SOURCE: Harmonic Inc.

Harmonic Inc.

July 27, 2015 16:02 ET

Harmonic Announces Second Quarter 2015 Results

SAN JOSE, CA--(Marketwired - July 27, 2015) - Harmonic Inc. (NASDAQ: HLIT), the worldwide leader in video delivery infrastructure, announced today its preliminary and unaudited results for the second quarter of 2015.

Net revenue for the second quarter of 2015 was $103.1 million, compared with $104.0 million for the first quarter of 2015 and $109.6 million for the second quarter of 2014.

Bookings for the second quarter of 2015 were $99.3 million, compared with $97.3 million for the first quarter of 2015 and $113.4 million for the second quarter of 2014.

Total backlog and deferred revenue was $120.6 million as of July 3, 2015, compared to $122.2 million as of April 3, 2015.

GAAP net loss for the second quarter of 2015 was $(1.0) million, or $(0.01) per diluted share, compared with a GAAP net loss for the first quarter of 2015 of $(2.7) million, or $(0.03) per diluted share, and a GAAP net loss of $(37.1) million, or $(0.39) per diluted share, for the second quarter of 2014.

Non-GAAP net income for the second quarter of 2015 was $4.2 million, or $0.05 per diluted share, compared with a non-GAAP net income for the first quarter of 2015 of $4.5 million, or $0.05 per diluted share, and a non-GAAP net income of $1.8 million, or $0.02 per diluted share, for the second quarter of 2014. See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Reconciliations" below.

GAAP gross margin was 52.7% and GAAP operating margin was (0.3)% for the second quarter of 2015, compared with 52.9% and 0.01%, respectively, for the first quarter of 2015, and 45.5% and (7.9)%, respectively, for the same period in 2014.

Non-GAAP gross margin was 53.2% and non-GAAP operating margin was 5.1% for the second quarter of 2015, compared with 53.9% and 5.9%, respectively, for the first quarter of 2015, and 50.1% and 2.2%, respectively, for the same period in 2014. See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Reconciliations" below.

Total cash, cash equivalents and short-term investments were $105.1 million at the end of the second quarter of 2015, up $3.2 million from $101.9 million at the end of the prior quarter. In the second quarter of 2015, the Company generated approximately $11.6 million of cash from operations, and used approximately $7.0 million to repurchase approximately one million shares of common stock under its share repurchase program.

"Year-over-year earnings growth and margin expansion was driven by our Video business, as demand for our new VOS platform accelerated," said Patrick Harshman, President and CEO of Harmonic. "Cable edge segment revenue softened off of a record Q1 as cable industry demand slowed. Consequently, our near-term outlook on cable industry spending is cautious, although we remain confident in mid-to-longer-term cable demand trends and in our CCAP growth strategy. Looking ahead at our Video business, which addresses a wider array of customer verticals, we are encouraged by the competitive momentum of our new VOS offering and associated growth opportunities. We remain resolved to delivering earnings growth and enhanced shareholder value."

Business Outlook

For the third quarter of 2015, Harmonic anticipates:

  • Net revenue in the range of $92 million to $102 million
  • GAAP gross margins in the range of 53% to 54%
  • GAAP operating expenses in the range of $54 million to $55 million
  • Non-GAAP gross margins in the range of 53% to 54%
  • Non-GAAP operating expenses in the range of $49 million to $50 million

See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Reconciliations" below.

Conference Call Information

Harmonic will host a conference call to discuss its financial results at 2:00 p.m. Pacific (5:00 p.m. Eastern) on Monday, July 27, 2015. A listen-only broadcast of the conference call can be accessed either from the Company's website at www.harmonicinc.com or by calling +1.847.619.6547 or +1.888.895.5271 (passcode 40109041). A replay of the conference call will be available after 4:30 p.m. Pacific at the same website address or by calling +1.630.652.3042 or +1.888.843.7419 (passcode 40109041#).

About Harmonic Inc.
Harmonic (NASDAQ: HLIT) is the worldwide leader in video delivery infrastructure for emerging television and video services. Harmonic enables customers to produce, deliver, and monetize amazing video experiences, with unequalled business agility and operational efficiency, by providing market-leading innovation, high-quality service, and compelling total-cost-of-ownership. 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 3, 2015 and our expectations concerning quarter-on-quarter growth; and net revenue, GAAP gross margins, GAAP operating expenses, non-GAAP gross margins and non-GAAP operating expenses for the third quarter of 2015. 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, in no particular order, the following: the trends toward more high-definition, on-demand and anytime, anywhere video will not continue to develop at its current pace or will expire; a strong U.S. dollar may have a negative impact on our business in certain international markets; the possibility that our products will not generate sales that are commensurate with our expectations or that our cost of revenue or operating expenses may exceed 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 on our sales and operations; our ability to develop new and enhanced products in a timely manner and market acceptance of our new or existing products; losses of one or more key customers; risks associated with our international operations, including in Ukraine; risks associated with our CCAP and VOS™ product initiatives, dependence on market acceptance of various types of broadband services, on the adoption of new broadband technologies and on broadband industry trends; 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, on both revenue and gross margins; difficulties associated with rapid technological changes in our markets; risks associated with unpredictable sales cycles; our dependence on contract manufacturers and sole or limited source suppliers; the effect on our business of natural disasters; and the risk that our share repurchase program will not continue to result in material purchases of our common stock. 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 most recent Quarterly Report on Form 10-Q for the quarterly period ended April 3, 2015 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.

Use of Non-GAAP Financial Measures
In establishing operating budgets, managing its business performance, and setting internal measurement targets, we exclude 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 profit, operating expenses, income (loss) from operations and net income (loss) (including those amounts as a percentage of revenue), and net income (loss) per diluted 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 provided with this press release. The non-GAAP adjustments described below have historically been excluded from our GAAP financial measures. These adjustments are restructuring and related charges, impairment of long-term investment and non-cash items, such as stock-based compensation expense, amortization of intangibles, and adjustments that normalize the tax rate. With respect to our expectations under "Business Outlook" above, reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available without unreasonable efforts on a forward-looking basis due to the high variability and low visibility with respect to the charges which are excluded from these non-GAAP measures. The effects of stock-based compensation expense specific to common stock options are directly impacted by unpredictable fluctuations in our stock price. We expect the variability of the above charges to have a significant impact on our GAAP financial results.

  
Harmonic Inc. 
Condensed Consolidated Balance Sheets 
(Unaudited) 
  
   July 3, 2015   December 31, 2014  
   (In thousands, except par value amounts)  
ASSETS           
Current assets:           
Cash and cash equivalents  $76,049   $73,032  
Short-term investments   29,034    31,847  
Accounts receivable, net   76,079    74,144  
Inventories   31,241    32,747  
Deferred income taxes, short-term   3,375    3,375  
Prepaid expenses and other current assets   30,118    17,539  
Total current assets   245,896    232,684  
            
Property and equipment, net   27,087    27,221  
Goodwill, intangibles and other assets   216,235    220,613  
Total assets  $489,218   $480,518  
            
LIABILITIES AND STOCKHOLDERS' EQUITY           
Current liabilities:           
Accounts payable  $21,286   $15,318  
Income taxes payable   112    893  
Deferred revenue   46,922    38,601  
Accrued liabilities   29,985    35,118  
Total current liabilities   98,305    89,930  
            
Income taxes payable, long-term   4,923    4,969  
Deferred tax liabilities, long-term   3,095    3,095  
Other non-current liabilities   11,679    10,711  
Total liabilities   118,002    108,705  
            
Stockholders' equity:           
Preferred stock, $0.001 par value, 5,000 shares authorized; no shares issued or outstanding   -    -  
Common stock, $0.001 par value, 150,000 shares authorized; 88,485 and 87,700 shares issued and outstanding at July 3, 2015 and December 31, 2014, respectively   88    88  
Additional paid-in capital   2,264,312    2,261,952  
Accumulated deficit   (1,891,898 )  (1,888,247 )
Accumulated other comprehensive loss   (1,286 )  (1,980 )
Total stockholders' equity   371,216    371,813  
Total liabilities and stockholders' equity  $489,218   $480,518  
         
  
Harmonic Inc. 
Condensed Consolidated Statements of Operations 
(Unaudited) 
  
   Three months ended   Six months ended  
   July 3, 2015   June 27, 2014   July 3, 2015   June 27, 2014  
   (in thousands, except per share amounts)  
Net revenue  $103,103   $109,589   $207,119   $217,621  
Cost of revenue   48,718    59,772    97,706    115,492  
Gross profit   54,385    49,817    109,413    102,129  
Operating expenses:                     
Research and development   21,816    23,485    44,145    47,373  
Selling, general and administrative   31,281    32,979    62,477    66,526  
Amortization of intangibles   1,446    1,718    2,892    3,668  
Restructuring and related charges   185    284    229    433  
Total operating expenses   54,728    58,466    109,743    118,000  
Loss from operations   (343 )  (8,649 )  (330 )  (15,871 )
Interest and other income (expense), net   76    (60 )  (375 )  29  
Loss on impairment of long-term investment   -    -    (2,505 )  -  
Loss before income taxes   (267 )  (8,709 )  (3,210 )  (15,842 )
Provision for income taxes   727    28,353    441    26,630  
Net loss  $(994 ) $(37,062 ) $(3,651 ) $(42,472 )
Net loss per share:                     
Basic and diluted  $(0.01 ) $(0.39 ) $(0.04 ) $(0.44 )
Shares used in per share calculation:                     
Basic and diluted   88,426    93,966    88,541    95,899  
                 
  
Harmonic Inc. 
Condensed Consolidated Statements of Cash Flows 
(Unaudited) 
  
   Six months ended  
   July 3, 2015   June 27, 2014  
   (In thousands)  
Cash flows from operating activities:           
Net loss  $(3,651 ) $(42,472 )
Adjustments to reconcile net loss to net cash provided by operating activities:           
Amortization of intangibles   3,439    12,866  
Depreciation   6,930    8,486  
Stock-based compensation   8,018    8,368  
Loss on impairment of long-term investment   2,505    -  
Deferred income taxes   -    27,407  
Provision for excess and obsolete inventories   843    1,377  
Allowance for doubtful accounts, returns and discounts   (179 )  600  
Excess tax benefits from stock-based compensation   (22 )  (304 )
Other non-cash adjustments, net   252    847  
Changes in assets and liabilities:           
Accounts receivable   (1,756 )  (5,485 )
Inventories   663    5,379  
Prepaid expenses and other assets   (12,893 )  (2,424 )
Accounts payable   6,415    2,324  
Deferred revenue   9,833    10,873  
Income taxes payable   (815 )  562  
Accrued and other liabilities   (5,994 )  (1,625 )
Net cash provided by operating activities   13,588    26,779  
Cash flows from investing activities:           
Purchases of investments   (12,986 )  (26,599 )
Proceeds from sales and maturities of investments   15,744    30,846  
Purchases of property and equipment   (7,505 )  (6,479 )
Purchases of long-term investments   (85 )  -  
Net cash used in investing activities   (4,832 )  (2,232 )
Cash flows from financing activities:           
Payments for repurchase of common stock   (12,171 )  (54,751 )
Net proceeds from (repurchases of) common stock issued to employees   6,491    (1,272 )
Excess tax benefits from stock-based compensation   22    304  
Net cash used in financing activities   (5,658 )  (55,719 )
Effect of exchange rate changes on cash and cash equivalents   (81 )  16  
Net increase (decrease) in cash and cash equivalents   3,017    (31,156 )
Cash and cash equivalents at beginning of period   73,032    90,329  
Cash and cash equivalents at end of period  $76,049   $59,173  
         
  
Harmonic Inc. 
Revenue Information 
(Unaudited) 
  
   Three months ended   Six months ended  
   July 3, 2015   June 27, 2014*   July 3, 2015   June 27, 2014*  
   (In thousands, except percentages)  
Product                                 
Video Products(1)  $56,096  54 % $57,196  52 % $104,810  50 % $121,214  55 %
Cable Edge   21,351  21 %  29,332  27 %  53,110  26 %  53,574  25 %
Services and Support   25,656  25 %  23,061  21 %  49,199  24 %  42,833  20 %
Total  $103,103  100 % $109,589  100 % $207,119  100 % $217,621  100 %
                                  
Geography                                 
Americas(2)  $60,342  58 % $60,066  55 % $120,860  58 % $124,952  57 %
EMEA   27,360  27 %  31,519  29 %  52,033  25 %  55,706  26 %
APAC   15,401  15 %  18,004  16 %  34,226  17 %  36,963  17 %
Total  $103,103  100 % $109,589  100 % $207,119  100 % $217,621  100 %
                                  
Market                                 
Service Provider(3)  $64,041  62 % $75,048  68 % $132,015  64 % $146,558  67 %
Broadcast and Media   39,062  38 %  34,541  32 %  75,104  36 %  71,063  33 %
Total  $103,103  100 % $109,589  100 % $207,119  100 % $217,621  100 %
                         

(1) Video Products now include Video Processing and Production and Playout.
(2) Americas now include U.S., Canada and Latin America.
(3) Service Provider now includes Cable and Satellite and Telco.
* NOTE : The prior period information has been reclassified to conform to the current period presentation.

  
Harmonic Inc. 
Segment Revenue and Operating Income (Loss) 
(Unaudited) 
  
   Three months ended   Six months ended  
   July 3, 2015   June 27, 2014   July 3, 2015   June 27, 2014  
   (In thousands)  
Net revenue:                     
 Video  $78,207   $77,311   $147,489   $158,463  
 Cable Edge   24,896    32,278    59,630    59,158  
Total consolidated net revenue  $103,103   $109,589   $207,119   $217,621  
                      
Operating income (loss):                     
 Video  $4,901   $382   $4,811   $2,817  
 Cable Edge   357    2,014    6,545    3,058  
Total segment operating income   5,258    2,396    11,356    5,875  
Unallocated corporate expenses*   (185 )  (284 )  (229 )  (512 )
Stock-based compensation   (3,884 )  (4,561 )  (8,018 )  (8,368 )
Amortization of intangibles   (1,532 )  (6,200 )  (3,439 )  (12,866 )
Income (loss) from operations   (343 )  (8,649 )  (330 )  (15,871 )
Non-operating income (expense)   76    (60 )  (2,880 )  29  
Loss before income taxes  $(267 ) $(8,709 ) $(3,210 ) $(15,842 )
                 

*Unallocated corporate expenses include certain corporate-level operating expenses and charges such as restructuring and related charges.

  
Harmonic Inc. 
GAAP to Non-GAAP Reconciliations (Unaudited) 
(In thousands, except percentages and per share data) 
  
   Three months ended  
   July 3, 2015  
   Gross Profit   Total Operating Expense   Income (Loss) from Operations   Net Income (Loss)  
GAAP  $54,385   $54,728   $(343 ) $(994 )
 Stock-based compensation in cost of revenue   422    -    422    422  
 Stock-based compensation in research and development   -    (1,027 )  1,027    1,027  
 Stock-based compensation in selling, general and administrative   -    (2,435 )  2,435    2,435  
 Amortization of intangibles   86    (1,446 )  1,532    1,532  
 Restructuring and related charges   -    (185 )  185    185  
 Discrete tax items and tax effect of non-GAAP adjustments   -    -    -    (393 )
Non-GAAP  $54,893   $49,635   $5,258   $4,214  
 As a % of revenue (GAAP)   52.7 %  53.1 %  (0.3 )%  (1.0 )%
 As a % of revenue (Non-GAAP)   53.2 %  48.1 %  5.1 %  4.1 %
                      
Diluted net income (loss) per share:                     
 Diluted net loss per share-GAAP                 $(0.01 )
 Diluted net income per share-Non-GAAP                 $0.05  
Shares used to compute diluted net income (loss) per share:                     
 GAAP                  88,426  
 Non-GAAP                  89,444  
                      
   Three months ended  
   April 3, 2015  
   Gross Profit   Total Operating Expense   Income from Operations   Net Income (Loss)  
GAAP  $55,028   $55,015   $13   $(2,657 )
 Stock-based compensation in cost of revenue   528    -    528    528  
 Stock-based compensation in research and development   -    (1,148 )  1,148    1,148  
 Stock-based compensation in selling, general and administrative   -    (2,458 )  2,458    2,458  
 Amortization of intangibles   461    (1,446 )  1,907    1,907  
 Restructuring and related charges   -    (44 )  44    44  
 Loss on impairment of long-term investment   -    -    -    2,505  
 Discrete tax items and tax effect of non-GAAP adjustments   -    -    -    (1,472 )
Non-GAAP  $56,017   $49,919   $6,098   $4,461  
 As a % of revenue (GAAP)   52.9 %  52.9 %  0.01 %  (2.6 )%
 As a % of revenue (Non-GAAP)   53.9 %  48.0 %  5.9 %  4.3 %
Diluted net income (loss) per share:                     
 Diluted net loss per share-GAAP                 $(0.03 )
 Diluted net income per share-Non-GAAP                 $0.05  
Shares used to compute diluted net income (loss) per share:                     
 GAAP                  88,655  
 Non-GAAP                  90,100  
                      
   Three months ended  
   June 27, 2014  
   Gross Profit   Total Operating Expense   Income (Loss) from Operations   Net Income (Loss)  
GAAP  $49,817   $58,466   $(8,649 ) $(37,062 )
 Stock-based compensation in cost of revenue   623    -    623    623  
 Stock-based compensation in research and development   -    (1,269 )  1,269    1,269  
 Stock-based compensation in selling, general and administrative   -    (2,669 )  2,669    2,669  
 Amortization of intangibles   4,482    (1,718 )  6,200    6,200  
 Restructuring and related charges   -    (284 )  284    284  
 Discrete tax items and tax effect of non-GAAP adjustments   -    -    -    27,863  
Non-GAAP  $54,922   $52,526   $2,396   $1,846  
 As a % of revenue (GAAP)   45.5 %  53.4 %  (7.9 )%  (33.8 )%
 As a % of revenue (Non-GAAP)   50.1 %  47.9 %  2.2 %  1.7 %
Diluted net income (loss) per share:                     
 Diluted net loss per share-GAAP                 $(0.39 )
 Diluted net income per share-Non-GAAP                 $0.02  
Shares used to compute diluted net income (loss) per share:                     
 GAAP                  93,966  
 Non-GAAP                  95,294  
                  

Contact Information

  • CONTACTS:

    Carolyn V. Aver
    Chief Financial Officer
    Harmonic Inc.
    +1.408.542.2500

    Blair King
    Director, Investor Relations
    Harmonic Inc.
    +1.408.490.6172