SOURCE: Harmonic Inc.

Harmonic Inc.

July 21, 2011 16:00 ET

Harmonic Announces Second Quarter 2011 Results

International Revenue Up 26% Year-Over-Year on Pro Forma Basis

SAN JOSE, CA--(Marketwire - Jul 21, 2011) - Harmonic Inc. (NASDAQ: HLIT), a global leader in video infrastructure solutions, today announced its preliminary and unaudited results for the quarter ended July 1, 2011. Results for 2011 include contributions from Omneon Inc., acquired on September 15, 2010.

Net revenue for the second quarter of 2011 was $134.0 million, up from $95.5 million in the second quarter of 2010. International sales represented 59% of total revenue for the second quarter of 2011. For the first six months of 2011, net revenue was $266.8 million, up from $180.4 million in the same period of 2010. Total bookings in the second quarter of 2011 were approximately $131.7 million, up from approximately $103.9 million for the second quarter of 2010.

The Company reported GAAP net income for the second quarter of 2011 of $0.4 million, or $0.00 per diluted share, compared to net income of $4.4 million, or $0.05 per diluted share, for the second quarter of 2010. For the first six months of 2011, GAAP net income was $0.9 million, or $0.01 per diluted share, compared to $9.8 million, or $0.10 per diluted share, for the same period of 2010. Non-GAAP net income for the second quarter of 2011 was $10.5 million, or $0.09 per diluted share, compared to $9.1 million, or $0.09 per diluted share, for the same period of 2010. For the first six months of 2011, non-GAAP net income was $20.7 million, or $0.18 per diluted share, compared to $15.0 million, or $0.15 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 second quarter of 2011, Harmonic had GAAP gross margins of 46% and GAAP operating margins of 1%, compared to 48% and 4%, respectively, for the same period of 2010. Non-GAAP gross margins were 51% and non-GAAP operating margins were 11% for the second quarter of 2011, compared to 51% and 13%, respectively, for the same period of 2010.

As of July 1, 2011, the Company had cash, cash equivalents and short-term investments of $134.3 million, up from $117.3 million as of April 1, 2011.

"While our international business grew 26% year-over-year on a pro-forma basis, we saw reduced demand from our domestic customers in the second quarter," said Patrick Harshman, President and Chief Executive Officer. "We're pleased to see our Omneon revenue up 14% from the prior quarter. We are also optimistic about the progress with both international and domestic customers on a range of new Internet and multiscreen video initiatives. We remain focused on carefully managing our operational expenses while executing our growth strategy."

Business Outlook

Harmonic anticipates net revenue in a range of $130 million to $140 million for the third quarter of 2011 and $540 million to $550 million for the full year of 2011. GAAP gross margins and operating expenses for the third quarter of 2011 are expected to be in the range of 45% to 47% and $60 to $61 million, respectively. Non-GAAP gross margins and operating expenses for the third 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% to 52% and $53 to $54 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 51970033). 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 51970033).

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 second quarter ended July 1, 2011; our progress with international and domestic customers on a range of new Internet and multiscreen video initiatives; our focus on managing expenses while executing our growth strategy; and regarding net revenue, GAAP gross margins, GAAP operating expenses, non-GAAP gross margins and non-GAAP operating expenses for the third quarter of 2011 and net revenue for the full year. 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 fully integrate Omneon into our business as effectively or efficiently as expected; Omneon does not provide Harmonic with the benefits that we expected 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 our European and other 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, our Quarterly Reports on Form 10-Q 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)

                                                      July 1,  December 31,
                                                       2011        2010
                                                    ----------  ----------
                                                        (In thousands)
ASSETS
Current assets:
Cash and cash equivalents                           $   70,370  $   96,533
Short-term investments                                  63,928      23,838
Accounts receivable, net                               117,861     101,652
Inventories                                             61,064      58,065
Deferred income taxes                                   39,849      39,849
Prepaid expenses and other current assets               26,399      28,614
                                                    ----------  ----------
Total current assets                                   379,471     348,551
Property and equipment, net                             39,678      39,825
Goodwill, intangibles and other assets                 317,212     332,010
                                                    ----------  ----------
Total assets                                        $  736,361  $  720,386
                                                    ==========  ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable                                    $   30,594  $   26,300
Income taxes payable                                       126       6,791
Deferred revenue                                        47,617      46,279
Accrued liabilities                                     39,486      51,283
                                                    ----------  ----------
Total current liabilities                              117,823     130,653
Income taxes payable, long-term                         48,622      48,883
Deferred income taxes, long-term                        15,635      14,849
Other non-current liabilities                            7,851       5,798
                                                    ----------  ----------
Total liabilities                                      189,931     200,183
                                                    ----------  ----------
Stockholders' equity:
Common stock                                         2,422,584   2,397,783
Accumulated deficit                                 (1,875,962) (1,876,868)
Accumulated other comprehensive loss                      (192)       (712)
                                                    ----------  ----------
Total stockholders' equity                             546,430     520,203
                                                    ----------  ----------
Total liabilities and stockholders' equity          $  736,361  $  720,386
                                                    ==========  ==========





                              Harmonic Inc.
              Condensed Consolidated Statements of Operations
                                (Unaudited)

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

Net revenue                     $ 133,996  $  95,544  $ 266,831  $ 180,366
Cost of revenue                    72,168     49,862    143,148     93,879
                                ---------  ---------  ---------  ---------
Gross profit                       61,828     45,682    123,683     86,487
Operating expenses:
Research and development           25,662     16,977     51,811     33,943
Selling, general and
 administrative                    32,543     24,074     66,107     44,919
Amortization of intangibles         2,230        534      4,459      1,067
                                ---------  ---------  ---------  ---------
Total operating expenses           60,435     41,585    122,377     79,929
                                ---------  ---------  ---------  ---------
Income from operations              1,393      4,097      1,306      6,558

Interest and other income, net       (225)       299       (240)       312
                                ---------  ---------  ---------  ---------
Income before income taxes          1,168      4,396      1,066      6,870
Provision for (benefit from)
 income taxes                         778        (49)       160     (2,894)
                                ---------  ---------  ---------  ---------
Net income                      $     390  $   4,445  $     906  $   9,764
                                =========  =========  =========  =========
Net income per share:
Basic                           $    0.00  $    0.05  $    0.01  $    0.10
                                =========  =========  =========  =========
Diluted                         $    0.00  $    0.05  $    0.01  $    0.10
                                =========  =========  =========  =========
Weighted average shares:
Basic                             114,939     96,998    114,387     96,845
Diluted                           116,298     97,570    116,143     97,529





                              Harmonic Inc.
              Condesed Consolidated Statements of Cash Flow
                                (Unaudited)

                                                        Six months ended
                                                      --------------------
                                                       July 1,    July 2,
                                                        2011       2010
                                                      ---------  ---------
                                                         (In thousands)
Cash flows from operating activities:
Net income                                            $     906  $   9,764
Adjustments to reconcile net income to net cash
 provided by operating activities:
Amortization of intangibles                              15,092      5,231
Depreciation                                              6,824      4,404
Stock-based compensation                                 11,094      6,663
Net loss on disposal of fixed assets                        103         27
Deferred income taxes                                        76     (1,422)
Other non-cash adjustments, net                             322      1,076
Changes in assets and liabilities:
Accounts receivable, net                                (16,209)    (6,529)
Inventories                                              (2,994)    (7,724)
Prepaid expenses and other assets                         2,783         90
Accounts payable                                          4,780     (1,616)
Deferred revenue                                            788      4,595
Income taxes payable                                     (6,925)    (2,211)
Accrued excess facility costs                               556     (3,398)
Accrued and other liabilities                            (8,056)    (3,467)
                                                      ---------  ---------
Net cash provided by operating activities                 9,140      5,483
                                                      ---------  ---------
Cash flows from investing activities:
Purchases of investments                                (62,009)   (39,035)
Proceeds from sales and maturities of investments        21,594     66,127
Acquisition of property and equipment                    (8,502)   (13,175)
Other acquisitions                                         (250)         -
                                                      ---------  ---------
Net cash provided by (used in) investing activities     (49,167)    13,917
                                                      ---------  ---------
Cash flows from financing activities:
Proceeds from lease financing liability                       -     12,385
Proceeds from issuance of common stock, net              13,703      3,833
                                                      ---------  ---------
Net cash provided by financing activities                13,703     16,218
                                                      ---------  ---------
Effect of exchange rate changes on cash and cash
 equivalents                                                161       (202)
                                                      ---------  ---------
Net increase (decrease) in cash and cash equivalents    (26,163)    35,416
Cash and cash equivalents at beginning of period         96,533    152,477
                                                      ---------  ---------
Cash and cash equivalents at end of period            $  70,370  $ 187,893
                                                      =========  =========




                              Harmonic Inc.
                            Revenue Information
                                (Unaudited)

                         Three months ended          Six months ended
                     -------------------------- ---------------------------
                     July 1, 2011  July 2, 2010 July 1, 2011  July 2, 2010
                     ------------- ------------ ------------- -------------
                               (In thousands, except percentages)
Product
Video Processing     $ 51,525  38% $49,998  52% $115,283  43% $ 88,888  49%
Production and
 Playout               25,453  19%       -   0%   46,386  17%        -   0%
Edge and Access        40,178  30%  34,263  36%   71,354  27%   69,807  39%
Services and Support   16,840  13%  11,283  12%   33,808  13%   21,671  12%
                     -------- ---  ------- ---  -------- ---  -------- ---
Total                $133,996 100% $95,544 100% $266,831 100% $180,366 100%
                     ========      =======      ========      ========

Geography
United States        $ 55,578  41% $49,259  52% $114,532  43% $ 91,850  51%
International          78,418  59%  46,285  48%  152,299  57%   88,516  49%
                     -------- ---  ------- ---  -------- ---  -------- ---
Total                $133,996 100% $95,544 100% $266,831 100% $180,366 100%
                     ========      =======      ========      ========

Market
Cable                $ 64,142  48% $53,106  56% $120,062  45% $109,123  60%
Satellite and Telco    28,193  21%  32,403  34%   63,345  24%   52,201  29%
Broadcast and Media    41,661  31%  10,035  10%   83,424  31%   19,042  11%
                     -------- ---  ------- ---  -------- ---  -------- ---
Total                $133,996 100% $95,544 100% $266,831 100% $180,366 100%
                     ========      =======      ========      ========

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, severance charges, acquisition related costs, discrete tax items and adjustments and non-cash items, such as stock-based compensation expense and amortization of intangibles.



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

                                       Three months ended
                      ----------------------------------------------------
                             July 1, 2011               July 2, 2010
                      --------------------------  ------------------------
                       Gross   Operating   Net    Gross  Operating  Net
                       Profit   Expense   Income  Profit  Expense  Income
                      -------- --------  -------  ------- -------  -------
                            (In thousands, except per share amounts)
GAAP                  $ 61,828 $ 60,435  $   390  $45,682 $41,585  $ 4,445
Cost of revenue related
 to stock-based
 compensation expense      762        -      762      527       -      527
Research and
 development expense
 related to stock-based
 compensation expense        -   (1,771)   1,771        -  (1,158)   1,158
Selling, general and
 administrative
 expense related to
 stock-based
 compensation expense        -   (2,559)   2,559        -  (1,734)   1,734
Selling, general and
 administrative
 expense related to
 severance costs             -        -        -        -    (207)     207
Acquisition costs
 related to Omneon           -        -        -        -  (2,389)   2,389
Amortization of
 intangibles             5,491   (2,230)   7,721    2,082    (534)   2,616
Discrete tax items
 and adjustments             -        -   (2,717)       -       -   (3,957)
                      -------- --------  -------  ------- -------  -------
Non-GAAP              $ 68,081 $ 53,875  $10,486  $48,291 $35,563  $ 9,119
                      ======== ========  =======  ======= =======  =======
GAAP net income per
 share - basic                           $  0.00                   $  0.05
                                         =======                   =======
GAAP net income per
 share - diluted                         $  0.00                   $  0.05
                                         =======                   =======
Non-GAAP net income
 per share - basic                       $  0.09                   $  0.09
                                         =======                   =======
Non-GAAP net income
 per share - diluted                     $  0.09                   $  0.09
                                         =======                   =======
Shares used in per
 share calculation -
 basic                                   114,939                    96,998
                                         =======                   =======
Shares used in per
 share calculation -
 diluted                                 116,298                    97,570
                                         =======                   =======


                                        Six months ended
                      ----------------------------------------------------
                             July 1, 2011               July 2, 2010
                      --------------------------  ------------------------
                       Gross   Operating   Net    Gross  Operating  Net
                       Profit   Expense   Income  Profit  Expense  Income
                      -------- --------  -------  ------- -------  -------
GAAP                  $123,683 $122,377  $   906  $86,487 $79,929  $ 9,764
Cost of revenue related
 to stock-based
 compensation expense    1,509        -    1,509    1,005       -    1,005
Research and
 development expense
 related to stock-based
 compensation expense        -   (3,607)   3,607        -  (2,266)   2,266
Selling, general and
 administrative
 expense related to
 stock-based
 compensation expense        -   (5,978)   5,978        -  (3,391)   3,391
Selling, general and
 administrative
 expense related to
 excess facility
 costs, severance
 costs and other
 non-recurring
 expenses                    -     (409)     409        -    (207)     207
Acquisition costs
 related to Omneon           -        -        -        -  (2,389)   2,389
Amortization of
 intangibles            10,633   (4,459)  15,092    4,164  (1,067)   5,231
Discrete tax items
 and adjustments             -        -   (6,755)       -       -   (9,302)
                      -------- --------  -------  ------- -------  -------
Non-GAAP              $135,825 $107,924  $20,746  $91,656 $70,609  $14,951
                      ======== ========  =======  ======= =======  =======
GAAP net income per
 share - basic                           $  0.01                   $  0.10
                                         =======                   =======
GAAP net income per
 share - diluted                         $  0.01                   $  0.10
                                         =======                   =======
Non-GAAP net income
 per share - basic                       $  0.18                   $  0.15
                                         =======                   =======
Non-GAAP net income
 per share - diluted                     $  0.18                   $  0.15
                                         =======                   =======
Shares used in per
 share calculation -
 basic                                   114,387                    96,845
                                         =======                   =======
Shares used in per
 share calculation -
 diluted                                 116,143                    97,529
                                         =======                   =======



                               Harmonic Inc.
                       Proforma Revenue Information
                                (Unaudited)


                                  Three months ended
            ---------------------------------------------------------------
             April 2, 2010   July 2, 2010 October 1, 2010 December 31, 2010
            --------------- --------------- --------------- ---------------
                           (In thousands, except percentages)
Product
Video
 Processing $ 38,890    34% $ 49,998    39% $ 51,005    39% $ 63,005    45%
Production
 and
 Playout      24,828    22%   26,589    21%   26,024    20%   27,699    20%
Edge and
 Access       35,544    32%   34,263    27%   34,712    27%   30,787    22%
Services
 and
 Support      13,777    12%   16,623    13%   17,760    14%   17,514    13%
            -------- -----  -------- -----  -------- -----  -------- -----
Total       $113,039   100% $127,473   100% $129,501   100% $139,005   100%
            ========        ========        ========        ========

Geography
United
 States     $ 49,632    44% $ 65,456    51% $ 62,415    48% $ 64,230    46%
Inter-
 national     63,407    56%   62,017    49%   67,086    52%   74,775    54%
            -------- -----  -------- -----  -------- -----  -------- -----
Total       $113,039   100% $127,473   100% $129,501   100% $139,005   100%
            ========        ========        ========        ========

Market
Cable       $ 56,441    50% $ 53,555    42% $ 63,419    49% $ 65,817    47%
Satellite
 and Telco    25,030    22%   36,218    28%   28,212    22%   28,455    21%
Broadcast
 and Media    31,568    28%   37,700    30%   37,870    29%   44,733    32%
            -------- -----  -------- -----  -------- -----  -------- -----
Total       $113,039   100% $127,473   100% $129,501   100% $139,005   100%
            ========        ========        ========        ========


              Year ended          Three months ended
            --------------- -------------------------------
          December 31, 2010   April 1, 2011  July 1, 2011
            --------------- --------------- ---------------
                  (In thousands, except percentages)
Product
Video
 Processing $202,898    40% $ 63,758    47% $ 51,525    38%
Production
 and
 Playout     105,140    21%   22,408    17%   25,453    19%
Edge and
 Access      135,306    26%   31,176    23%   40,178    30%
Services
 and
 Support      65,674    13%   17,566    13%   16,840    13%
            -------- -----  -------- -----  -------- -----
Total       $509,018   100% $134,908   100% $133,996   100%
            ========        ========        ========

Geography
United
 States     $241,733    47% $ 60,608    45% $ 55,578    41%
Inter-
 national    267,285    53%   74,300    55%   78,418    59%
            -------- -----  -------- -----  -------- -----
Total       $509,018   100% $134,908   100% $133,996   100%
            ========        ========        ========

Market
Cable       $239,232    47% $ 55,950    42% $ 64,142    48%
Satellite
 and Telco   117,915    23%   35,388    26%   28,193    21%
Broadcast
 and Media   151,871    30%   43,570    32%   41,661    31%
            -------- -----  -------- -----  -------- -----
Total       $509,018   100% $134,908   100% $133,996   100%
            ========        ========        ========

Note: Data includes a full quarter proforma revenue for Omneon, including
certain deferred revenue excluded in reported results, for the periods
prior to the three months ended July 1, 2011. We have revised our market
categories to combine 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