SOURCE: Harmonic Inc.

Harmonic Inc.

October 27, 2011 16:33 ET

Harmonic Announces Third Quarter 2011 Results

Quarterly Revenue up 7% Year-Over-Year on Pro Forma Basis; Driven by Video Processing Wins With Leading Media Companies and Service Providers Worldwide

SAN JOSE, CA--(Marketwire - Oct 27, 2011) - Harmonic Inc. (NASDAQ: HLIT), a global leader in video infrastructure solutions, today announced its preliminary and unaudited results for the quarter ended September 30, 2011. Results for 2011 include full quarterly contributions from Omneon Inc., and results for the third quarter of 2010 include two weeks of contributions from Omneon, which was acquired on September 15, 2010.

Net revenue for the third quarter of 2011 was $138.9 million, up from $104.8 million in the third quarter of 2010. International sales represented 51% of total revenue for the third quarter of 2011. For the first nine months of 2011, net revenue was $405.7 million, up from $285.1 million in the same period of 2010. Total bookings in the third quarter of 2011 were approximately $141.4 million, up from approximately $107.5 million for the third quarter of 2010.

The Company reported GAAP net income for the third quarter of 2011 of $3.5 million, or $0.03 per diluted share, compared to a net loss of $0.4 million, or ($0.00) per diluted share, for the third quarter of 2010. For the first nine months of 2011, GAAP net income was $4.5 million, or $0.04 per diluted share, compared to $9.4 million, or $0.10 per diluted share, for the same period of 2010.

Non-GAAP net income for the third quarter of 2011 was $12.7 million, or $0.11 per diluted share, compared to $9.0 million, or $0.09 per diluted share, for the same period of 2010. For the first nine months of 2011, non-GAAP net income was $33.5 million, or $0.29 per diluted share, compared to $23.9 million, or $0.24 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 third quarter of 2011, Harmonic had GAAP gross margins of 46% and GAAP operating margins of 3%, compared to 45% and 2%, respectively, for the same period of 2010. Non-GAAP gross margins and non-GAAP operating margins were 51% and 12%, respectively, for the third quarter of 2011, compared to 49% and 12%, respectively, for the same period of 2010.

As of September 30, 2011, the Company had cash, cash equivalents and short-term investments of $140.9 million, up from $134.3 million as of July 1, 2011.

"During the third quarter, we were pleased to see our domestic business rebound, up 24% from the previous quarter," said Patrick Harshman, President and Chief Executive Officer. "For the first nine months of 2011, our video processing revenue grew 23% from the same period last year. During the third quarter, we built on this momentum by introducing powerful new video products that will enable our global customers to move forward on a range of new Internet, multiscreen and traditional video services. We remain focused on further capitalizing on our broad technological and market leadership and profitably growing our business."

Business Outlook

Harmonic anticipates net revenue to be in the range of $135 million to $145 million for the fourth quarter of 2011. GAAP gross margins and operating expenses for the third quarter of 2011 are expected to be in the range of 44.5% to 46.5% and $57 million to $59 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 49.5% to 51.5% and $51 million to $53 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 51970042). 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 51970042).

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 third quarter ended September 30, 2011; our introduction of powerful new video products that will enable our global customers to move forward on a range of new Internet, multiscreen and traditional video services; our focus on capitalizing on our broad technological and market leadership and profitably growing our business; and net revenue, GAAP gross margins, GAAP operating expenses, non-GAAP gross margins and non-GAAP operating expenses for the fourth 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 and uncertainties 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 and 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 or that our cost of revenue or operating expenses may exceed our expectations; the mix of products and services sold in various geographies and various markets 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 as a result of recent turmoil in the global financial markets, particularly on our European and other international sales and operations; our ability to develop and introduce new and enhanced products and 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; risks associated with unpredictable sales cycles; our dependence on contract manufacturers and sole or limited source suppliers; the effect on Harmonic's business of natural disasters, such as the adverse impact of the recent floods in Thailand on the supply and price of disk drives and optical components used in the Company's products; 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)
September 30, 2011 December 31, 2010
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 75,235 $ 96,533
Short-term investments 65,648 23,838
Accounts receivable, net 116,429 101,652
Inventories 65,155 58,065
Deferred income taxes 39,849 39,849
Prepaid expenses and other current assets 22,133 28,614
Total current assets 384,449 348,551
Property and equipment, net 39,379 39,825
Goodwill, intangibles and other assets 309,612 332,010
Total assets $ 733,440 $ 720,386
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 30,918 $ 26,300
Income taxes payable 655 6,791
Deferred revenue 37,125 46,279
Accrued liabilities 39,761 51,283
Total current liabilities 108,459 130,653
Income taxes payable, long-term 49,855 48,883
Deferred income taxes, long-term 12,570 14,849
Other non-current liabilities 8,502 5,798
Total liabilities 179,386 200,183
Stockholders' equity:
Common stock 2,427,116 2,397,783
Accumulated deficit (1,872,416 ) (1,876,868 )
Accumulated other comprehensive loss (646 ) (712 )
Total stockholders' equity 554,054 520,203
Total liabilities and stockholders' equity $ 733,440 $ 720,386
Harmonic Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
Three months ended Nine months ended
September 30, 2011 October 1, 2010 September 30, 2011 October 1, 2010
(In thousands, except per share amounts)
Net revenue $ 138,871 $ 104,784 $ 405,702 $ 285,149
Cost of revenue 74,910 57,252 218,058 151,130
Gross profit 63,961 47,532 187,644 134,019
Operating expenses:
Research and development 25,638 19,002 77,449 52,946
Selling, general and administrative 32,254 25,999 98,361 70,917
Amortization of intangibles 2,229 959 6,688 2,026
Total operating expenses 60,121 45,960 182,498 125,889
Income from operations 3,840 1,572 5,146 8,130
Interest and other income (expense), net 471 (240 ) 231 71
Income before income taxes 4,311 1,332 5,377 8,201
Provision for (benefit from) income taxes 765 1,693 925 (1,202 )
Net income (loss) $ 3,546 $ (361 ) $ 4,452 $ 9,403
Net income (loss) per share:
Basic $ 0.03 $ (0.00 ) $ 0.04 $ 0.10
Diluted $ 0.03 $ (0.00 ) $ 0.04 $ 0.10
Weighted average shares:
Basic 115,791 100,246 114,855 97,975
Diluted 116,208 100,246 116,005 98,672
Harmonic Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended
September 30, 2011 October 1, 2010
(In thousands)
Cash flows from operating activities:
Net income $ 4,452 $ 9,403
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of intangibles 22,767 8,904
Depreciation 10,306 6,696
Stock-based compensation 16,099 10,180
Net loss on disposal of fixed assets 450 73
Deferred income taxes (2,218 ) (57 )
Other non-cash adjustments, net 564 1,344
Changes in assets and liabilities:
Accounts receivable, net (14,783 ) (10,531 )
Inventories (7,157 ) (11,088 )
Prepaid expenses and other assets 7,176 (1,786 )
Accounts payable 5,117 (1,898 )
Deferred revenue (9,610 ) 994
Income taxes payable (5,927 ) (104 )
Accrued excess facility costs 120 (5,230 )
Accrued and other liabilities (6,967 ) (5,688 )
Net cash provided by operating activities 20,389 1,212
Cash flows from investing activities:
Purchases of investments (76,164 ) (39,035 )
Proceeds from sales and maturities of investments 33,770 116,298
Acquisition of property and equipment (12,373 ) (29,837 )
Acquisition of Omneon - (153,254 )
Other acquisitions (250 ) -
Net cash used in investing activities (55,017 ) (105,828 )
Cash flows from financing activities:
Proceeds from lease financing liability - 18,833
Proceeds from issuance of common stock, net 13,301 3,918
Net cash provided by financing activities 13,301 22,751
Effect of exchange rate changes on cash and cash equivalents 29 (89 )
Net decrease in cash and cash equivalents (21,298 ) (81,954 )
Cash and cash equivalents at beginning of period 96,533 152,477
Cash and cash equivalents at end of period $ 75,235 $ 70,523
Harmonic Inc.
Revenue Information
(Unaudited)
Three months ended Nine months ended
September 30, 2011 October 1, 2010 September 30, 2011 October 1, 2010
(In thousands, except percentages)
Product
Video Processing $ 57,027 41 % $ 51,005 49 % $ 172,310 42 % $ 139,893 49 %
Production and Playout 26,619 19 % 4,880 5 % 73,005 18 % 4,880 2 %
Edge and Access 38,308 28 % 34,712 33 % 109,662 27 % 104,519 37 %
Services and Support 16,917 12 % 14,187 13 % 50,725 13 % 35,857 12 %
Total $ 138,871 100 % $ 104,784 100 % $ 405,702 100 % $ 285,149 100 %
Geography
United States $ 68,718 49 % $ 54,538 52 % $ 183,250 45 % $ 146,387 51 %
International 70,153 51 % 50,246 48 % 222,452 55 % 138,762 49 %
Total $ 138,871 100 % $ 104,784 100 % $ 405,702 100 % $ 285,149 100 %
Market
Cable $ 62,722 45 % $ 63,071 60 % $ 182,784 45 % $ 172,193 60 %
Satellite and Telco 33,974 25 % 25,385 24 % 97,319 24 % 77,586 27 %
Broadcast and Media 42,175 30 % 16,328 16 % 125,599 31 % 35,370 13 %
Total $ 138,871 100 % $ 104,784 100 % $ 405,702 100 % $ 285,149 100 %

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, amortization of intangibles and the fair value write-up of acquired inventories sold.

Harmonic Inc.
GAAP to Non-GAAP Net Income (Loss) Reconciliation
(Unaudited)
Three months ended
September 30, 2011 October 1, 2010
Gross Profit Operating Expense Net Income Gross Profit Operating Expense Net Income (Loss)
(In thousands, except per share amounts)
GAAP $ 63,961 $ 60,121 $ 3,546 $ 47,532 $ 45,960 $ (361 )
Cost of revenue related to stock-based compensation expense 843 - 843 516 - 516
Purchase accounting fair value adjustments related to inventory - - - 412 - 412
Research and development expense related to stock-based compensation expense - (1,658 ) 1,658 - (1,169 ) 1,169
Selling, general and administrative expense related to stock-based compensation expense - (2,504 ) 2,504 - (1,833 ) 1,833
Selling, general and administrative expense related to excess facility costs and severance costs - - - - (563 ) 563
Acquisition costs related to Omneon - - - - (3,303 ) 3,303
Amortization of intangibles 5,446 (2,229 ) 7,675 2,714 (959 ) 3,673
Discrete tax items and adjustments - - (3,483 ) - - (2,147 )
Non-GAAP $ 70,250 $ 53,730 $ 12,743 $ 51,174 $ 38,133 $ 8,961
GAAP net income (loss) per share - basic $ 0.03 $ (0.00 )
GAAP net income (loss) per share - diluted $ 0.03 $ (0.00 )
Non-GAAP net income per share - basic $ 0.11 $ 0.09
Non-GAAP net income per share - diluted $ 0.11 $ 0.09
Shares used in per share calculation - basic 115,791 100,246
Shares used in per share calculation - diluted, GAAP 116,208 100,246
Shares used in per share calculation - diluted, Non-GAAP 116,208 100,941
Nine months ended
September 30, 2011 October 1, 2010
Gross Profit Operating Expense Net Income Gross Profit Operating Expense Net Income
(In thousands, except per share amounts)
GAAP $ 187,644 $ 182,498 $ 4,452 $ 134,019 $ 125,889 $ 9,403
Cost of revenue related to stock-based compensation expense 2,352 - 2,352 1,521 - 1,521
Purchase accounting fair value adjustments related to inventory - - - 412 - 412
Research and development expense related to stock-based compensation expense - (5,265 ) 5,265 - (3,435 ) 3,435
Selling, general and administrative expense related to stock-based compensation expense - (8,482 ) 8,482 - (5,224 ) 5,224
Selling, general and administrative expense related to excess facility costs, severance costs and other non-recurring expenses - (409 ) 409 - (770 ) 770
Acquisition costs related to Omneon - - - - (5,692 ) 5,692
Amortization of intangibles 16,079 (6,688 ) 22,767 6,878 (2,026 ) 8,904
Discrete tax items and adjustments - - (10,238 ) - - (11,449 )
Non-GAAP $ 206,075 $ 161,654 $ 33,489 $ 142,830 $ 108,742 $ 23,912
GAAP net income per share - basic $ 0.04 $ 0.10
GAAP net income per share - diluted $ 0.04 $ 0.10
Non-GAAP net income per share - basic $ 0.29 $ 0.24
Non-GAAP net income per share - diluted $ 0.29 $ 0.24
Shares used in per share calculation - basic 114,855 97,975
Shares used in per share calculation - diluted, GAAP 116,005 98,672
Shares used in per share calculation - diluted, Non-GAAP 116,005 98,672
Harmonic Inc.
Proforma Revenue Information
(Unaudited)
Three months ended Year ended Three months ended
April 2, 2010 July 2, 2010 October 1, 2010 December 31, 2010 December 31, 2010 April 1, 2011 July 1, 2011 September 30, 2011
(In thousands, except percentages)
Product
Video Processing $ 38,890 34 % $ 49,998 39 % $ 51,005 39 % $ 63,005 45 % $ 202,898 40 % $ 63,758 47 % $ 51,525 38 % $ 57,027 41 %
Production and Playout 24,828 22 % 26,589 21 % 26,024 20 % 27,699 20 % 105,140 21 % 22,408 17 % 25,453 19 % 26,619 19 %
Edge and Access 35,544 32 % 34,263 27 % 34,712 27 % 30,787 22 % 135,306 26 % 31,176 23 % 40,178 30 % 38,308 28 %
Services and Support 13,777 12 % 16,623 13 % 17,760 14 % 17,514 13 % 65,674 13 % 17,566 13 % 16,840 13 % 16,917 12 %
Total $ 113,039 100 % $ 127,473 100 % $ 129,501 100 % $ 139,005 100 % $ 509,018 100 % $ 134,908 100 % $ 133,996 100 % $ 138,871 100 %
Geography
United States $ 49,632 44 % $ 65,456 51 % $ 62,415 48 % $ 64,230 46 % $ 241,733 47 % $ 60,608 45 % $ 55,578 41 % $ 68,718 49 %
International 63,407 56 % 62,017 49 % 67,086 52 % 74,775 54 % 267,285 53 % 74,300 55 % 78,418 59 % 70,153 51 %
Total $ 113,039 100 % $ 127,473 100 % $ 129,501 100 % $ 139,005 100 % $ 509,018 100 % $ 134,908 100 % $ 133,996 100 % $ 138,871 100 %
Market
Cable $ 56,441 50 % $ 53,555 42 % $ 63,419 49 % $ 65,817 47 % $ 239,232 47 % $ 55,950 42 % $ 64,142 48 % $ 62,722 45 %
Satellite and Telco 25,030 22 % 36,218 28 % 28,212 22 % 28,455 21 % 117,915 23 % 35,388 26 % 28,193 21 % 33,974 25 %
Broadcast and Media 31,568 28 % 37,700 30 % 37,870 29 % 44,733 32 % 151,871 30 % 43,570 32 % 41,661 31 % 42,175 30 %
Total $ 113,039 100 % $ 127,473 100 % $ 129,501 100 % $ 139,005 100 % $ 509,018 100 % $ 134,908 100 % $ 133,996 100 % $ 138,871 100 %
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.

Contact Information

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

    Michael Newman
    Investor Relations
    StreetConnect
    (408) 542-2760