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Harmonic Announces Fourth Quarter and Fiscal 2018 Results

Revenue Up 13% Year Over Year

SAN JOSE, Calif., Feb. 4, 2019 /PRNewswire/ -- Harmonic Inc. (NASDAQ: HLIT) today announced its unaudited results for the fourth quarter and fiscal year ended December 31, 2018.

Harmonic logo (PRNewsfoto/Harmonic Inc.)

"Continued execution of our strategic initiatives drove solid revenue growth and profitability in the quarter," said Patrick Harshman, president and chief executive officer of Harmonic. "Cable Access segment revenue grew 80% year over year as Harmonic's CableOS™ solution continues to lead the market in defining the next generation of cable access networks. Our Video segment reported both revenue growth and record operating margin, demonstrating our market leading position in live OTT."

Q4 Financial and Business Highlights

  • GAAP revenue $113.7 million, up 13% year over year; non-GAAP revenue $113.6 million, up 12% year over year.
  • Cable Access segment revenue: GAAP $24.1 million, up 80% year over year; non-GAAP $24.1 million, up 79% year over year.
  • Video segment revenue was $89.5 million, up 22% quarter over quarter and 2% year over year.
  • Video segment operating margin: 14.2%, sixth consecutive quarter of positive segment operating income.
  • Gross margin: GAAP 53.1% compared to 48.1% in the year ago period; non-GAAP 54.5% compared to 50.1% in the year ago period.
  • Operating income: GAAP income $7.3 million and non-GAAP income $12.7 million, compared to GAAP loss $8.1 million and non-GAAP income $1.6 million in the year ago period.
  • EPS: GAAP net income per share 4 cents and non-GAAP net income per share 11 cents, compared to GAAP net loss per share 14 cents and non-GAAP net loss per share zero cents in the year ago period.
  • CableOS deployments continued to scale, surpassing 535,000 served cable modems, up 11% quarter over quarter.
  • CableOS global design win momentum continued with 29 deployments and trials underway, up 16% quarter over quarter.
  • Over 37,000 OTT channels deployed globally, up 5% quarter over quarter.
  • Video SaaS customer base increased from 7 to 19 customers, up 171% year over year.

Select Financial Information



GAAP


Non-GAAP

Key Financial Results


Q4 2018


Q3 2018


Q4 2017


Q4 2018


Q3 2018


Q4 2017



(in millions, except per share data)

Net revenue


$

113.7



$

100.6



$

101.0



$

113.6



$

101.4



$

101.1


Net income (loss)


$

3.3



$

(7.8)



$

(11.8)



$

9.7



$

3.4



$

(0.4)


Diluted EPS


$

0.04



$

(0.09)



$

(0.14)



$

0.11



$

0.04



$

0.00















Other Financial Information

Q4 2018


Q3 2018


Q4 2017


(in millions)

Bookings for the quarter

$

92.8



$

79.5



$

122.9


Backlog and deferred revenue as of quarter end

$

186.4



$

207.6



$

224.4


Cash and cash equivalents as of quarter end

$

66.0



$

61.7



$

57.0


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".

Financial Guidance

GAAP Financial Guidance


Q1 2019


2019


Low


High


Low


High




(in millions, except percentages and per share data)

Net Revenue


$

80.0



$

90.0



$

390.0



$

440.0



Video


$

70.0



$

75.0



$

290.0



$

310.0



Cable Access


$

10.0



$

15.0



$

100.0



$

130.0


Gross Margin %


50.6

%


52.9

%


48.3

%


52.0

%

Operating Expenses


$

52.0



$

54.0



$

211.1



$

221.1


Operating Income (Loss)


$

(13.5)



$

(4.4)



$

(32.8)



$

17.6


Tax Benefit (Expense)


$

(0.7)



$

(0.7)



$

(2.6)



$

(2.6)


EPS


$

(0.20)



$

(0.09)



$

(0.54)



$

0.02


Shares


88.2



88.2



89.5



91.1


Cash


$

60.0



$

70.0



$

65.0



$

85.0


 

Non-GAAP Financial Guidance


Q1 2019


2019


Low


High


Low


High




(in millions, except percentages and per share data)

Net Revenue


$

80.0



$

90.0



$

390.0



$

440.0



Video


$

70.0



$

75.0



$

290.0



$

310.0



Cable Access


$

10.0



$

15.0



$

100.0



$

130.0


Gross Margin %


52.5

%


54.5

%


50.0

%


53.5

%

Operating Expenses


$

49.0



$

51.0



$

195.0



$

205.0


Operating Income (Loss)


$

(9.0)



$

0.1



$

(10.0)



$

40.4


Tax rate


12

%


12

%


12

%


12

%

EPS


$

(0.11)



$

(0.01)



$

(0.16)



$

0.33


Shares


88.2



88.2



89.5



91.1


Cash


$

60.0



$

70.0



$

65.0



$

85.0



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 Monday, February 4, 2019. The live webcast will be available on the Harmonic Investor Relations website at http://investor.harmonicinc.com.  An audio version of the webcast will be available by calling +1.574.990.1032 or +1.800.240.9147 (passcode 6997107). 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 6997107).

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 cable access 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 income (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. 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, 2017, 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, segment 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 Access inventory charge - Harmonic from time to time incurs inventory impairment charges associated with material business shifts, such as the repositioning of our Cable Access 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.

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, change in fair value of the warrant share is being marked to market and any adjustment as such is 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, as well as on Cable Access segment revenue.

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.

Gain (loss) on equity investments - We exclude the change in fair value and gain (loss) from sale of our equity investments 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.

 

Harmonic Inc.

Preliminary Consolidated Balance Sheets

(Unaudited, in thousands, except per share data)



December 31, 2018


December 31, 2017

ASSETS




Current assets:




   Cash and cash equivalents

$

65,989



$

57,024


   Accounts receivable, net

81,795



69,844


   Inventories

25,638



25,976


   Prepaid expenses and other current assets

23,280



18,931


Total current assets

196,702



171,775


Property and equipment, net

22,321



29,265


Goodwill

240,618



242,827


Intangibles, net

12,817



21,279


Other long-term assets

38,377



42,913


Total assets

$

510,835



$

508,059






LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




   Other debts and capital lease obligations, current

$

7,175



$

7,610


   Accounts payable

33,778



33,112


   Income taxes payable

1,099



233


   Deferred revenue

41,592



52,429


   Accrued and other current liabilities

52,761



48,705


Total current liabilities

136,405



142,089


Convertible notes, long-term

114,808



108,748


Other debts and capital lease obligations, long-term

12,684



15,336


Income taxes payable, long-term

460



917


Other non-current liabilities

18,228



22,626


Total liabilities

282,585



289,716






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; 87,057 and 82,554 shares issued and outstanding at December 31, 2018 and 2017, respectively

87



83


   Additional paid-in capital

2,296,795



2,272,690


   Accumulated deficit

(2,067,416)



(2,057,812)


   Accumulated other comprehensive income (loss)

(1,216)



3,382


Total stockholders' equity

228,250



218,343


Total liabilities and stockholders' equity

$

510,835



$

508,059


 

Harmonic Inc.

Preliminary Consolidated Statements of Operations

(Unaudited, in thousands, except per share data)



Three months ended


Year ended


December 31,
2018


December 31,
2017


December 31,
2018


December 31,
2017

Revenue:








     Product

$

73,291



$

65,988



$

252,067



$

224,645


     Service

40,364



34,986



151,491



133,601


Total net revenue

113,655



100,974



403,558



358,246


Cost of revenue:








     Product

36,184



33,959



127,268



119,802


     Service

17,150



18,443



67,081



68,624


Total cost of revenue

53,334



52,402



194,349



188,426


Total gross profit

60,321



48,572



209,209



169,820


Operating expenses:








   Research and development

21,913



22,752



89,163



95,978


   Selling, general and administrative

30,078



31,893



118,952



136,270


   Amortization of intangibles

791



795



3,187



3,142


   Restructuring and related charges

214



1,223



2,918



5,307


Total operating expenses

52,996



56,663



214,220



240,697


Income (loss) from operations

7,325



(8,091)



(5,011)



(70,877)


Interest expense, net

(2,909)



(3,014)



(11,401)



(11,078)


Other income (expense), net

162



(394)



(536)



(2,222)


Loss on impairment of long-term investments



(530)





(530)


Income (loss) before income taxes

4,578



(12,029)



(16,948)



(84,707)


Provision for (benefit from) income taxes

1,248



(184)



4,087



(1,752)


Net income (loss)

$

3,330



$

(11,845)



$

(21,035)



$

(82,955)


Net income (loss) per share:








   Basic

$

0.04



$

(0.14)



$

(0.25)



$

(1.02)


   Diluted

$

0.04



$

(0.14)



$

(0.25)



$

(1.02)


Shares used in per share calculations:








   Basic

86,846



82,014



85,615



80,974


   Diluted

89,028



82,014



85,615



80,974


 

Harmonic Inc.

Preliminary Consolidated Statements of Cash Flows

(Unaudited, in thousands)



Year ended


December 31,
2018


December 31,
2017

Cash flows from operating activities:




Net loss

$

(21,035)



$

(82,955)


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




   Amortization of intangibles

8,367



8,322


   Depreciation

12,971



14,599


   Stock-based compensation

17,289



16,610


   Amortization of discount on convertible debt

6,060



5,489


   Provision for non-cash warrant

1,178



153


   Restructuring, asset impairment and loss on retirement of fixed assets

1,491



1,906


   Loss on impairment of long-term investments



530


   Unrealized foreign exchange (gain) loss

(1,906)



2,369


   Deferred income taxes, net

661



2,189


   Provision for doubtful accounts, returns and discounts

2,521



4,912


   Provision for excess and obsolete inventories

1,649



6,005


   Other non-cash adjustments, net

407



445


   Changes in operating assets and liabilities:




      Accounts receivable

(14,700)



12,598


      Inventories

(2,045)



11,687


      Prepaid expenses and other assets

3,227



6,642


      Accounts payable

1,018



3,432


      Deferred revenues

(4,808)



(392)


      Income taxes payable

440



(2,978)


      Accrued and other liabilities

(501)



(8,499)


Net cash provided by operating activities

12,284



3,064


Cash flows from investing activities:




   Proceeds from maturities of investments



3,106


   Proceeds from sales of investments

104



3,792


   Purchases of property and equipment

(7,044)



(11,399)


Net cash used in investing activities

(6,940)



(4,501)


Cash flows from financing activities:




   Proceeds from other debts and capital leases

5,066



6,344


   Repayment of other debts and capital leases

(7,132)



(7,408)


   Proceeds from common stock issued to employees

4,947



4,716


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

(230)



(2,757)


Net cash provided by financing activities

2,651



895


Effect of exchange rate changes on cash, cash equivalents and restricted cash

(763)



1,879


Net increase in cash, cash equivalents and restricted cash

7,232



1,337


Cash, cash equivalents and restricted cash, beginning of the year

58,757



57,420


Cash, cash equivalents and restricted cash, end of the year

$

65,989



$

58,757






Reconciliation of cash, cash equivalents, and restricted cash to the preliminary consolidated balance sheets

 




Cash and cash equivalents

$

65,989



$

57,024


Restricted cash included in prepaid expenses and other current assets



530


Restricted cash included in other long-term assets



1,203


    Total cash, cash equivalents and restricted cash

$

65,989



$

58,757



 

Harmonic Inc.

Preliminary Revenue Information

(Unaudited, in thousands, except percentages)



Three months ended


December 31, 2018


September 28, 2018


December 31, 2017


GAAP

Adjustment(1)

Non-GAAP


GAAP

Adjustment(1)

Non-GAAP


GAAP

Adjustment(1)

Non-GAAP

Product















Video Products

$

59,499


$


$

59,499


52%


$

45,781


$


$

45,781


45%


$

59,882


$


$

59,882


59%

Cable Access

13,792


(4)


13,788


12%


17,022


518


17,540


17%


6,106


50


6,156


6%

Services and Support

40,364


(3)


40,361


36%


37,813


272


38,085


38%


34,986


65


35,051


35%

Total

$

113,655


$

(7)


$

113,648


100%


$

100,616


$

790


$

101,406


100%


$

100,974


$

115


$

101,089


100%
















Geography















Americas

$

63,007


$

(7)


$

63,000


55%


$

54,119


$

790


$

54,909


54%


$

44,563


$

115


$

44,678


44%

EMEA

25,880



25,880


23%


26,316



26,316


26%


39,209



39,209


39%

APAC

24,768



24,768


22%


20,181



20,181


20%


17,202



17,202


17%

Total

$

113,655


$

(7)


$

113,648


100%


$

100,616


$

790


$

101,406


100%


$

100,974


$

115


$

101,089


100%
















Market















Service Provider

$

80,325


$

(7)


$

80,318


71%


$

66,737


$

790


$

67,527


67%


$

53,052


$

115


$

53,167


53%

Broadcast and Media

33,330



33,330


29%


33,879



33,879


33%


47,922



47,922


47%

Total

$

113,655


$

(7)


$

113,648


100%


$

100,616


$

790


$

101,406


100%


$

100,974


$

115


$

101,089


100%

 


Twelve months ended


December 31, 2018


December 31, 2017


GAAP

Adjustment(1)

Non-GAAP


GAAP

Adjustment(1)

Non-GAAP

Product










Video Products

$

203,133


$


$

203,133


50%


$

204,301


$


$

204,301


57%

Cable Access

48,935


698


49,633


12%


20,344


78


20,422


6%

Services and Support

151,490


480


151,970


38%


133,601


186


133,787


37%

Total

$

403,558


$

1,178


$

404,736


100%


$

358,246


$

264


$

358,510


100%











Geography










Americas

$

218,900


$

1,178


$

220,078


54%


$

171,736


$

153


$

171,889


48%

EMEA

107,074



107,074


27%


117,129


111


117,240


33%

APAC

77,584



77,584


19%


69,381



69,381


19%

Total

$

403,558


$

1,178


$

404,736


100%


$

358,246


$

264


$

358,510


100%











Market










Service Provider

$

253,421


$

1,178


$

254,599


63%


$

197,910


$

153


$

198,063


55%

Broadcast and Media

150,137



150,137


37%


160,336


111


160,447


45%

Total

$

403,558


$

1,178


$

404,736


100%


$

358,246


$

264


$

358,510


100%


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

 

Harmonic Inc.

Preliminary Segment Information

(Unaudited, in thousands, except percentages)



Three months ended December 31, 2018


Video


Cable Access


Total Segment
Measures

(non-GAAP)


Adjustments (1)


Consolidated GAAP
Measures

Net revenue

$

89,528



$

24,120



$

113,648



$

7


*

$

113,655


Gross profit

51,449



10,509



61,958



(1,637)



60,321


Gross margin%

57.5

%


43.6

%


54.5

%




53.1

%

Operating income (loss)

12,678





12,678



(5,353)



7,325


Operating margin%

14.2

%


%


11.2

%




6.4

%


Three months ended September 28, 2018


Video


Cable Access


Total Segment
Measures

(non-GAAP)


Adjustments (1)


Consolidated GAAP
Measures

Net revenue

$

73,344



$

28,062



$

101,406



$

(790)


*

$

100,616


Gross profit

41,937



10,871



52,808



(2,706)



50,102


Gross margin%

57.2

%


38.7

%


52.1

%




49.8

%

Operating income (loss)

5,258



395



5,653



(9,304)



(3,651)


Operating margin%

7.2

%


1.4

%


5.6

%




(3.6)

%


Three months ended December 31, 2017


Video


Cable Access


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)

%


Twelve months ended December 31, 2018


Video


Cable Access


Total Segment
Measures

(non-GAAP)


Adjustments (1)


Consolidated GAAP
Measures

Net revenue

$

313,828



$

90,908



$

404,736



$

(1,178)


*

$

403,558


Gross profit

178,170



40,207



218,377



(9,168)



209,209


Gross margin%

56.8

%


44.2

%


54.0

%




51.8

%

Operating income (loss)

26,170



(578)



25,592



(30,603)



(5,011)


Operating margin%

8.3

%


(0.6)

%


6.3

%




(1.2)

%


Twelve months ended December 31, 2017 (2)


Video


Cable Access


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)

%


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


(2) 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 Access 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 for fiscal year ended December 31, 2017 compared to the Company's historical approach was an increase in operating loss of $5.9 million from the Video segment and a corresponding decrease in operating loss of the Cable Access segment. The Company believes that the updated allocation methodology will provide greater clarity regarding the operating metrics of the Video and Cable Access business segments.


* These non-GAAP adjustments are primarily for warrant amortization for the respective periods and relate to our Cable Access segment. After applying these adjustments to the non-GAAP revenue for the Cable Access segment, our GAAP revenue for the Cable Access segment for the three and twelve months ended December 31, 2018 was $24,127 and $89,730, respectively; the GAAP revenue for the three and twelve months ended December 31, 2017 was $13,378 and $38,774, respectively; and the GAAP revenue for the three months ended September 28, 2018 was $27,272.

 

Harmonic Inc.

GAAP to Non-GAAP Reconciliations (Unaudited)

(in thousands, except percentages and per share data)



Three months ended December 31, 2018


Revenue

Gross
Profit

Total
Operating
Expense

Income
from
Operations

Total Non-
operating
expense, net

Net Income

GAAP

$

113,655


$

60,321


$

52,996


$

7,325


$

(2,747)


$

3,330


  Accounting impact related to warrant amortization

(7)


(7)



(7)



(7)


  Stock-based compensation


376


(2,711)


3,087



3,087


  Amortization of intangibles


1,295


(791)


2,086



2,086


  Restructuring and related charges


(27)


(214)


187



187


  Non-cash interest expenses related to convertible notes





1,577


1,577


  Discrete tax items and tax effect of non-GAAP adjustments






(593)


Total adjustments

(7)


1,637


(3,716)


5,353


1,577


6,337


Non-GAAP

$

113,648


$

61,958


$

49,280


$

12,678


$

(1,170)


$

9,667


As a % of revenue (GAAP)


53.1

%

46.6

%

6.4

%

(2.4)

%

2.9

%

As a % of revenue (Non-GAAP)


54.5

%

43.4

%

11.2

%

(1.0)

%

8.5

%

Diluted net income per share:







  Diluted net income per share-GAAP






$

0.04


  Diluted net income per share-Non-GAAP






$

0.11


Shares used to compute diluted net income per share:







  GAAP and Non-GAAP






89,028





Three months ended September 28, 2018


Revenue

Gross
Profit

Total
Operating
Expense

Income
(Loss) from
Operations

Total Non-
operating
expense, net

Net Income
(Loss)

GAAP

$

100,616


$

50,102


$

53,753


$

(3,651)


$

(3,237)


$

(7,758)


  Accounting impact related to warrant amortization

790


790



790



790


  Stock-based compensation


614


(4,819)


5,433



5,433


  Amortization of intangibles


1,295


(792)


2,087



2,087


  Restructuring and related charges


7


(987)


994



994


  Loss on equity investments





72


72


  Non-cash interest expenses related to convertible notes





1,528


1,528


  Discrete tax items and tax effect of non-GAAP adjustments






227


Total adjustments

790


2,706


(6,598)


9,304


1,600


11,131


Non-GAAP

$

101,406


$

52,808


$

47,155


$

5,653


$

(1,637)


$

3,373


As a % of revenue (GAAP)


49.8

%

53.4

%

(3.6)

%

(3.2)

%

(7.7)

%

As a % of revenue (Non-GAAP)


52.1

%

46.5

%

5.6

%

(1.6)

%

3.3

%

Diluted net income (loss) per share:







  Diluted net loss per share-GAAP






$

(0.09)


  Diluted net income per share-Non-GAAP






$

0.04


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







  GAAP






86,321


  Non-GAAP






87,770




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 and associated legal fees



(692)


692



692


  Loss on impairment of long-term investments





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 net loss per share:







  Diluted net loss per share-GAAP






$

(0.14)


  Diluted net loss per share-Non-GAAP






$

0.00


Shares used to compute diluted net loss per share:







  GAAP and Non-GAAP






82,014





Twelve months ended December 31, 2018


Revenue

Gross
Profit

Total
Operating
Expense

Income
(Loss) from
Operations

Total Non-
operating
expense, net

Net Income
(Loss)

GAAP

$

403,558


$

209,209


$

214,220


$

(5,011)


$

(11,937)


$

(21,035)


  Accounting impact related to warrant amortization

1,178


1,178



1,178



1,178


  Stock-based compensation


1,953


(15,336)


17,289



17,289


  Amortization of intangibles


5,180


(3,187)


8,367



8,367


  Restructuring and related charges


857


(2,918)


3,775



3,775


  Gain on equity investments





(111)


(111)


  Avid litigation settlement and associated legal fees



6


(6)



(6)


  Non-cash interest expenses related to convertible notes





6,060


6,060


  Discrete tax items and tax effect of non-GAAP adjustments






950


Total adjustments

1,178


9,168


(21,435)


30,603


5,949


37,502









Non-GAAP

$

404,736


$

218,377


$

192,785


$

25,592


$

(5,988)


$

16,467


As a % of revenue (GAAP)


51.8

%

53.1

%

(1.2)

%

(3.0)

%

(5.2)

%

As a % of revenue (Non-GAAP)


54.0

%

47.6

%

6.3

%

(1.5)

%

4.1

%

Diluted net income (loss) per share:







  Diluted net loss per share-GAAP






$

(0.25)


  Diluted net income per share-Non-GAAP






$

0.19


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







  GAAP






85,615


  Non-GAAP






86,741








Twelve months ended December 31, 2017


Revenue

Gross
Profit

Total
Operating
Expense

Loss from
Operations

Total Non-
operating
expense, net

Net Loss

GAAP

$

358,246


$

169,820


$

240,697


$

(70,877)


$

(13,830)


$

(82,955)


  Cable Access 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