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Harmonic Announces Fourth Quarter and Fiscal 2017 Results

SAN JOSE, Calif., Feb. 28, 2018 /PRNewswire/ -- Harmonic Inc. (NASDAQ: HLIT), the worldwide leader in video delivery technology and cable access virtualization, today announced its unaudited results for the fourth quarter and fiscal year ended December 31, 2017.

Harmonic logo (PRNewsfoto/Harmonic Inc.)

Q4 Financial and Business Highlights

  • GAAP revenue $101.0 million, up 9.7% sequentially; non-GAAP revenue $101.1 million, up 10.3% sequentially
  • Video segment revenue: GAAP and non-GAAP $87.6 million
  • Cable Edge segment revenue: GAAP $13.4 million; non-GAAP $13.5 million
  • Operating margin: GAAP (8.0)%; non-GAAP 1.5%
  • Announced first scale CableOS deployment, and world's first virtualized cable access network
  • CableOS deployments and advanced field trials now total >12
  • Second consecutive quarter of sequential Video segment revenue growth and >6.5% non-GAAP Video operating margin
  • Video SaaS ARR $9.1 million, up > 300% year-over-year
  • Bookings $122.9M up 28% sequentially, drove record backlog and deferred revenue of $224.4M
  • Generated $9 million cash from operations; ended quarter with $57 million cash and cash equivalents.

"Q4 was our highest revenue quarter of 2017, and our largest booking quarter in several years," said Patrick Harshman, president and chief executive officer of Harmonic. "We recently announced our first scale CableOS deployment, and now have over 12 CableOS commercial deployments and advanced field trials. In our Video segment, expanding success with our OTT streaming solutions enabled us to deliver our second consecutive quarter of profitable growth."

Select Financial Information


GAAP


Non-GAAP

Key Financial Results

Q4 2017


Q3 2017


Q4 2016


Q4 2017


Q3 2017


Q4 2016


(in millions, except per share data)

Net revenue

$

101.0


$

92.0


$

113.1


$

101.1


$

91.6


$

113.8

Net income (loss)

$

(11.8)


$

(15.6)


$

(10.4)


$

(0.4)


$

(0.5)


$

6.7

Diluted EPS

$

(0.14)


$

(0.19)


$

(0.13)


$

0.00


$

(0.01)


$

0.08










Other Financial Information

Q4 2017


Q3 2017


Q4 2016


(in millions)

Bookings for the quarter

$

122.9


$

96.0


$

116.9

Backlog and deferred revenue as of quarter end

$

224.4


$

200.9


$

188.4

Cash and short-term investments as of quarter end

$

57.0


$

50.0


$

62.6

Explanations regarding our use of non-GAAP financial measures and related definitions, and reconciliations of our GAAP and non-GAAP measures, are provided in the sections below entitled "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Reconciliations".

Q1 Financial Guidance and Outlook for 2018

GAAP Financial Guidance


Q1 2018


2018


Low


High


Low


High




(in millions, except percentages and per share data)

Net Revenue


$

83.0



$

93.0



$

380.0



$

430.0



Video


$

70.0



$

76.0



$

290.0



$

320.0



Cable Edge


$

13.0



$

17.0



$

90.0



$

110.0


Gross Margin %


48.0

%


49.5

%


48.5

%


51.0

%

Operating Expenses


$

55.1



$

57.1



$

214.3



$

222.3


Operating Income (Loss)


$

(17.4)



$

(8.9)



$

(38.1)



$

5.4


Tax Benefit (Expense)


$

(0.7)



$

(0.7)



$

(2.8)



$

(2.8)


EPS


$

(0.25)



$

(0.15)



$

(0.63)



$

(0.12)


Shares


84.3



84.3



86.0



86.0


Cash


$

45.0



$

55.0



$

45.0



$

55.0


 

Non-GAAP Financial Guidance


Q1 2018


2018


Low


High


Low


High




(in millions, except percentages and per share data)

Net Revenue


$

83.0



$

93.0



$

380.0



$

430.0



Video


$

70.0



$

76.0



$

290.0



$

320.0



Cable Edge


$

13.0



$

17.0



$

90.0



$

110.0


Gross Margin %


52.0

%


53.0

%


51.0

%


53.0

%

Operating Expenses


$

49.0



$

51.0



$

196.0



$

204.0


Operating Income (Loss)


$

(8.0)



$

0.5



$

(11.0)



$

32.5


Tax rate


16

%


16

%


16

%


16

%

EPS


$

(0.10)



$

(0.01)



$

(0.18)



$

0.25


Shares


84.3



84.3



86.0



86.6


Cash


$

45.0



$

55.0



$

45.0



$

55.0



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 Wednesday, February 28, 2018. A listen-only broadcast of the conference call can be accessed either from the Company's website at www.harmonicinc.com or by calling 1.574.990.1032 or +1.800.240.9147 (passcode 2263129). A replay will be available after 4:30 p.m. PT on the same web site or by calling +1.404.537.3406 or +1.855.859.2056 (passcode 2263129).

About Harmonic Inc.

Harmonic (NASDAQ: HLIT), the worldwide leader in video delivery technology and services, enables media companies and service providers to deliver ultra-high-quality broadcast and OTT video services to consumers globally. The Company has also revolutionized cable access networking via the industry's first virtualized CCAP solution, enabling cable operators to more flexibly deploy gigabit internet service to consumers' homes and mobile devices. Whether simplifying OTT video delivery via innovative cloud and software-as-a-service (SaaS) technologies, or powering the delivery of gigabit internet cable services, Harmonic is changing the way media companies and service providers monetize live and VOD content on every screen. 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: GAAP net revenue, GAAP gross margins, GAAP operating expenses, GAAP operating loss, GAAP tax expense, GAAP EPS, non-GAAP revenue, non-GAAP gross margins, non-GAAP operating expenses, non-GAAP operating income (loss), non-GAAP tax rate and non-GAAP EPS for the first quarter of 2018 and for the fiscal year ended December 31, 2018, and share count and cash at March 30, 2018 and December 31, 2018. 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; 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, telco, 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; exchange rate fluctuations of the currencies in which we conduct business; risks associated with our CableOS™ and VOS™ product solutions; 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; and the effect on our business of natural disasters. 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 Annual Report on Form 10-K for the year ended December 31, 2016, our most recent Quarterly Report 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.

Use of Non-GAAP Financial Measures

The Company reports its financial results in accordance with accounting principles generally accepted in the United States ("GAAP" or referred to herein as "reported"). However, management believes that certain non-GAAP financial measures provide management and other users with additional meaningful financial information that should be considered when assessing our ongoing performance. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business, establish operating budgets, set internal measurement targets and make operating decisions.

These non-GAAP measures are not in accordance with, or an alternative for, measures prepared in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. The Company believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Harmonic's results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Harmonic's results of operations in conjunction with the corresponding GAAP measures.

The Company believes that the presentation of non-GAAP measures when shown in conjunction with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to its financial condition and its historical and projected results of operations. Non-GAAP financial measures should be viewed in addition to, and not as an alternative to, the Company's reported results prepared in accordance with GAAP.

The non-GAAP measures presented here are: revenue, gross profit, operating expenses, income (loss) from operations, non-operating expenses 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.

Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects:

Cable Edge inventory charge - Harmonic from time to time incurs inventory impairment charges associated with material business shifts, such as the repositioning of our Cable Edge segment. We exclude these items, because we do not believe they are reflective of our ongoing long-term business and operating results.

Stock-based compensation - Although stock-based compensation is a key incentive offered to our employees, we continue to evaluate our business performance excluding stock-based compensation expenses. We believe that management is limited in its ability to project the impact stock-based compensation would have on our operating results. In addition, for comparability purposes, we believe it is useful to provide a non-GAAP financial measure that excludes stock-based compensation in order to better understand the long-term performance of our core business and to facilitate the comparison of our results to the results of our peer companies.

Amortization of intangibles - A portion of the purchase price of our acquisitions is generally allocated to intangible assets, and is subject to amortization. However, Harmonic does not acquire businesses on a predictable cycle. Additionally, the amount of an acquisition's purchase price allocated to intangible assets and the term of its related amortization can vary significantly and is unique to each acquisition. Therefore, we believe that the presentation of non-GAAP financial measures that adjust for the amortization of intangible assets provides investors and others with a consistent basis for comparison across accounting periods.

Restructuring and related charges - Harmonic from time to time incurs restructuring charges which primarily consist of employee severance, one-time termination benefits related to the reduction of its workforce, lease exit costs, and other costs.  These charges are associated with material business shifts. We exclude these items because we do not believe they are reflective of our ongoing long-term business and operating results.

TVN acquisition- and integration- related costs - As a result of the Company's acquisition of Thomson Video Networks (TVN) in February 2016, the Company incurred acquisition-and integration-related expenses, including legal, accounting and other professional services as well as integration-related costs that are not expected to generate future benefits once the integration is fully consummated. We exclude these transaction and integration expenses because we believe these expenses have no direct correlation to the operation of our business, and because we believe that the non-GAAP financial measures excluding these costs provide meaningful supplemental information regarding our operational performance and liquidity. In addition, excluding these costs from the non-GAAP measures facilitates comparisons to our historical operating results and comparisons to peer company operating results.

Inventory fair value adjustment - Purchase accounting requires us to measure acquired inventory at fair value. The fair value of inventory reflects the acquired company's cost of manufacturing plus a portion of the expected profit margin. The non-GAAP adjustments to our cost of revenues exclude the expected profit margin component that is recorded under purchase accounting associated with our acquisitions. We believe the adjustments are useful to investors as an additional means to reflect cost of revenues and gross margin trends of our business.

Deferred revenue fair value adjustment - We define non-GAAP net revenues as net revenues excluding the impact of purchase accounting. In connection with our acquisitions, the acquired deferred revenue balances were required to be written down due to purchase accounting in accordance with GAAP. The impact on revenues related to purchase accounting as a result of these transactions, limits the comparability of revenues between periods. We do not expect revenues generated from new contracts to be similarly impacted by purchase accounting adjustments. Accordingly, we believe presenting non-GAAP net revenues to exclude the impact of purchase accounting adjustments aids in the comparability between periods and in assessing our overall operating performance.

Non-cash interest expense related to convertible notes - We record the accretion of the debt discount related to the equity component and amortization of issuance costs as non-cash interest expense. We believe that excluding these costs provides meaningful supplemental information regarding operational performance and liquidity, along with enhancing investors' ability to view the Company's results from management's perspective. In addition, we believe excluding these costs from the non-GAAP measures facilitates comparisons to our historical operating results and comparisons to peer company operating results.

Accounting impact related to warrant amortization - We issued a warrant to a customer, Comcast Corporation, in September 2016 pursuant to which Comcast may purchase up to 7.8 million shares of Harmonic common stock. Vesting of the warrant shares is subject to Comcast achieving certain milestones and purchase volume commitments, and therefore the accounting guidance requires that the value of the warrant be recorded as a reduction in the Company's net revenues. Until final vesting, changes in the fair value of the warrant share will be marked to market and any adjustment as such will also be recorded in revenue. The change in fair value together with vested warrant shares are amortized to revenue using a ratio of revenue recognized from the customer in the period compared to total revenue expected from the customer. We have excluded the effect of warrant amortization in our non-GAAP financial measures. Management believes it is useful to exclude the charge for the fair value of the warrant shares in order to better understand the effects of these items on our total revenues and gross margin.

Loss on impairment of long-term investments - We exclude the effect of any other-than-temporary impairment of a cost method investment in calculating our non-GAAP financial measures. We exclude these items because we do not believe they are reflective of our ongoing long-term business and operating results.

Avid litigation settlement and associated legal fees - In the third quarter of fiscal 2017, we settled the patent litigation with Avid Technology, Inc. by entering into a settlement and patent portfolio cross-license agreement with Avid. Under the agreement, we agreed to pay Avid a one-time non-recurring amount of $6 million in installments. $2.5 million was paid upfront in October 2017 and $1.5 million and $2.0 million will be paid in 2019 and 2020, respectively. Also, the Avid litigation costs of approximately $1.4 million and $0.7 million in the third and fourth fiscal quarter of 2017, respectively, were significantly higher compared to prior periods. We excluded these expenses from our non-GAAP results because we do not believe they are reflective of our ongoing long-term business and operating results.

Discrete tax items and tax effect of non-GAAP adjustments - The income tax effect of non-GAAP adjustments relates to the tax effect of the adjustments that we incorporate into non-GAAP financial measures in order to provide a more meaningful measure of non-GAAP net income.

The Company has also provided in this release the following non-GAAP financial measure:

Annual recurring revenue (ARR) - ARR is used to assess the trajectory of our OTT SaaS business. ARR means, as of a specified date, the contracted recurring revenue which includes both subscription and maintenance contracts (and excludes perpetual license, term license and service agreements) that are current and booked with a future start date. ARR should be viewed independently of revenue and any other GAAP measure.

 

Harmonic Inc.

Preliminary Consolidated Balance Sheets

(Unaudited, in thousands, except per share data)



December 31, 2017


December 31, 2016

ASSETS




Current assets:




   Cash and cash equivalents

$

57,024



$

55,635


   Short-term investments



6,923


   Accounts receivable

69,844



86,765


   Inventories

25,976



41,193


   Prepaid expenses and other current assets

18,931



26,319


Total current assets

171,775



216,835


Property and equipment, net

29,265



32,164


Goodwill

242,827



237,279


Intangibles, net

21,279



29,231


Other long-term assets

42,913



38,560


Total assets

$

508,059



$

554,069






LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




   Other debts and capital lease obligations, current

$

7,610



$

7,275


   Accounts payable

33,112



28,892


   Income taxes payable

233



1,166


   Deferred revenues

52,429



52,414


   Accrued and other current liabilities

48,705



55,150


Total current liabilities

142,089



144,897


Convertible notes, long-term

108,748



103,259


Other debts and capital lease obligations, long-term

15,336



13,915


Income taxes payable, long-term

917



2,926


Other non-current liabilities

22,626



18,431


Total liabilities

289,716



283,428






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; 82,554 and 78,456 shares issued and outstanding at December 31, 2017 and 2016, respectively

83



78


   Additional paid-in capital

2,272,690



2,254,055


   Accumulated deficit

(2,057,812)



(1,976,222)


   Accumulated other comprehensive income (loss)

3,382



(7,270)


Total stockholders' equity

218,343



270,641


Total liabilities and stockholders' equity

$

508,059



$

554,069


 

Harmonic Inc.

Preliminary Consolidated Statements of Operations

(Unaudited, in thousands, except per share data)



Three months ended


Year ended


December 31,
2017


December 31,
2016


December 31,
2017


December 31,
2016

Revenue:








     Product

$

65,988



$

79,918



$

224,645



$

285,260


     Service

34,986



33,184



133,601



120,651


Total net revenue

100,974



113,102



358,246



405,911


Cost of revenue:








     Product

33,959



40,016



119,802



145,714


     Service

18,443



15,393



68,624



59,447


Total cost of revenue

52,402



55,409



188,426



205,161


Total gross profit

48,572



57,693



169,820



200,750


Operating expenses:








   Research and development

22,752



24,129



95,978



98,401


   Selling, general and administrative

31,893



38,883



136,270



144,381


   Amortization of intangibles

795



796



3,142



10,402


   Restructuring and related charges

1,223



10,114



5,307



14,602


Total operating expenses

56,663



73,922



240,697



267,786


Loss from operations

(8,091)



(16,229)



(70,877)



(67,036)


Interest expense, net

(3,014)



(2,822)



(11,078)



(10,628)


Other expense, net

(394)



(26)



(2,222)



(31)


Loss on impairment of long-term investment

(530)





(530)



(2,735)


Loss before income taxes

(12,029)



(19,077)



(84,707)



(80,430)


Benefit from income taxes

(184)



(8,634)



(1,752)



(8,116)


Net loss

$

(11,845)



$

(10,443)



$

(82,955)



$

(72,314)


Net loss per share:








   Basic and diluted

$

(0.14)



$

(0.13)



$

(1.02)



$

(0.93)


Shares used in per share calculations:








   Basic and diluted

82,014



78,389



80,974



77,705


 

Harmonic Inc.

Preliminary Consolidated Statements of Cash Flows

(Unaudited, in thousands)



Year ended


December 31,
2017


December 31,
2016

Cash flows from operating activities:




Net loss

$

(82,955)



$

(72,314)


Adjustments to reconcile net loss to net cash provided by operating activities:




   Amortization of intangibles

8,322



14,836


   Depreciation

14,599



18,819


   Stock-based compensation

16,610



13,060


   Amortization of discount on convertible debt

5,489



4,964


   Provision for non-cash warrant

153



434


   Restructuring, asset impairment and loss on retirement of fixed assets

1,906



2,305


   Loss on impairment of long-term investment

530



2,735


   Unrealized foreign exchange (gain) loss

2,369



(856)


   Gain on pension curtailment



(1,955)


   Deferred income taxes, net

2,189



(10,085)


   Provision for doubtful accounts, returns and discounts

4,912



2,589


   Provision for excess and obsolete inventories

6,005



6,871


   Other non-cash adjustments, net

445



408


   Changes in operating assets and liabilities, net of effects of acquisition:




      Accounts receivable

12,598



(2,563)


      Inventories

11,687



(4,107)


      Prepaid expenses and other assets

6,642



(1,892)


      Accounts payable

3,432



5,793


      Deferred revenues

(392)



18,106


      Income taxes payable

(2,978)



(133)


      Accrued and other liabilities

(8,499)



3,423


Net cash provided by operating activities

3,064



438


Cash flows from investing activities:




    Acquisition of business, net of cash acquired



(75,669)


   Proceeds from maturities of investments

3,106



19,707


   Proceeds from sales of investments

3,792




   Purchases of property and equipment

(11,399)



(15,107)


   Decrease (increase) in restricted cash

288



591


Net cash used in investing activities

(4,213)



(70,478)


Cash flows from financing activities:




   Payment of convertible debt issuance cost



(582)


   Proceeds from other debts

6,344



5,968


   Repayment of other debts and capital leases

(7,408)



(8,338)


   Proceeds from common stock issued to employees

4,716



4,444


   Payment of tax withholding obligations related to net share settlements of restricted stock units

(2,757)



(1,644)


Net cash provided by (used in) financing activities

895



(152)


Effect of exchange rate changes on cash and cash equivalents

1,643



(363)


Net increase (decrease) in cash and cash equivalents

1,389



(70,555)


Cash and cash equivalents at beginning of period

55,635



126,190


Cash and cash equivalents at end of period

$

57,024



$

55,635


 

Harmonic Inc.

Preliminary Revenue Information

(Unaudited, in thousands, except percentages)



Three months ended


December 31, 2017


September 29, 2017


December 31, 2016


GAAP


Adjustment(1)


Non-GAAP


GAAP


Adjustment(1)


Non-GAAP


GAAP


Adjustment(1)


Non-GAAP

Product





















Video Products

$

59,882



$



$

59,882


59%


$

54,175



$



$

54,175


59%


$

75,151



$



$

75,151


67%

Cable Edge

6,106



50



6,156


6%


3,986



(163)



3,823


4%


4,767



295



5,062


4%

Services and Support

34,986



65



35,051


35%


33,853



(215)



33,638


37%


33,184



378



33,562


29%

Total

$

100,974



$

115



$

101,089


100%


$

92,014



$

(378)



$

91,636


100%


$

113,102



$

673



$

113,775


100%






















Geography





















Americas

$

44,563



$

115



$

44,678


44%


$

48,656



$

(378)



$

48,278


53%


$

52,736



$

474



$

53,210


47%

EMEA

39,209





39,209


39%


27,528





27,528


30%


41,036



77



41,113


36%

APAC

17,202





17,202


17%


15,830





15,830


17%


19,330



122



19,452


17%

Total

$

100,974



$

115



$

101,089


100%


$

92,014



$

(378)



$

91,636


100%


$

113,102



$

673



$

113,775


100%






















Market





















Service Provider

$

53,052



$

115



$

53,167


53%


$

50,410



$

(378)



$

50,032


55%


$

69,426



$

568



$

69,994


62%

Broadcast and Media

47,922





47,922


47%


41,604





41,604


45%


43,676



105



43,781


38%

Total

$

100,974



$

115



$

101,089


100%


$

92,014



$

(378)



$

91,636


100%


$

113,102



$

673



$

113,775


100%

 


Twelve months ended


December 31, 2017


December 31, 2016 (2)


GAAP


Adjustment(1)


Non-GAAP


GAAP


Adjustment(1)


Non-GAAP

Product














Video Products

$

204,301



$



$

204,301


57%


$

244,313



$

560



$

244,873


60%

Cable Edge

20,344



78



20,422


6%


40,947



295



41,242


10%

Services and Support

133,601



186



133,787


37%


120,651



1,546



122,197


30%

Total

$

358,246



$

264



$

358,510


100%


$

405,911



$

2,401



$

408,312


100%















Geography














Americas

$

171,736



$

153



$

171,889


48%


$

207,249



$

864



$

208,113


51%

EMEA

117,129



111



117,240


33%


126,752



1,051



127,803


31%

APAC

69,381





69,381


19%


71,910



486



72,396


18%

Total

$

358,246



$

264



$

358,510


100%


$

405,911



$

2,401



$

408,312


100%















Market














Service Provider

$

197,910



$

153



$

198,063


55%


$

239,888



$

1,143



$

241,031


59%

Broadcast and Media

160,336



111



160,447


45%


166,023



1,258



167,281


41%

Total

$

358,246



$

264



$

358,510


100%


$

405,911



$

2,401



$

408,312


100%


(1) See "Use of Non-GAAP Financial Measures" above and "GAAP to Non-GAAP Reconciliations" below.


(2) Excludes TVN revenue prior to March 1, 2016.

 

Harmonic Inc.

Preliminary Segment Information

(Unaudited, in thousands, except percentages)



Three months ended December, 31 2017 (3)


Video


Cable Edge


Total Segment
Measures
(non-GAAP)


Adjustments (1)


Consolidated GAAP
Measures

Net revenue

$

87,596



$

13,493



$

101,089



$

(115)



$

100,974


Gross profit

46,639



4,034



50,673



(2,101)



48,572


Gross margin%

53.2

%


29.9

%


50.1

%




48.1

%

Operating income (loss)

5,752



(4,192)



1,560



(9,651)



(8,091)


Operating margin%

6.6

%


(31.1)

%


1.5

%




(8.0)

%



Three months ended September, 29 2017


Video


Cable Edge


Total Segment
Measures
(non-GAAP)


Adjustments (1)


Consolidated GAAP
Measures

Net revenue

$

84,155



$

7,481



$

91,636



$

378



$

92,014


Gross profit

48,283



686



48,969



(1,944)



47,025


Gross margin%

57.4

%


9.2

%


53.4

%




51.1

%

Operating income (loss)

7,009



(5,735)



1,274



(15,480)



(14,206)


Operating margin%

8.3

%


(76.7)

%


1.4

%




(15.4)

%



Three months ended December 31, 2016


Video


Cable Edge


Total Segment
Measures
(non-GAAP)


Adjustments (1)


Consolidated GAAP
Measures

Net revenue

$

104,779



$

8,996



$

113,775



$

(673)



$

113,102


Gross profit

60,443



3,330



63,773



(6,080)



57,693


Gross margin%

57.7

%


37.0

%


56.1

%




51.0

%

Operating income (loss)

14,145



(4,579)



9,566



(25,795)



(16,229)


Operating margin%

13.5

%


(50.9)

%


8.4

%




(14.3)

%



Twelve months ended December 31, 2017 (3)


Video


Cable Edge


Total Segment
Measures
(non-GAAP)


Adjustments (1)


Consolidated GAAP
Measures

Net revenue

$

319,583



$

38,927



$

358,510



$

(264)



$

358,246


Gross profit

173,526



9,045



182,571



(12,751)



169,820


Gross margin%

54.3

%


23.2

%


50.9

%




47.4

%

Operating loss

(1,911)



(23,002)



(24,913)



(45,964)



(70,877)


Operating margin%

(0.6)

%


(59.1)

%


(6.9)

%




(19.8)

%



Twelve months ended December 31, 2016 (2)


Video


Cable Edge


Total Segment
Measures
(non-GAAP)


Adjustments (1)


Consolidated GAAP
Measures

Net revenue

$

353,456



$

54,856



$

408,312



$

(2,401)



$

405,911


Gross profit

196,201



21,608



217,809



(17,059)



200,750


Gross margin%

55.5

%


39.4

%


53.3

%




49.5

%

Operating income (loss)

14,119



(11,697)



2,422



(69,458)



(67,036)


Operating margin%

4.0

%


(21.3)

%


0.6

%




(16.5)

%


(1) See "Use of Non-GAAP Financial Measures" above and "GAAP to Non-GAAP Reconciliations" below.


(2) Excludes TVN revenue prior to March 1, 2016.


(3) The Company has historically employed an aggregate allocation methodology based on total revenues to attribute professional services revenue and sales expenses between its Video and Cable Edge segments. Beginning in the fourth quarter of 2017, the Company has prospectively changed to a more precise attribution methodology as the activities of selling and supporting the CableOS solution have become increasingly distinct from those of Video solutions. The impact of making this change in the fourth quarter of 2017 compared to the Company's historical approach was a reduction in operating income of $2.4 million from the Video segment and a corresponding increase to operating income for the Cable Edge segment. The Company believes this updated internal allocation methodology will provide greater clarity regarding the operating metrics of the Video and Cable Edge business segments.

 

Harmonic Inc.

GAAP to Non-GAAP Reconciliations (Unaudited)

(in thousands, except percentages and per share data)



Three months ended December 31, 2017


Revenue

Gross
Profit

Total
Operating
Expense

Income
(Loss) from
Operations

Total Non-
operating
expense, net

Net Loss

GAAP

$

100,974


$

48,572


$

56,663


$

(8,091)


$

(3,938)


$

(11,845)


  Accounting impact related to warrant amortization

115


115



115



115


  Stock-based compensation


747


(4,756)


5,503



5,503


  Amortization of intangibles


1,295


(795)


2,090



2,090


  Restructuring and related charges


(56)


(1,223)


1,167



1,167


  TVN acquisition-and integration-related costs



(84)


84



84


  Avid litigation settlement fees and associated legal fees



(692)


692



692


  Loss on impairment of long-term investment





530


530


  Non-cash interest expenses related to convertible notes





1,429


1,429


  Discrete tax items and tax effect of non-GAAP adjustments






(121)


Total adjustments

115


2,101


(7,550)


9,651


1,959


11,489









Non-GAAP

$

101,089


$

50,673


$

49,113


$

1,560


$

(1,979)


$

(356)


As a % of revenue (GAAP)


48.1

%

56.1

%

(8.0)

%

(3.9)

%

(11.7)

%

As a % of revenue (Non-GAAP)


50.1

%

48.6

%

1.5

%

(2.0)

%

(0.4)

%

Diluted loss per share:







  Diluted net loss per share-GAAP






$

(0.14)


  Diluted net loss per share-Non-GAAP






$

0.00


Shares used to compute net loss per share:







  GAAP and Non-GAAP






82,014










Three months ended September 29, 2017


Revenue

Gross
Profit

Total
Operating
Expense

Income
(Loss) from
Operations

Total Non-
operating
expense, net

Net Loss

GAAP

$

92,014


$

47,025


$

61,231


$

(14,206)


$

(3,292)


$

(15,583)


  Accounting impact related to warrant amortization

(378)


(378)



(378)



(378)


  Stock-based compensation


478


(3,242)


3,720



3,720


  Amortization of intangibles


1,295


(793)


2,088



2,088


  Restructuring and related charges


549


(2,028)


2,577



2,577


  TVN acquisition-and integration-related costs



(117)


117



117


  Avid litigation settlement fees and associated legal fees



(7,356)


7,356



7,356


  Non-cash interest expenses related to convertible notes





1,384


1,384


  Discrete tax items and tax effect of non-GAAP adjustments






(1,820)


Total adjustments

(378)


1,944


(13,536)


15,480


1,384


15,044









Non-GAAP

$

91,636


$

48,969


$

47,695


$

1,274


$

(1,908)


$

(539)


As a % of revenue (GAAP)


51.1

%

66.5

%

(15.4)

%

(3.6)

%

(16.9)

%

As a % of revenue (Non-GAAP)


53.4

%

52.0

%

1.4

%

(2.1)

%

(0.6)

%

Diluted loss per share:







  Diluted net loss per share-GAAP






$

(0.19)


  Diluted net loss per share-Non-GAAP






$

(0.01)


Shares used to compute net loss per share:







  GAAP and Non-GAAP






81,445










Three months ended December 31, 2016


Revenue

Gross
Profit

Total
Operating
Expense

Income
(Loss) from
Operations

Total Non-
operating
expense, net

Net Income(Loss)

GAAP

$

113,102


$

57,693


$

73,922


$

(16,229)


$

(2,848)


$

(10,443)


  Cable Edge inventory charge


(327)



(327)



(327)


  Acquisition accounting impact related to TVN deferred revenue

239


239



239



239


  Accounting impact related to warrant amortization

434


434



434



434


  Stock-based compensation


543


(3,975)


4,518



4,518


  Amortization of intangibles


1,328


(797)


2,125



2,125


  Restructuring and related charges


3,424


(10,115)


13,539



13,539


  TVN acquisition-and integration-related costs


439


(4,828)


5,267


(98)


5,169


  Non-cash interest expenses related to convertible notes





1,295


1,295


  Discrete tax items and tax effect of non-GAAP adjustments






(9,821)


Total adjustments

673


6,080


(19,715)


25,795


1,197


17,171









Non-GAAP

$

113,775


$

63,773


$

54,207


$

9,566


$

(1,651)


$

6,728


As a % of revenue (GAAP)


51.0

%

65.4

%

(14.3)

%

(2.5)

%

(9.2)

%

As a % of revenue (Non-GAAP)


56.1

%

47.6

%

8.4

%

(1.5)

%

5.9

%

Diluted income (loss) per share:







  Diluted net loss per share-GAAP






$

(0.13)


  Diluted net income per share-Non-GAAP






$

0.08


Shares used to compute net income (loss) per share:







  GAAP






78,389


  Non-GAAP






80,112
























Twelve months ended December 31, 2017


Revenue

Gross
Profit

Total
Operating
Expense

Income
(Loss) from
Operations

Total Non-
operating
expense, net

Net Loss

GAAP

$

358,246


$

169,820


$

240,697


$

(70,877)


$

(13,830)


$

(82,955)


  Cable Edge inventory charge


3,316



3,316



3,316


  Acquisition accounting impact related to TVN deferred revenue

111


111



111



111


  Accounting impact related to warrant amortization

153


153



153



153


  Stock-based compensation


2,370


(14,240)


16,610



16,610


  Amortization of intangibles


5,180


(3,142)


8,322



8,322


  Restructuring and related charges


1,279


(5,307)


6,586



6,586


  TVN acquisition-and integration-related costs


342


(2,476)


2,818



2,818


  Avid litigation settlement fees and associated legal fees



(8,048)