SOURCE: Harmonic Inc.

Harmonic Inc.

July 29, 2010 16:29 ET

Harmonic Announces Second Quarter 2010 Results

Revenues Up 18%; Bookings Up 28%; GAAP EPS $.05; Non-GAAP EPS $.09

SUNNYVALE, CA--(Marketwire - July 29, 2010) - Harmonic Inc. (NASDAQ: HLIT), a leading provider of broadcast and on-demand video delivery solutions, today announced its preliminary and unaudited results for the quarter ended July 2, 2010.

For the second quarter of 2010, the Company reported net revenues of $95.5 million, up 18% from $81.3 million in the second quarter of 2009 and up 13% from $84.8 million in the first quarter of 2010. For the first six months of 2010, net revenues were $180.4 million, up 21% from $149.0 million in the same period of 2009. Total bookings in the second quarter of 2010 were approximately $103.9 million, up 28% from approximately $81.3 million for the second quarter of 2009.

The year-over-year growth in revenues and bookings reflected continued demand across many geographies and markets, driven by robust high-definition upgrades and expansion cycles. International sales represented 48% of net revenues for the second quarter of 2010. Sales to cable customers accounted for 56% of net revenues in the second quarter of 2010, sales to satellite customers accounted for 27%, and sales to telco, broadcast and other customers accounted for 17%.

The Company reported GAAP net income for the second quarter of 2010 of $4.4 million, or $0.05 per diluted share, compared to a net loss of $7.9 million, or $0.08 per share, for the second quarter of 2009. Significant GAAP items that have been excluded in computing non-GAAP results include acquisition and severance costs, non-cash accounting charges for stock-based compensation expense, the amortization of intangibles and certain tax adjustments. Excluding these items, non-GAAP net income for the second quarter of 2010 was $9.1 million, or $0.09 per diluted share, up from $3.1 million, or $0.03 per diluted share, for the same period of 2009. See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Income (Loss) Reconciliation" below.

For the second quarter of 2010, Harmonic had GAAP gross margins of 48% and GAAP operating margins of 4.3%, up from 41% and (5.1%), respectively, for the same period of 2009. Excluding the GAAP items discussed above, non-GAAP gross margins were 51% and non-GAAP operating margins were 13.3% for the second quarter of 2010, up from 45% and 5.1%, respectively, for the same period of 2009.

As of July 2, 2010, the Company had cash, cash equivalents and short-term investments of $277.9 million, up from $267.8 million as of April 2, 2010.

"Harmonic continues to perform well, with second quarter results driven by the growing worldwide investment in new high definition services. Our ongoing investment in innovative technologies that enable HD and other video services is being rewarded as new and existing customers increasingly choose Harmonic solutions to power their expanding HD offerings," said Patrick Harshman, President and Chief Executive Officer.

"We are also pleased by the positive response from customers and partners to our proposed acquisition of Omneon. We expect that this combination of two strong market leaders will further solidify our position as a leading provider of video infrastructure to media companies around the world."

Business Outlook

Harmonic anticipates net revenues for the third quarter of 2010 in a range of $95 to $98 million and for the full year 2010 in a range of $370 to $375 million. GAAP gross margins and operating expenses for the third quarter of 2010 are expected to be in the range of 46% to 48% and $40 to $41 million, respectively. Non-GAAP gross margins and operating expenses for the third quarter of 2010, which exclude charges for stock-based compensation, the amortization of intangibles and severance charges, are anticipated to be in the range of 48% to 50% and $36 to $37 million, respectively. These anticipated results exclude any financial impact of, or related to, the proposed acquisition of Omneon, which is expected to close during the second half of 2010.

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 50190770). 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 50190770).

About Harmonic Inc.

Harmonic Inc. is redefining video delivery with the industry's most powerful solutions for delivering live and on-demand video to TVs, PCs and mobile devices. Harmonic's technical innovation and market leadership enable the company to offer a unique and comprehensive solution portfolio -- including encoding, transcoding, content preparation, stream processing, asset management, edge processing, and delivery. Broadcast, cable, Internet, mobile, satellite and telecom service providers around the world choose Harmonic's IP-based digital video, software, and broadband edge and access solutions. Using these award-winning and industry-leading solutions, operators can reduce costs and differentiate their services by offering consumers a higher quality, personalized multi-screen experience.

Harmonic (NASDAQ: HLIT) is headquartered in Sunnyvale, California with R&D, sales and system integration centers worldwide. The company's customers, including many of the world's largest communications providers, deliver services in virtually every country. Visit www.Harmonicinc.com for more information.

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 second quarter ended July 2, 2010; our expectation as to growing worldwide investment in new high definition services; our belief that the acquisition of Omneon will enable us to solidify our importance to our customers and further strengthen our position as a leading provider of innovative solutions for the world's leading media companies; our expectation that we will complete our acquisition of Omneon, Inc.; and our expectations regarding net sales, GAAP gross margins, GAAP operating expenses, non-GAAP gross margins and non-GAAP operating expenses for the third quarter and full year of 2010. Our expectations and beliefs 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 that: the acquisition of Omneon does not close when expected, or at all; if we do complete the acquisition of Omneon, 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 currently 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 sold and the effect it has on gross margins; delays or decreases in capital spending in the cable, satellite and telco industries; customer concentration and consolidation; general economic conditions, including the impact of recent turmoil in the global financial markets; 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 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 a cyclical and unpredictable sales cycle; and the risks that our international sales and support center will not provide the operational or tax benefits that we anticipate or that 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 filed on Form 10-K for the year ended December 31, 2009, our Form 10-Q for the quarter ended April 2, 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
                           (In thousands)
                             (Unaudited)

                                                  July 2 ,    December 31,
                                                    2010          2009
                                                ------------  ------------

Assets
Current assets:
  Cash and cash equivalents                     $    187,893  $    152,477
  Short-term investments                              90,028       118,593
  Accounts receivable, net                            71,363        64,838
  Inventories                                         42,816        35,066
  Deferred income taxes                               26,503        26,503
  Prepaid expenses and other current assets           25,234        20,821
                                                ------------  ------------

    Total current assets                             443,837       418,298

Property and equipment, net                           42,962        25,941

Goodwill, intangibles and other assets               108,378       112,065
                                                ------------  ------------

                                                $    595,177  $    556,304
                                                ============  ============

Liabilities and stockholders' equity
Current liabilities:
  Accounts payable                                    28,694        22,065
  Income taxes payable                                 2,583           609
  Deferred revenue                                    40,049        32,855
  Accrued liabilities                                 30,720        37,584
                                                ------------  ------------

    Total current liabilities                        102,046        93,113

Income taxes payable, long-term                       39,884        43,948
Financing liability, long-term                        24,323         6,908
Other non-current liabilities                          2,228         4,862
                                                ------------  ------------

  Total liabilities                                  168,481       148,831
                                                ------------  ------------

Stockholders' equity:
  Common stock                                     2,290,561     2,280,041
  Accumulated deficit                             (1,862,769)   (1,872,533)
  Accumulated other comprehensive loss                (1,096)          (35)
                                                ------------  ------------

    Total stockholders' equity                       426,696       407,473
                                                ------------  ------------

                                                $    595,177  $    556,304
                                                ============  ============





                              Harmonic Inc.
             Condensed Consolidated Statements of Operations
                  (In thousands, except per share data)
                              (Unaudited)


                                 Three Months Ended     Six Months Ended
                                --------------------  --------------------
                                 July 2,    July 3,    July 2,    July 3,
                                  2010       2009       2010       2009
                                ---------  ---------  ---------  ---------

Net revenue                     $  95,544  $  81,293  $ 180,366  $ 149,049

Cost of revenue                    49,862     47,746     93,879     90,117
                                ---------  ---------  ---------  ---------

Gross profit                       45,682     33,547     86,487     58,932
                                ---------  ---------  ---------  ---------

Operating expenses:
  Research and development         16,977     15,450     33,943     29,946
  Selling, general and
   administrative                  24,074     20,735     44,919     42,026
  Amortization of intangibles         534      1,534      1,067      1,922
                                ---------  ---------  ---------  ---------

    Total operating expenses       41,585     37,719     79,929     73,894
                                ---------  ---------  ---------  ---------

Income (loss) from operations       4,097     (4,172)     6,558    (14,962)

Interest and other income, net        299        635        312      1,499
                                ---------  ---------  ---------  ---------

Income (loss) before income
 taxes                              4,396     (3,537)     6,870    (13,463)

Provision for (benefit from)
 income taxes                         (49)     4,382     (2,894)    13,300
                                ---------  ---------  ---------  ---------

Net income (loss)               $   4,445  $  (7,919) $   9,764  $ (26,763)
                                =========  =========  =========  =========

Net income (loss) per share
  Basic                         $    0.05  $   (0.08) $    0.10  $   (0.28)
                                =========  =========  =========  =========

  Diluted                       $    0.05  $   (0.08) $    0.10  $   (0.28)
                                =========  =========  =========  =========

Shares used to compute net
 income (loss) per share:
  Basic                            96,998     95,703     96,845     95,563
                                =========  =========  =========  =========

  Diluted                          97,570     95,703     97,529     95,563
                                =========  =========  =========  =========





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

                                                        Six Months Ended
                                                      --------------------
                                                       July 2,    July 3,
                                                        2010       2009
                                                      ---------  ---------
                                                         (In thousands)
Cash flows from operating activities:
  Net income (loss)                                   $   9,764  $ (26,763)
  Adjustments to reconcile net income (loss) to cash
   provided by (used in) operating activities:
       Amortization of intangibles                        5,231      5,645
       Depreciation                                       4,404      4,090
       Stock-based compensation                           6,663      4,943
       Net loss on disposal of fixed assets                  27        187
       Deferred income taxes                             (1,422)        --
       Other non-cash adjustments, net                    1,076      1,563
       Changes in assets and liabilities, net of
        effect of acquisition:
       Accounts receivable                               (6,529)     5,573
       Inventories                                       (7,724)     8,415
       Prepaid expenses and other assets                     90      8,214
       Accounts payable                                  (1,616)    (2,419)
       Deferred revenue                                   4,595        274
       Income taxes payable                              (2,211)     4,200
       Accrued excess facilities costs                   (3,398)    (2,806)
       Accrued and other liabilities                     (3,467)   (24,237)
                                                      ---------  ---------
       Net cash provided by (used in) operating
        activities                                        5,483    (13,121)
                                                      ---------  ---------

Cash flows provided by (used in) investing
 activities:
       Purchases of investments                         (39,035)   (70,221)
       Proceeds from sale and maturities of
        investments                                      66,127     92,079
       Acquisition of property and equipment            (13,175)    (3,775)
       Acquisition of Rhozet                                 --       (453)
       Acquisition of Scopus                                 --    (63,053)
                                                      ---------  ---------
         Net cash provided by (used in) investing
          activities                                     13,917    (45,423)
                                                      ---------  ---------

Cash flows provided by financing activities:
       Proceeds from lease financing liability           12,385         --
       Proceeds from issuance of common stock, net        3,833      4,185
                                                      ---------  ---------
         Net cash provided by financing activities       16,218      4,185
                                                      ---------  ---------

Effect of exchange rate changes on cash and cash
 equivalents                                               (202)       145
                                                      ---------  ---------

Net increase (decrease) in cash and cash
 equivalents                                             35,416    (54,214)
Cash and cash equivalents at beginning of period        152,477    179,891
                                                      ---------  ---------

Cash and cash equivalents at end of period            $ 187,893  $ 125,677
                                                      =========  =========





                                Harmonic Inc.
                            Revenue Information
                               (In thousands)
                                 (Unaudited)

                       Three Months Ended            Six Months Ended
                   -------------------------   ---------------------------
                     July 2,        July 3,       July 2,        July 3,
                      2010           2009          2010           2009
                   ------------  -----------   -------------  ------------
Product
Video Processing   $49,998  52%  $38,297  47%  $ 88,888  49%  $ 73,961  50%
Edge & Access       34,263  36%   32,216  40%    69,807  39%    56,459  38%
Services and
 Support            11,283  12%   10,780  13%    21,671  12%    18,629  12%
                   ------- ---   ------- ---   -------- ---   -------- ---
    Total          $95,544 100%  $81,293 100%  $180,366 100%  $149,049 100%
                   =======       =======       ========       ========

Geography

United States      $49,259  52%  $46,532  57%  $ 91,850  51%  $ 78,650  53%
International       46,285  48%   34,761  43%    88,516  49%    70,399  47%
                   ------- ---   ------- ---   -------- ---   -------- ---
    Total          $95,544 100%  $81,293 100%  $180,366 100%  $149,049 100%
                   =======       =======       ========       ========

Market
Cable              $53,106  56%  $53,645  66%  $109,123  60%  $ 91,859  62%
Satellite           25,717  27%   11,006  14%    40,687  23%    26,804  18%
Telco & Other       16,721  17%   16,642  20%    30,556  17%    30,386  20%
                   ------- ---   ------- ---   -------- ---   -------- ---
    Total          $95,544 100%  $81,293 100%  $180,366 100%  $149,049 100%
                   =======       =======       ========       ========

NOTE: We have revised our product categories to move software products
into the Video Processing category. The data for Q2 2009 and YTD 2009 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 (loss) and net income (loss) 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 press release. The non-GAAP adjustments described below have historically been excluded from our non-GAAP financial measures. These adjustments, and the basis for excluding them, are:

-- Restructuring Activities

   - Severance Costs
     The Company has incurred severance costs in cost of sales and in
     operating expenses in connection with the integration of its
     acquisition of Scopus in March 2009, as well as other severance
     costs related to headcount reduction actions in response to the
     global economic slowdown or other personnel changes. The Company
     excludes one-time costs of this nature in evaluating its ongoing
     operational performance. We believe that these costs do not reflect
     expected future expenses nor do they provide a meaningful comparison
     of current versus prior operating results.

   - Excess Facilities
     The Company has incurred excess facilities charges and credits in
     operating expenses due to adjustments related to vacating portions of
     its Sunnyvale campus and estimating income from sublease of buildings.
     Similar facilities charges have been incurred in connection with
     vacating certain buildings leased by Scopus which are no longer
     required. The Company excludes one-time charges and credits of this
     nature in evaluating its ongoing operational performance. We believe
     that these charges and credits do not reflect expected future
     expenses nor does their inclusion in calculating our results of
     operations provide a meaningful comparison of current versus prior
     operating results.

   - Product Discontinuance
     In connection with the rationalization of product lines following the
     acquisition of Scopus, the Company recorded charges for excess
     inventory in connection with products which have been discontinued or
     which are excess to requirements as they are expected to be sold on a
     very limited basis. The Company excludes one-time costs of this nature
     in evaluating its ongoing operational performance. We believe that
     these costs do not reflect expected future expenses nor does their
     inclusion in calculating our results of operations provide a
     meaningful comparison of current versus prior operating results.

--  Acquisition Fees and Expenses
    In accordance with the requirements of new business combination
    accounting standards, which the Company adopted on January 1, 2009,
    fees and expenses paid to professional advisers in connection with
    acquisitions have been expensed. These acquisition-related costs are
    of a one-time nature and the Company excludes costs of this nature in
    evaluating its ongoing operational performance. We believe that these
    costs do not reflect expected future expenses nor does their inclusion
    in calculating our results of operations provide a meaningful
    comparison of current versus prior operating results.

--  Non-Cash Items

   - Stock-Based Compensation Expense
     The Company has incurred stock-based compensation expense in cost of
     sales and operating expenses. The Company excludes stock-based
     compensation expense because it believes that this measure is not
     relevant in evaluating its core operating performance, either for
     internal measurement purposes or for period-to-period comparisons and
     benchmarking against other companies.

   - Amortization of Intangibles
     The Company has incurred a charge for amortization of intangibles
     related to acquisitions made by the Company. The Company excludes
     these items when it evaluates its core operating performance. We
     believe that eliminating these expenses is useful to investors when
     comparing historical and prospective results and comparing such
     results to other companies because these expenses will vary if and
     when the Company makes additional acquisitions.

   - Provision/Benefit for Income Taxes
     The Company has assumed an effective tax rate of 35% in 2009 and 30%
     in 2010 because management believes that these rates are indicative
     of the normalized tax rate for Harmonic and its consolidated
     subsidiaries on a global basis. Management believes that these rates
     i) more appropriately reflect a provision for income taxes based on
     computed and expected amounts of non-GAAP pre-tax income, and ii)
     exclude the impact of certain discrete events which can cause
     quarterly tax provisions to be volatile. Certain discrete items are
     required by GAAP to be recorded in the current period but do not
     reflect future expected tax provisions or effective rates nor does
     the inclusion of this information in calculating our net income
     provide a meaningful comparison of current versus prior net income.

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

                      Three Months Ended July 2, Three Months Ended July 3,
                                2010                       2009
                      -------------------------  -------------------------
                                           Net                       Net
                       Gross  Operating  Income    Gross Operating  Income
(In thousands)         Margin  Expense   (loss)   Margin  Expense   (loss)
                      -------- -------  -------  -------- -------  -------
GAAP                  $ 45,682 $41,585  $ 4,445  $ 33,547 $37,719  $(7,919)
Cost of revenue
 related to severance
 costs                                                146              146
Purchase accounting
 fair value
 adjustments related
 to inventory                                         624              624
Cost of revenue
 related to stock
 based compensation
 expense                   527              527       373              373
Research and
 development expense
 related to
 restructuring costs                                         (131)     131
Research and
 development expense
 related to stock
 based compensation
 expense                        (1,158)   1,158              (929)     929
Selling, general and
 administrative
 expense related to
 excess facilities
 expense                                                     (358)     358
Selling, general and
 administrative
 expense related to
 restructuring costs                                         (756)     756
Selling, general and
 administrative
 expense related to
 severance costs                  (207)     207
Selling, general and
 administrative
 expense related to
 stock based
 compensation expense           (1,734)   1,734            (1,267)   1,267
Acquisition costs
 related to Omneon              (2,389)   2,389
Amortization of
 intangibles             2,082    (534)   2,616     2,207  (1,534)   3,741
Discrete tax items
 and adjustments                         (3,957)                     2,706
                      -------- -------  -------  -------- -------  -------
Non-GAAP              $ 48,291 $35,563  $ 9,119  $ 36,897 $32,744  $ 3,112
                      ======== =======  =======  ======== =======  =======
GAAP income (loss)
 per share - basic                      $  0.05                    $ (0.08)
                                        =======                    =======
GAAP income (loss)
 per share - diluted                    $  0.05                    $ (0.08)
                                        =======                    =======
Non-GAAP income per
 share - basic                          $  0.09                    $  0.03
                                        =======                    =======
Non-GAAP income per
 share - diluted                        $  0.09                    $  0.03
                                        =======                    =======
Shares used in
 per-share
 calculation - basic                     96,998                     95,703
                                        =======                    =======
Shares used in
 per-share
 calculation -
 diluted, GAAP                           97,570                     95,703
                                        =======                    =======
Shares used in
 per-share
 calculation -
 diluted, non-GAAP                       97,570                     96,232
                                        =======                    =======


                     Six Months Ended July 2,    Six Months Ended July 3,
                               2010                        2009
                     -------------------------  --------------------------
                                         Net                         Net
                      Gross  Operating  Income    Gross Operating  Income
(In thousands)       Margin   Expense   (loss)   Margin  Expense   (loss)
                     -------- -------  -------  -------- -------  --------
GAAP                 $ 86,487 $79,929  $ 9,764  $ 58,932 $73,894  $(26,763)
Cost of revenue
 related to
 severance costs                                     822               822
Cost of revenue
 related to Scopus
 product
 discontinuance                                    5,965             5,965
Purchase accounting
 fair value
 adjustments related
 to inventory                                        624               624
Cost of revenue
 related to stock
 based compensation
 expense                1,005            1,005       710               710
Research and
 development expense
 related to
 restructuring costs                                        (712)      712
Research and
 development expense
 related to stock
 based compensation
 expense                       (2,266)   2,266            (1,799)    1,799
Selling, general and
 administrative
 expense related to
 excess facilities
 expense                                                    (391)      391
Selling, general and
 administrative
 expense related to
 restructuring costs                                      (2,054)    2,054
Selling, general and
 administrative
 expense related to
 severance costs                 (207)     207
Selling, general and
 administrative
 expense related to
 stock based
 compensation
 expense                       (3,391)   3,391            (2,434)    2,434
Acquisition costs
 related to Scopus                                        (3,367)    3,367
Acquisition costs
 related to Omneon             (2,389)   2,389
Amortization of
 intangibles            4,164  (1,067)   5,231     3,686  (1,922)    5,608
Discrete tax items
 and adjustments                        (9,302)                      9,441
                     -------- -------  -------  -------- -------  --------
Non-GAAP             $ 91,656 $70,609  $14,951  $ 70,739 $61,215  $  7,164
                     ======== =======  =======  ======== =======  ========
GAAP income (loss)
 per share - basic                     $  0.10                    $  (0.28)
                                       =======                    ========
GAAP income (loss)
 per share - diluted                   $  0.10                    $  (0.28)
                                       =======                    ========
Non-GAAP income per
 share - basic                         $  0.15                    $   0.07
                                       =======                    ========
Non-GAAP income per
 share - diluted                       $  0.15                    $   0.07
                                       =======                    ========
Shares used in
 per-share
 calculation - basic                    96,845                      95,563
                                       =======                    ========
Shares used in
 per-share
 calculation -
 diluted, GAAP                          97,529                      95,563
                                       =======                    ========
Shares used in
 per-share
 calculation -
 diluted, non-GAAP                      97,529                      96,035
                                       =======                    ========

Contact Information

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

    Michael Newman
    Investor Relations
    StreetConnect
    (408) 542-2760