SOURCE: Harmonic Inc.

Harmonic Inc.

April 28, 2011 16:00 ET

Harmonic Announces First Quarter 2011 Results

Strong Year-Over-Year Growth in Revenue and Non-GAAP Earnings

SAN JOSE, CA--(Marketwire - Apr 28, 2011) - Harmonic Inc. (NASDAQ: HLIT), a global leader in video infrastructure solutions, today announced its preliminary and unaudited results for the quarter ended April 1, 2011. Results for the first quarter of 2011 included the contribution from Omneon Inc., acquired on September 15, 2010.

Net revenue for the first quarter of 2011 was $132.8 million, which excluded $2.1 million of certain deferred revenue that would otherwise have been recognized by Omneon had the acquisition not occurred, up from $84.8 million in the first quarter of 2010. Total bookings in the first quarter of 2011 were approximately $131.6 million, up from approximately $91.3 million for the first quarter of 2010.

The Company reported GAAP net income for the first quarter of 2011 of $0.5 million, or $0.00 per share, compared to net income of $5.3 million, or $0.05 per diluted share, for the first quarter of 2010. Non-GAAP net income for the first quarter of 2011 was $10.3 million, or $0.09 per diluted share, up from $5.8 million, or $0.06 per diluted share, for the same period of 2010. See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Net Income Reconciliation" below.

For the first quarter of 2011, Harmonic had GAAP gross margins of 47% and GAAP operating margins of 0%, compared to 48% and 3%, respectively, for the same period of 2010. Non-GAAP gross margins were 51% and non-GAAP operating margins were 10% for the first quarter of both 2010 and 2011.

As of April 1, 2011, the Company had cash, cash equivalents and short-term investments of $117.3 million.

"Our first quarter results demonstrate that we continue to strengthen our leadership position in enabling the new video economy," said Patrick Harshman, President and Chief Executive Officer. "Our success is being driven by growing worldwide investment in new video services, our industry-leading products and the continued broadening of our customer base as we further penetrate new markets and geographies. Moving into 2011, we continue to expand our global sales organization and extend the breadth of our innovative solutions for media companies and video service providers around the world."

Business Outlook

Harmonic anticipates net revenue in a range of $137 million to $141 million for the second quarter of 2011. GAAP gross margins and operating expenses for the second quarter of 2011 are expected to be in the range of 46% to 48% and $61 to $63 million, respectively. Non-GAAP gross margins and operating expenses for the second quarter of 2011, which will exclude charges for stock-based compensation and the amortization of intangibles, are anticipated to be in the range of 50.5% to 52.5% and $54.5 to $55.5 million, respectively.

Conference Call Information

Harmonic will host a conference call today to discuss its financial results at 2:00 P.M. Pacific (5:00 P.M. Eastern). A listen-only broadcast of the conference call can be accessed on the Company's website at www.harmonicinc.com or by calling +1.706.634.9047 (conference identification code 51969320). The replay will be available after 6:00 P.M. Pacific at the same website address or by calling +1.706.645.9291 (conference identification code 51969320).

Annual Meeting of Stockholders

Harmonic also announced that its 2011 Annual Meeting of Stockholders will be held on June 22, 2011, at 2:00 P.M. Pacific, at its principal offices, 4300 North First Street, San Jose, California 95134. The Company expects to file its Proxy Statement for the 2011 Annual Meeting of Stockholders on or about May 2, 2011.

About Harmonic Inc.

Harmonic Inc. (NASDAQ: HLIT) provides infrastructure that powers the video economy. The company enables content and service providers to efficiently create, prepare, and deliver differentiated video services for television and new media platforms. More information is available at www.harmonicinc.com.

Legal Notice Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements related to our expectations: regarding our final results for the first quarter ended April 1, 2011; that we continue to strengthen our leadership position in enabling the new video economy; of a growing worldwide investment in new video services; concerning the continuing broadening of our customer base; that we will continue to expand our global sales organization; that we will continue to extend the breadth of our solutions; and regarding net revenue, GAAP gross margins, GAAP operating expenses, non-GAAP gross margins and non-GAAP operating expenses for the second quarter of 2011. Our expectations regarding these matters may not materialize, and actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include the possibility, in no particular order, that: we will not be able to integrate Omneon into our business as effectively or efficiently as expected; Omneon does not provide Harmonic with the benefits that we expect from the acquisition; the trends toward more high-definition, on-demand and anytime, anywhere video will not continue to develop at its current pace, or at all; the possibility that our products will not generate sales that are commensurate with our expectations; the mix of products and services sold in various geographies and the effect it has on gross margins; delays or decreases in capital spending in the cable, satellite and telco and broadcast and media industries; customer concentration and consolidation; the impact of general economic conditions, including recent turmoil in the global financial markets, particularly on international sales and operations; market acceptance of new or existing Harmonic products; losses of one or more key customers; risks associated with Harmonic's international operations; inventory management; the lack of timely availability of parts or raw materials necessary to produce our products; the impact of increases in the prices of raw materials and oil; the effect of competition; difficulties associated with rapid technological changes in Harmonic's markets; the need to introduce new and enhanced products and the risk that our product development is not timely or does not result in expected benefits or market acceptance; risks associated with unpredictable sales cycles; our dependence on contract manufacturers; and the risks that our international sales and support center will not provide the operational or tax benefits that we anticipate or that its expenses exceed our plans. The forward-looking statements contained in this press release are also subject to other risks and uncertainties, including those more fully described in Harmonic's filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2010 and our Current Reports on Form 8-K. The forward-looking statements in this press release are based on information available to the Company as of the date hereof, and Harmonic disclaims any obligation to update any forward-looking statements.

EDITOR'S NOTE -- Product and company names used herein are trademarks or registered trademarks of their respective owners.

                              Harmonic Inc.
                  Condensed Consolidated Balance Sheets
                               (Unaudited)

                                                     April 1,  December 31,
                                                       2011        2010
                                                    ----------  ----------
                                                        (In thousands)
ASSETS
Current assets:
Cash and cash equivalents                           $   59,672  $   96,533
Short-term investments                                  57,614      23,838
Accounts receivable, net                               111,929     101,652
Inventories                                             58,817      58,065
Deferred income taxes                                   39,849      39,849
Prepaid expenses and other current assets               28,218      28,614
                                                    ----------  ----------
Total current assets                                   356,099     348,551
Property and equipment, net                             39,597      39,825
Goodwill, intangibles and other assets                 324,902     332,010
                                                    ----------  ----------
Total assets                                        $  720,598  $  720,386
                                                    ==========  ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable                                    $   22,197  $   26,300
Income taxes payable                                       781       6,791
Deferred revenue                                        49,815      46,279
Accrued liabilities                                     39,379      51,283
                                                    ----------  ----------
Total current liabilities                              112,172     130,653
Income taxes payable, long-term                         48,139      48,883
Deferred income taxes, long-term                        15,635      14,849
Other non-current liabilities                            7,900       5,798
                                                    ----------  ----------
Total liabilities                                      183,846     200,183
                                                    ----------  ----------
Stockholders' equity:
Common stock                                         2,413,373   2,397,783
Accumulated deficit                                 (1,876,352) (1,876,868)
Accumulated other comprehensive loss                      (269)       (712)
                                                    ----------  ----------
Total stockholders' equity                             536,752     520,203
                                                    ----------  ----------
Total liabilities and stockholders' equity          $  720,598  $  720,386
                                                    ==========  ==========




                              Harmonic Inc.
              Condensed Consolidated Statements of Operations
                               (Unaudited)

                                                       Three months ended
                                                      --------------------
                                                        April 1,   April 2,
                                                         2011       2010
                                                      ---------  ---------
                                                         (In thousands,
                                                        except per share
                                                            amounts)

Net revenue                                           $ 132,835  $  84,822
Cost of revenue                                          70,980     44,016
                                                      ---------  ---------
Gross profit                                             61,855     40,806
Operating expenses:
Research and development                                 26,149     16,966
Selling, general and administrative                      33,564     20,845
Amortization of intangibles                               2,229        534
                                                      ---------  ---------
Total operating expenses                                 61,942     38,345
                                                      ---------  ---------
Income (loss) from operations                               (87)     2,461

Interest and other income (expense), net                    (15)        13
                                                      ---------  ---------
Income (loss) before income taxes                          (102)     2,474
Benefit from income taxes                                  (618)    (2,845)
                                                      ---------  ---------
Net income                                            $     516  $   5,319
                                                      =========  =========
Net income per share:
Basic                                                 $    0.00  $    0.06
                                                      =========  =========
Diluted                                               $    0.00  $    0.05
                                                      =========  =========
Weighted average shares:
Basic                                                   113,836     96,684
Diluted                                                 116,109     97,344





                              Harmonic Inc.
              Condensed Consolidated Statements of Cash Flows
                               (Unaudited)

                                                       Three months ended
                                                      --------------------
                                                       April 1,   April 2,
                                                        2011       2010
                                                      ---------  ---------
                                                         (In thousands)
Cash flows from operating activities:
Net income                                            $     516  $   5,319
Adjustments to reconcile net income to net cash
 provided by operating activities:
Amortization of intangibles                               7,371      2,616
Depreciation                                              3,403      2,333
Stock-based compensation                                  6,002      3,243
Net loss on disposal of fixed assets                         61         19
Deferred income taxes                                        76     (1,422)
Other non-cash adjustments, net                             121        567
Changes in assets and liabilities:
Accounts receivable, net                                (10,277)    (5,204)
Inventories                                                (732)    (4,512)
Prepaid expenses and other assets                           998     (1,101)
Accounts payable                                         (3,616)    (3,356)
Deferred revenue                                          4,430      6,445
Income taxes payable                                     (6,748)    (1,616)
Accrued excess facility costs                                46     (1,697)
Accrued and other liabilities                            (9,334)    (4,613)
                                                      ---------  ---------
Net cash used in operating activities                    (7,683)    (2,979)
                                                      ---------  ---------

Cash flows from investing activities:
Purchases of investments                                (41,813)   (35,367)
Proceeds from sales and maturities of investments         7,899     41,292
Acquisition of property and equipment                    (4,957)    (1,153)
                                                      ---------  ---------
Net cash provided by (used in) investing activities     (38,871)     4,772
                                                      ---------  ---------

Cash flows from financing activities:
Proceeds from issuance of common stock, net               9,570      1,736
                                                      ---------  ---------
Net cash provided by financing activities                 9,570      1,736
                                                      ---------  --------- 
Effect of exchange rate changes on cash and cash
 equivalents                                                123        (46)
                                                      ---------  ---------
Net increase (decrease) in cash and cash equivalents    (36,861)     3,483
Cash and cash equivalents at beginning of period         96,533    152,477
                                                      ---------  ---------
Cash and cash equivalents at end of period            $  59,672  $ 155,960
                                                      =========  =========




                              Harmonic Inc.
                           Revenue Information
                               (Unaudited)

                                              Three months ended
                                    --------------------------------------
                                       April 1, 2011       April 2, 2010
                                    ------------------  ------------------
                                      (In thousands, except percentages)
Product
Video Processing                    $  63,758       48% $  38,890       46%
Production and Playout                 20,933       16%         -        0%
Edge and Access                        31,176       23%    35,544       42%
Services and Support                   16,968       13%    10,388       12%
                                    --------- --------  --------- --------
Total                               $ 132,835      100% $  84,822      100%
                                    =========           =========

Geography
United States                       $  58,954       44% $  42,592       50%
International                          73,881       56%    42,230       50%
                                    --------- --------  --------- --------
Total                               $ 132,835      100% $  84,822      100%
                                    =========           =========

Market
Cable                               $  55,920       42% $  56,017       66%
Satellite and Telco                    35,152       27%    19,798       23%
Broadcast and Media                    41,763       31%     9,007       11%
                                    --------- --------  --------- --------
Total                               $ 132,835      100% $  84,822      100%
                                    =========           =========

Note: We have revised our market categories to combine the Telco revenue with the Satellite category. The data for prior periods has been revised to conform with this presentation.

Use of Non-GAAP Financial Measures

In establishing operating budgets, managing its business performance, and setting internal measurement targets, the Company excludes a number of items required by GAAP. Management believes that these accounting charges and credits, most of which are non-cash or non-recurring in nature, are not useful in managing its operations and business. Historically, the Company has also publicly presented these supplemental non-GAAP measures in order to assist the investment community to see the Company "through the eyes of management," and thereby enhance understanding of its operating performance. The non-GAAP measures presented here are gross margins, operating expense, net income and net income per share. The presentation of non-GAAP information is not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP, and is not necessarily comparable to non-GAAP results published by other companies. A reconciliation of the historical non-GAAP financial measures discussed in this press release to the most directly comparable historical GAAP financial measures is included with the financial statements contained in this presentation. The non-GAAP adjustments described below have historically been excluded from our GAAP financial measures. These adjustments are excess facilities charges and non-cash items, such as stock-based compensation expense, amortization of intangibles, and benefits from income taxes.

                              Harmonic Inc.
                GAAP to Non-GAAP Net Income Reconciliation
                               (Unaudited)

                                       Three months ended
                       ---------------------------------------------------
                             April 1, 2011              April 2, 2010
                       -------------------------  ------------------------
                        Gross  Operating   Net     Gross  Operating   Net
                       Profit   Expense  Income   Profit   Expense  Income
                       ------- --------  -------  ------- --------  ------
                             (In thousands, except per share amounts)
GAAP                   $61,855 $ 61,942  $   516  $40,806 $ 38,345  $5,319

Cost of revenue
 related to stock-based
 compensation expense      747        -      747      478        -     478
Research and development
 expense related to
 stock-based
 compensation expense        -   (1,836)   1,836        -   (1,109)  1,109
Selling, general and
 administrative
 expense related to
 stock-based
 compensation expense        -   (3,419)   3,419        -   (1,656)  1,656
Selling, general and
 administrative expense
 related to excess
 facility costs and
 other non-recurring
 expenses                    -     (409)     409        -        -       -
Amortization of
 intangibles             5,142   (2,229)   7,371    2,082     (534)  2,616
Discrete tax items and
 adjustments                 -        -   (4,038)       -        -  (5,345)
                       ------- --------  -------  ------- --------  ------
Non-GAAP               $67,744 $ 54,049  $10,260  $43,366 $ 35,046  $5,833
                       ======= ========  =======  ======= ========  ======
GAAP net income per
 share - basic                           $  0.00                    $ 0.06
                                         =======                    ======
GAAP net income per
 share - diluted                         $  0.00                    $ 0.05
                                         =======                    ======
Non-GAAP net income
 per share - basic                       $  0.09                    $ 0.06
                                         =======                    ======
Non-GAAP net income
 per share - diluted                     $  0.09                    $ 0.06
                                         =======                    ======
Shares used in per share
 calculation - basic                     113,836                    96,684
                                         =======                    ======
Shares used in per share
 calculation - diluted                   116,109                    97,344
                                         =======                    ======





                              Harmonic Inc.
                      Pro Forma Revenue Information
                                (Unaudited)

                                          Three months ended
                            -----------------------------------------------
                             April 2, 2010   July 2, 2010   October 1, 2010
                            --------------  --------------  ---------------

Product
Video Processing            $ 38,890    34% $ 49,998    39% $ 51,005    39%
Production and Playout        24,828    22%   26,589    21%   26,024    20%
Edge and Access               35,544    32%   34,263    27%   34,712    27%
Services and Support          13,777    12%   16,623    13%   17,760    14%
                            -------- -----  -------- -----  -------- -----
Total                       $113,039   100% $127,473   100% $129,501   100%
                            ========        ========        ========

Geography
United States               $ 49,632    44% $ 65,456    51% $ 62,415    48%
International                 63,407    56%   62,017    49%   67,086    52%
                            -------- -----  -------- -----  -------- -----
Total                       $113,039   100% $127,473   100% $129,501   100%
                            ========        ========        ========

Market
Cable                       $ 56,441    50% $ 53,555    42% $ 63,419    49%
Satellite and Telco           25,030    22%   36,218    28%   28,212    22%
Broadcast and Media           31,568    28%   37,700    30%   37,870    29%
                            -------- -----  -------- -----  -------- -----
Total                       $113,039   100% $127,473   100% $129,501   100%
                            ========        ========        ========




                             Three months                    Three months
                                ended         Year ended        ended
                            --------------  --------------  --------------
                             December 31,    December 31,      April 1,
                                 2010            2010            2011
                            --------------  --------------  --------------

Product
Video Processing            $ 63,005    45% $202,898    40% $ 63,758    47%
Production and Playout        27,699    20%  105,140    21%   22,408    17%
Edge and Access               30,787    22%  135,306    26%   31,176    23%
Services and Support          17,514    13%   65,674    13%   17,566    13%
                            -------- -----  -------- -----  -------- -----
Total                       $139,005   100% $509,018   100% $134,908   100%
                            ========        ========        ========

Geography
United States               $ 64,230    46% $241,733    47% $ 60,608    45%
International                 74,775    54%  267,285    53%   74,300    55%
                            -------- -----  -------- -----  -------- -----
Total                       $139,005   100% $509,018   100% $134,908   100%
                            ========        ========        ========

Market
Cable                       $ 65,817    47% $239,232    47% $ 55,950    42%
Satellite and Telco           28,455    21%  117,915    23%   35,388    26%
Broadcast and Media           44,733    32%  151,871    30%   43,570    32%
                            -------- -----  -------- -----  -------- -----
Total                       $139,005   100% $509,018   100% $134,908   100%
                            ========        ========        ========

NOTE: Data includes a full quarter proforma revenue for Omneon for the periods shown, including certain deferred revenue excluded in reported results. We have revised our market categories to combine the Telco revenue with the Satellite category. The data for prior periods has been revised to conform with this presentation.

Contact Information

  • CONTACTS:
    Carolyn V. Aver
    Chief Financial Officer
    Harmonic Inc.
    (408) 542-2500

    Michael Newman
    Investor Relations
    StreetConnect
    (408) 542-2760