Press Release

Harmonic Announces Second Quarter 2012 Results

SAN JOSE, Calif. -- July 24, 2012 -- Harmonic Inc. (NASDAQ: HLIT), a global leader in video infrastructure solutions, announced today its preliminary and unaudited results for the quarter ended June 29, 2012.

Net revenue for the second quarter of 2012 was $132.6 million, compared to $127.7 million for the first quarter of 2012 and $134.0 million for the second quarter of 2011.

Total bookings in the second quarter of 2012 were approximately $139.5 million, up 6% from approximately $131.7 million for the second quarter of 2011.  Total backlog and deferred revenue was $146.0 million as of June 29, 2012, compared with $122.0 million as of July 1, 2011.

The company reported a GAAP net income for the second quarter of 2012 of $17,000, or $0.00 per share, compared to a GAAP net income for the second quarter of 2011 of $0.4 million or $0.00 per share.  Non-GAAP net income for the second quarter of 2012 was $7.2 million, or $0.06 per share, compared to $10.5 million, or $0.09 per share for the second quarter of 2011.  See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Net Income (Loss) Reconciliation" below.

Harmonic reported GAAP gross margins of 43% and GAAP operating margins of (2%) for the second quarter of 2012, compared to 46% and 1%, respectively, for the same period of 2011. Non-GAAP gross margins were 48% and non-GAAP operating margins were 7% for the second quarter of 2012, compared to 51% and 11%, respectively, for the same period of 2011.

As of June 29, 2012, the Company had cash, cash equivalents and short-term investments of $177.8 million, an increase from $168.5 million as of March 30, 2012.  The company generated approximately $20.3 million of cash from operations in the second quarter of 2012 and repurchased 1.6 million shares of common stock for approximately $7.0 million, under its previously announced stock repurchase program.

"The second quarter was in-line with expectations and reflective of increased demand from US and most international geographies offset by continuing weakness in Europe," said Patrick Harshman, president and chief executive officer. "Our book-to-bill ratio is indicative of our strong competitive position and increasing system project wins that typically take several periods to fully recognize as revenue. The quarter was also characterized by greater than 25 new multiscreen wins and positive customer feedback on our in-development CCAP program. Looking ahead, our new product initiatives, our broad and growing customer base, and our continuing focus on operational excellence position Harmonic well for the future."

Business Outlook

Harmonic anticipates net revenue in the range of $130 million to $140 million for the third quarter of 2012.  GAAP gross margins and operating expenses for the third quarter of 2012 are expected to be in the range of 43% to 45% and $61 million to $62 million, respectively.  Non-GAAP gross margins and operating expenses for the third quarter of 2012, which will exclude stock-based compensation and the amortization of intangibles, are anticipated to be in the range of 47.5% to 49.5% and $55 million to $56 million, respectively.  

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 Tuesday, July 24, 2012. A listen-only broadcast of the conference call can be accessed either from the Company's website at www.harmonicinc.com or by calling +1.847.944.7317 (conference confirmation number 32828770). The replay will be available after 6:00 p.m. Pacific at the same website address or by calling +1.630.652.3042 (pass code 9176742#).

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 June 29, 2012; , regarding  continuing weakness in Europe; regarding our strong competitive position and increasing system project wins; regarding positive customer feedback on our in-development CCAP program; regarding that Harmonic is well positioned for the future due to its new product initiatives, broad and growing customer base, and continuing focus on operational excellence; and regarding net revenue, GAAP gross margins, GAAP operating expenses, non-GAAP gross margins and non-GAAP operating expenses for the third quarter of 2012. 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: the trends toward more high-definition, on-demand and anytime, anywhere video will not continue to develop at its current pace or will expire; 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, 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 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, on both revenue and gross margins; 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; 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, 2011 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.

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 margin, operating expenses, 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 and severance charges and non-cash items, such as stock-based compensation expense, amortization of intangibles, and discrete tax items and adjustments.

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