of Q1 2019. At the end of Q1, our total backlog and deferred revenue was $207.9 million compared to $210.2 million at the end of Q4 2019 and $187.2 million at the end of Q1 2019, reflecting a modest decline of 1.1% sequentially and a strong 11.1% increase year-over-year. Historically, approximately 90% of our backlog and deferred revenue gets converted to revenue within a rolling one-year period. Please note that our deferred revenue represents 27% of total backlog and deferred revenue at the end of Q1 compared to 21% at the end of Q4 2019 and 28% at the end of Q1 2019 indicating that the revenue conversion is happening at the pace expected. I would also like to remind you that not yet included in this backlog matrix is approximately $199 million of contracted CableOS business associated with 3 tier 1 CableOS contracts which we have previously discussed. If you look at the complete picture including backlog deferred revenue and these CableOS contracts, in aggregate we have future contracted revenues of $406.9 million in hand, a much stronger position than we have had in recent history. COVID-19 undoubtedly impacted our Q1 results and looking forward, significant uncertainty remains regarding the pandemic and how it will impact our business primarily video appliances and integration revenues. Now let me turn to our non-GAAP guidance for the second quarter on slide 11. While in Q1 we had impact primarily for the month of March but in Q2 we expect the impact of the COVID-19 crisis to be felt for the entire quarter resulting in a greater impact than in Q1. Based on this assumption we are providing the following guidance. Revenue in the range of $62 million to $77 million. The video revenue in the range of $42 million to $50 million and Cable Access revenue in the range of $20 million to $27 million. We are fortunate to have a strong base of recurring revenues and as of today we have visibility into approximately 40% of the total revenue heading into the quarter. Gross margins in the range of 47% to 48%. Operating expenses to range from $45 million to $47 million. Operating loss to range from $18 million to $8 million. Adjusted EBITDA to range from $15.5 million loss to $5.5 million loss. EPS to range from a loss of $0.18 to a loss of $0.09. And effective tax rate of 10%. A weighted average share count of 96.8 million. And finally cash at the end of Q2 is expected to be in the range of $60 million to $70 million. The second quarter outlook activity includes payments of approximately $7 million relating to our new headquarters lease. As Patrick discussed, our mid to long-term drivers remain intact and we believe we are well-positioned in both of our business segments. However, due to the near-term economic uncertainty arising from the COVID-19 crisis, Harmonic is withdrawing its previously issued full year 2020 guidance. We will reassess this position based on the clarity of macroeconomic recovery at the end of the second quarter. That said since our CableOS activity is concentrated among a relatively small group of customers whose rollout plans we have good insights into, we are able to provide an updated Cable Access revenue outlook for the second half of 2020. Beyond the full Q2 guidance I have just provided, we now expect our cable access revenues in the second half of 2020 to be in the range of $65 million to $85 million. Finally, in summary, I want to highlight that both our Cable Access and Video segments we are well-positioned with a strong global customer base, strategic relationships with healthy tier ones, historically strong backlog deferred revenue and customer contracts, a healthy cash and working capital position and the growing recurring revenue stream. We are therefore confident in our ability to remain financially healthy and to return to solid growth and profitable operations across our entire business as markets emerge from the current depth of this crisis.

Okay. Thanks, Sanjay. We want to finish by emphasizing the fact that despite the near-term challenges as Sanjay just said, our core growth drivers remain intact and therefore our strategic priorities for the year are unchanged. For Cable Access business, we remain very focused on scaling our tier one customer deployments across the footprints, securing new design wins with additional global operators and launching new solutions that expand our addressed market. For our Video segments, our objectives continue to be accelerating the growth of our live streaming business especially cloud-based SaaS, expanding our addressed market to include new non-traditional streaming customers also through our SaaS platform and return to consistent profitability. And finally, I want to again recognize the extraordinary efforts of our employees to support our customers and our company during these trying times. Together we're confident that we will get through this and come out the other side even stronger and better positioned. Let's now open the call up for your questions. Thank you.

Thank you. We will now begin the question-and-answer session. Our first question comes from John Marchetti with Stifel.

Thanks very much. Patrick, I was wondering if you could just spend a minute and go through some of that weakness in the video, just so we can better understand what's kind of going on there, particularly on the appliance side. I mean, do you worry about as we look through this that maybe with the focus more on the SaaS business that maybe this lasts a little bit longer as you're working through this transition? Just curious to get your takeaways or your thoughts kind of how we should think about where that video business really stands right now?

So Video business, John, was purely impacted by COVID-19. We saw the impact primarily in appliances demand as you referred to it. COVID-19 impacts arose primarily due to the reasons I just mentioned; there were several high confidence deals that were delayed. We encountered situations where these were signed, but customers' warehouses had been closed, so shipments were not possible. That said, we do not believe these deals are lost for competitive reasons, nor do we believe these deals will permanently disappear. So far in April, we have seen a couple of these deals coming back and subsequently getting booked. So relative to our guidance, it was purely a COVID-19 impact. At the same time, we have seen significant growth in our pipeline for SaaS business. A lot of traction is there for the SaaS business, and we expect those to be converted into orders in the months to come, and we expect ramp in SaaS business.

And then maybe, Sanjay, just as a follow-up to that, with that growth expected still to come for SaaS and things like that, how do we think about the margins in that SaaS and software business as we progress through the year, assuming a more normalized sort of contribution to revenue? Just curious, given the big drop this quarter in those gross margins, how we should think about that piece of it as we look out through the remainder of '20?

So John, SaaS itself, we don't disclose separately. SaaS is still a growing part of our SaaS and services business. I would say we, as of now, look at SaaS and services together as our recurring stream of revenue. And SaaS definitely is a good piece of that. But SaaS and services, the margin which we track is a part of our recurrent revenue. But as we expand and as we scale, particularly SaaS, to which you asked, our gross margins should improve, and we have seen that improvement happening over a period of time. This quarter, we saw good bookings of SaaS. Actually, our bookings for SaaS in Q1 were higher than the plan, although they are still less than 10%. And hence, we don't disclose that separately. But we have seen significant ramp in bookings ahead of the plan. And in total, SaaS and services, which basically is a composition of SaaS together with services from video and services from cable, we have seen a ramp in cable services as well. And those margins are increasing. Year-over-year, our margins are higher in terms of dollars; we ended at $30 million, it was less than $30 million in the year-ago period.

Thanks for taking the question. So I missed the beginning prepared remarks, so apologies if I'm asking something you clarified. But two things I want to try to get a better understanding of. One is around the disruption to evaluation. So when we think about the CableOS being a new product, being in evaluations in a pipeline, I saw you've got 27 awards now, so that's nicely up. Just trying to understand what gets disrupted or the mechanics of disruption of evaluations, certifications, trials, etc.?

Simon, this is Patrick. It was a mixed picture. We did see a couple of evaluations, particularly with smaller customers really slow down as they operationally scrambled to deal with the urgent tactics of the moment. If I generalize, we actually saw after a momentary pause, we've seen our evaluation qualification processes with larger customers continue well. Our observation is that larger MSOs are capable. We're actually impressed with their ability to both attend to tactical operational focus issues as well as keep pushing forward on strategic initiatives. I guess two additional comments that are important color here, Simon, is number one, all of that is significantly aided by the fact that the core software. I think one of the strong attributes of CableOS is our remote tack that can be always connected like any other software-based service. And so our ability to support testing, configurations, all of that stuff on the software core, we have complete ability to do that in a remote capacity. And so that's been quite significant. I think the other thing to mention is that this architecture, one of the attractive things about it is the agility, as we've talked about repeatedly. And particularly in the context of now a surge of anticipated work around upstream. I think the importance of that agility, the value of that agility is really coming into even sharper focus, particularly for larger MSOs who have, let me say, sophisticated engineering teams. And so we think that the competitive differentiation, the rationale for wanting to move to this architecture is even more highlighted in this current situation. We think that has helped keep the pressure on keeping evaluation processes, qualification processes ongoing.

So that was actually set me up nicely for the follow-up was trying to understand maybe the mechanics of what happens when an operator wants to add upstream capacity. What do they buy from Harmonic? What happens to your business?

Typically, there are two components involved. One is the additional bandwidth that must be provisioned through the core, which in our scenario involves a software license operating on the same server infrastructure. The other aspect usually occurs at the PHY level, either in a centralized architecture or by licensing another piece or by increasing upstream capacity, which involves deep segmentation in the network. For us, this means a combination of additional hardware appliance sales and more licensing. The important point is that compared to historic or traditional solutions, there is a significant amount of rewiring needed, especially at the head-end, when implementing new upstream solutions. However, the advantage of our solution is that it does not require any rewiring; it is entirely a software-driven process for the upstream. We believe this is crucial for differentiating our flexibility and agility in managing these upstream transitions, especially when utilizing a fully virtualized core on standard server farms.

That's helpful, and that's sort of what I thought. So I appreciate the clarification. One just last one. On the Video business, you've got such a mixture of customer types in there. And I presume that one aspect are customers that sell video content and those customers may be dependent on advertising for the business. To what extent is their business health being challenged and therefore, that affects your business in the Video segment? Thank you.

Yes, that's a great question. In the short term, we haven't observed any significant impact. While advertising revenue is down, particularly with the loss of sports, we don't believe that broadcasters are out of the game. There is a consensus that it's just a matter of time before sports return. Meanwhile, the demand for streaming content, including linear streaming, has surged, and overall live video viewing is robust. Most of our customers anticipate facing some short-term challenges in their business, but we haven't heard anyone mention a fundamental shift in their consumer-facing operations or advertising strategies. Many customers are considering software and cloud-based solutions to better scale their operations, which is expected to drive mid- to long-term demand from more traditional broadcast and media companies. We have already noticed significant growth in our pipeline in this area. However, we do not see a direct correlation between the softness in ad revenue and demand. The projects in our pipeline still need to be completed, and follow-up discussions with customers worldwide have reinforced our confidence that they will resume operations to address pent-up demand. The main concern is how swiftly smaller and medium-sized broadcast and media companies can reactivate their operations. Ultimately, it's a timing issue rather than a fundamental change concerning the viability of these businesses.

So then just to maybe finish up on that point and to clarify, and then I'll yield the floor. So if it's not the health of their business, what was the major factor that softened the Video segment sales this quarter and the guidance for video in the next quarter?

Operational disruption. Remember, well over half of our Video business is outside of the U.S. And Asia is almost exclusively so far a video market for us, for example. Sooner than the U.S., we saw a lot of countries starting to take more severe action of shutting down, and that included sending people to work from home, shutting down labs. So particularly for appliances where you're shipping into an operational center, you're doing some on-site integration where the customer's engineer is doing some on-site integration. We saw all of that slow more pronounced outside of the U.S. than inside of the U.S. in the last weeks of March. So really just operational adjustment to the new model, and not any fundamental strategic or business retrenching.

Thank you. Regarding your cable guidance for the second quarter and the second half, the midpoint now appears to be around a low $120 million level compared to about $140 million midpoint with your prior guidance. Could you provide some insight into what factors contributed to this change? Are you primarily attributing this to delays in deploying hardware, and are you expecting that to extend into next year? Is there any lost business related to this, or can you share more about why this adjustment was made on an annual basis?

There's a lot going on, but the main reason is that the rollout for new customers is taking longer than we had initially expected this year. The customers who are currently in the rollout phase may be delayed in the first half, but we believe they will largely catch up or will make the effort to do so. Thus, we anticipate minimal impact overall. However, we do acknowledge that we have lost some time with new customers in the first half of the year. This doesn't mean we are losing those deals; rather, we expect the qualification process and initial ramp-up to progress at a slower pace. We are still confident in our ability to secure the customers we intended to this year; it’s just a matter of the speed of onboarding new customers.

Rich, I would like to add that the additional guidance we gave or a bigger guidance we gave for the second half, it does bring the midpoint for the whole year close to $123 million. But that's still 29% up year-over-year if we exclude the one-time Comcast pickup.

Got it. Do you need to acquire many new customers to achieve that? You mentioned you currently have 27 customers. It seems like everything you've discussed revolves around deployments with those existing customers. So, can we conclude that the midpoint of your guidance doesn't necessarily require a significant number of new customer acquisitions?

I would say it's a modest contribution from new customers compared to the original guidance average. However, this should not be interpreted as us stopping our efforts or not seeing the same opportunities. We believe we've lost some time. But yes, relatively speaking, the focus now appears to be more on the rollout or expansion of existing accounts, with a lesser contribution due to some delays with new clients.

Got it. And just one more, if I could, on the Video business. It's actually on the SaaS and Service revenue, which I guess is a combination of both now. So that was down $5 million roughly quarter-over-quarter. And I think, Sanjay, you attributed that to volatility in service renewals. Just hoping you could provide a little more color there. Is that business that's lost? Or is it just a timing issue? And was any of that COVID-related? Thank you.

Well, we believe it's primarily due to the COVID-related delays we experienced. If we think it's purely timing. We have seen the April stuff coming in, a part of it, but it's purely timing related, we think.

Hey guys, thanks for taking the question. I just wanted to kind of run through as kind of on the cable's access segment. My working assumption here was that cable customers would have to add capacity as they're looking to manage kind of the higher bandwidth needs or capacity needs from a lot of work from home. And as the kind of view side that you're seeing some kind of fits and starts on CableOS deployment. Does that generally indicate that some of the spending is now going back to the incumbents because of the disruption? And as you return to more normalcy, that's when you expect to kind of resume gaining share again? Is that a fair way to characterize it?

No, we don't believe we're losing any market share, nor do we expect to lose any share in the future. We are observing a slightly slower pace due to social distancing measures. Our customers are proceeding cautiously. As mentioned earlier, a significant aspect of our CableOS business ramp this year involved increased volume roll-outs with existing customers and accounts we've already secured. In those instances, they have been pushing forward as much as they can. A hypothetical 20% loss of throughput efficiency does not imply they are using that time for other activities; rather, they are simply adapting to the current operational realities. We anticipate this trend to persist in the second quarter. We expect conditions to improve in the latter half of the year, maintaining a slower pace but still relatively healthy given our existing customers. Additionally, we are experiencing successes with new accounts, although the pace of progress in the labs has slightly slowed. Consequently, we have adopted a cautious outlook regarding how quickly these design wins will translate into field launches and deployments for the remainder of the year. While the pace is slightly lower than planned, which was already quite ambitious, we foresee a long-term need for increased bandwidth. This expectation supports our mid- to long-term opportunities. Furthermore, even with our established accounts, we believe there will be a positive impact on demand and installations later this year. However, I view this as potential upside at this stage and not overly influential in our full-year revenue guidance for cable.

Well, we do expect additional freight charges which we experienced in Q1 as well, and we have captured that into our Q2 guidance as well when we came for gross margins. But other than the additional freight charges, we are not expecting any other incremental cost at this point.

Good afternoon. Thank you. Patrick, I wonder if you might spend a couple of minutes talking about the shelf opportunity. Maybe help size that for us, of how big is that relative to the overall opportunity for CableOS, and is that included in the 48 million modems that you're addressing today? Or does that create a new incremental opportunity?

I'll start with the end. We said 45 million, and it's included in that. Essentially, the point is, look, even without an additional design win, the people who've already selected and started to deploy CableOS in part of their network, collectively, they serve over 45 million modems. We're only at 1.3 million modems. So there's a lot of headroom there. I think one of the questions or concerns has been, well, if I paraphrase back to us has been, hey, that's great but isn't CableOS only about DAA, and isn't DAA only going to be used for a subset of that footprint? And it really remains to be seen exactly how much of our customers' footprint ultimately will be deep fiber or distributed access and how much will be centralized. But the point with the shelf is, is that together with our deep fiber solution and now with our shelf, we've got the whole thing covered. And so it's not a question of CableOS being relevant for just a subset of the solution, we think that we're extremely well positioned for the entirety of the footprint. And so I think that's the key takeaway is that with this addition to our offering, we don't see ourselves occupying a nature a subset, but rather a solution, an integrated solution for the entirety of our customers' footprints.

Okay, great. And maybe an update on the notion that you might have incremental software products to sell back into the installed base, kind of when would those modules might be ready to start generating revenue? And what's the timing on the fiber to the home product?

Thank you for your questions. I appreciate your attention to detail. I didn't include either topic in the script, not because they're unimportant but due to the broader context. Our growth strategy is multifaceted, and we will see additional software capabilities that will generate revenue in the second half of this year. By the end of this quarter, we expect to be well into field trials with our fiber-to-home product. That said, the guidance we've provided has a conservative outlook regarding the additional contributions from both these new areas. The intention is not to be overly cautious, but given the many variables, we felt it prudent to avoid getting ahead of ourselves in projections. However, we remain optimistic about the new software features we are introducing, particularly regarding additional licensing capabilities for our CableOS platform. Additionally, we are enhancing our DOCSIS Cable Access with fiber-to-home solutions specifically for cable operators. Both areas are very active, with ongoing discussions and customer testing, and we anticipate some developments in the second half of the year, but we are not significantly factoring that into our modeling until we make further progress.

Great. And I understand the COVID-19 impact on the Video business, but this has been a frustrating business for the last couple of years for a bunch of different reasons. Is there anything you can do to try to accelerate the move away from appliances and to SaaS? Any financial incentives or end-of-lifting products, anything to try to kind of force this business to the new world and get out of the hardware business?

Yes, that's a good question. I mentioned earlier that we are reworking our approach to the market. We are challenging ourselves as well as our customers. There are parts of the broadcast and media landscape that tend to stick to the saying, "if it isn't broke, don't fix it." Nonetheless, as we introduce new perspectives, this crisis is definitely shifting that mindset. It compels us and our customers to rethink how rapidly we can transition to cloud infrastructure, both for streaming and some core broadcast functions. While I can't disclose all our strategies, we are actively considering the ideas you've mentioned. I hope we can share more progress and results soon. As both I and Sanjay noted earlier, the recent pipeline we've developed is quite impressive and exceeds our internal plans. We believe there is a genuine acceleration of activity that will be very promising for this business in the mid to long term.

And any insight into what's happening with deal sizes on the SaaS side of that business? Are they still relatively small today? Or are you getting more significant deals as you've gotten more presence in the marketplace?

We're seeing both. I mentioned in the prepared remarks that we had two, what I call Tier 1 wins, one a large international telecom operator, one a large-name broadcast and media player, and both of those are definitely large by historic standards. That being said, among the nine new ones that we brought on board in the quarter, also a number of new, more insurgent TAM expansion kind of accounts. So we're seeing both. And both are important, expanding the TAM, even with small accounts that will build up a very sizable long tail, we think, is very important. But at the same time, getting large Tier 1 domestically and internationally, the tip to this world is also vitally important. And I'm very encouraged that we're seeing success on both sides.

Good afternoon. Thanks for squeezing me in here. I want to follow back up on kind of your major customers' response to increased network traffic on the cable side. I guess first question either in the March quarter as you look into Q2 here, did you, in fact, see any kind of increases or expedited interest in incremental capacity from your current footprint of CableOS business? That's one question. And then secondly, I guess trying to discern to what degree the operators and I think you referenced sort of tactical needs in the network in terms of capacity, whether it's downstream or upstream, whether the nature of your footprint to date can really help them address those issues, given that it's still relatively small? Or does it indeed kind of pull-in, especially as you referenced the upstream plans to increase bandwidth? Can that be done in a timely enough fashion to meet these relatively short-term demands for increased traffic? I guess it's along the lines of whether they turn to more established technologies in a pinch if you will in triage mode or accelerated deployment of new paradigms. So that's a bigger question. The first one on whether you did see any increased capacity demand in here in the first half today.

The short answer is yes, Tim. In general, the cable network has managed to absorb the impact, but they have lost a significant amount of headroom and capacity. It's not that new capacity needs to be added immediately; rather, they lost their headroom. Now, considering that work from home and video conferencing may become a permanent part of our landscape, there is a long-term adjustment needed for what the capacity ceiling should be. From that perspective, we believe we are extremely well positioned. It doesn’t require urgent fixes, although there may be some situations that do. Given our small market share today, that likely doesn't apply to us. However, we see exciting opportunities in the fundamental rescaling of the network, especially upstream, where we feel very well positioned. There were significant discussions about this during the quarter. One highlight is our first order of a new shelf product from one of our large Tier 1 customers, which focuses on accelerating the use of CableOS across the entire network and particularly on expanding the upstream.

Okay. Just a follow-up. So, then I guess it sounds like you say outside of the slower pace of new customer evaluations and wins in CableOS that what you're seeing out of your larger established customers is relatively unchanged outside of whatever kind of short-term logistical delays you might have seen through the first half here?

That's correct.

Hey, thanks a lot for the question. This is Kyle on for George. So, this one is about the Video business, regarding the business with broadcasters that you mentioned, the higher margin appliance sales to broadcasters. Can you give us a sense for how much of the Video business revenue is tied to that type of activity? Is it like 90% that's not SaaS, or is it something much smaller than that, I guess I would expect? And then regarding that activity, can you give us a sense for whether customers are pushing out versus the orders may be lost for you? Is there anything that you can get in terms of your conversations with customers or anything that they've said to you, maybe updated timelines that they've given to you that would help us understand that?

So Kyle, the first part of the question, broadcast and media represents approximately 40% of our business. And the balance is for service providers. And the mix we saw this quarter, which Patrick mentioned in terms of the broadcast and media views getting delayed, we saw that although we have seen a marginal pickup now after, since Q2 has just kicked off. But that's the piece which has been shifting a little bit.

Kyle, regarding the second part of your question, we don't believe we've lost any deals for competitive reasons, nor have any customers indicated that a deal is being taken off the table. We have conducted a thorough review worldwide, and it really comes down to timing. We are talking about hundreds of customers around the globe across various countries, and as I mentioned earlier, over half of this business operates outside the U.S. The question for us, our customers, and channel partners is about timing and getting labs and operation centers reopened to integrate new products. We believe it's just a matter of when, not if, and that has been the consistent message we've received. It makes sense to us because, generally, these projects are driven by necessity, and we don't think the underlying need has diminished.

I'm not showing any further questions at this time. I would like to turn the call back over to Mr. Patrick Harshman for closing remarks.

Okay. Well, thank you very much. We went after time. We appreciate very much all the questions and feedback. The fundamental drivers of the business are healthy. We continue to push forward. We continue to believe in everything we're doing, and we very much appreciate your support. And we look forward to talking with you all again soon. Thank you. Have a good day.

Thank you. Ladies and gentlemen this concludes today's conference. Thank you for participation. You may all disconnect. Good day.