Release Date: August 12, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Harmonic Inc HLIT reported Q2 2026 broadband revenue of $133.5 million, a 54% year-over-year increase, exceeding the high end of guidance.
- Rest of market revenue grew 44% year-over-year to nearly $50 million, with record fiber bookings and a book-to-bill ratio well over 1.5, indicating strong demand diversification.
- The company completed the sale of its video business, becoming a pure-play broadband company with a strengthened balance sheet, including $231.9 million in cash.
- Backlog and deferred revenue reached a record $587.6 million, up 71% year-over-year, providing strong visibility and supporting a raised full-year 2026 revenue guidance to $505-$525 million.
- The intelligence platform (Beacon, Ampli) is gaining traction with about 20 live customers and 10 operators using newer offerings, showing early value like a 30% reduction in subscriber calls.
- The converged cOS platform supports multiple architectures (DOCSIS 3.1 Plus, DOCSIS 4.0, fiber), enabling operators to evolve networks flexibly, as demonstrated by Bluepeak's seamless transition to fiber.
- Customer satisfaction is high, with a Net Promoter Score (NPS) of 87 in Q2, reflecting strong customer relationships and product quality.
Negative Points
- Gross margin guidance for Q3 2026 is expected to be 51%-52%, down from Q2's 53%, due to elevated memory costs that are not fully passed on to customers.
- The company faces ongoing supply chain risks, including memory price increases and secondary component supply dynamics, which could impact future margins.
- Operating expenses increased in Q2 due to higher incentive-based accruals tied to improved financial performance, potentially affecting near-term profitability.
- Free cash flow was negative $7 million in Q2, primarily due to increased memory inventory purchases to secure supply, which may continue to pressure cash flow in the near term.
- The company expects DSO to trend back to the low 70s from 61, indicating potential slower cash collection due to customer mix.
- Revenue concentration remains a concern, with two customers accounting for 63% of total revenue in Q2, though rest of market is growing.
- The company anticipates approximately $10 million in stranded costs from the video business sale in 2026, with only 30% expected to be eliminated within a year.
Q & A Highlights
Q: Can you provide some color around the demand dynamics from the rest of the market? Are we seeing an inflection here now where smaller regional MSOs are starting to follow through with the Comcast Charter upgrade playbook? And are these still lab trials or the first phases of actual upgrades?
A: Nimrod Ben-Natan (President and CEO): This is way past the lab trials; it is ramping deployments across the board. We see customers doing DOCSIS 4.0, DOCSIS 3.1 Plus, and fiber, covering all our use cases. The growth is coming from outside the top two customers, with a growing percentage of the rest of the market ramping up, though they are at different stages. Walter Jankovic (CFO) added that the rest of market revenue is well diversified across a broad set of customers.
Q: What is the potential for these intelligence platforms in terms of raising the recurring revenue portion of your business? Could this be material in two or three years, or will it take longer?
A: Nimrod Ben-Natan (President and CEO): The intelligence platform will certainly be material for our reported recurring revenue and will be very sticky to the service we provide. It will take time to build, but we see it as a growing area that will be material to our recurring revenue category and the overall business. More details will be shared at the upcoming Investor Day.
Q: You've done a great job battling rising memory costs. Can you keep this up throughout this year and into next year, or did you just get ahead of your growth curve this year?
A: Walter Jankovic (CFO): We have already procured all the memory we need for FY26. Our team front-ran the supply issue early on. We have built approximately $3 million per quarter of net increased memory costs into our second-half guidance that are not expected to be passed on. Despite this, we actually raised our full-year gross margin guidance, reflecting our mitigation efforts and customer mix.
Q: Any color on different geographies relative to rest of market traction? And are there any particular unlocks you've achieved to allow operators to operationalize virtual CMTS and DAA?
A: Nimrod Ben-Natan (President and CEO): The majority of the business is in North America, but there is a growing contribution from Latin America, Asia, and Europe. On the technology side, we have simplified the distributed architecture over the years. Even though our platform uses Kubernetes and scale-out microservices, customers view it as an appliance and do not need to know the underlying complexity. This is no longer a headwind to our business growth.
Q: Are you seeing cost pressures on servers and networking as part of your complete solution, and are these an impediment to customer deployments?
A: Walter Jankovic (CFO): We procure third-party switches and servers for some rest of market customers. While prices have gone up, the materiality to our business is very small. We have not seen any impact from a supply standpoint, only on the price of these items, which has not been an impediment to deployments.
Q: How are you thinking about the fiber market and BEAD funding? What catalysts would shift cable operators to more aggressively rehab coax versus upgrade to fiber?
A: Nimrod Ben-Natan (President and CEO): Cable operators are doing fiber, but few are doing wholesale overbuilds. They use fiber for MDUs or specific applications, though some, like Bluepeak, are overbuilding. Our converged platform lets them transition seamlessly. We expect some operators to be more aggressive in this migration over the next couple of years. Our fiber portfolio is also attractive for the broader fiber market, as evidenced by the new Pearl-1XL win with unique power protection capabilities. Walter Jankovic (CFO) added that BEAD is a modest part of overall revenue guidance, with orders received and supply chain ready, but it is not a significant part of this year's guidance.
Q: Can you elaborate on the strength of the rest of market bookings and the book-to-bill ratio?
A: Walter Jankovic (CFO): Rest of market represented approximately 60% of total bookings in the quarter, with a book-to-bill well over 1.5. This strong booking activity, combined with record backlog and deferred revenue of $587.6 million (up 71% year over year), provides increased visibility for the remainder of 2026 and into 2027. Approximately 73% of the backlog is expected to convert to revenue within the next 12 months.
Q: What drove the significant revenue upside in Q2, and how should we think about the customer concentration?
A: Walter Jankovic (CFO): The revenue upside was broad-based, including a number of rest of market customers ramping their deployments during the quarter. Two customers each accounted for more than 10% of revenue, together representing 63% of total revenue. Rest of market revenue grew 44% year over year, representing 37% of total revenue, underscoring our progress in expanding customer diversification.
Q: Can you provide more detail on the fiber momentum and the new product portfolio?
A: Nimrod Ben-Natan (President and CEO): Q2 set a record for rest of market fiber bookings. Deployments are ramping alongside bookings. SeaStar, our MDU optical node, went live at DNA Finland, enabling multi-gigabit service in apartment buildings. We also secured our first multimillion-dollar order for the Pearl-1XL and Oyster+, which deliver high port density and extended power outage protection, allowing operators to skip street cabinets altogether. This positions us to gain share as operators look for flexible, reliable, and cost-effective ways to expand fiber.
Q: What is the status of the DOCSIS 4.0 ecosystem and its impact on your business?
A: Nimrod Ben-Natan (President and CEO): In June, cable modems from six suppliers across two chipset vendors cleared the first CableLabs interoperability milestone on the path to DOCSIS 4.0 certification. With multi-vendor modem supply coming into place, operators can move ahead with greater confidence. We are shipping unified DOCSIS 4.0 nodes in volume across a broad range of customers and won a new DOCSIS 4.0 customer in Europe during the quarter.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This stock alert was generated using automated technology and GuruFocus financial data to provide readers with timely and accurate market reporting. This content was reviewed by GuruFocus editorial team prior to publication. Please send any questions or comments about this story to [email protected].
