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Harmonic Announces Fourth Quarter and Year End 2014 Results

SAN JOSE, CA -- (Marketwired) -- 01/29/15 -- Harmonic Inc.(NASDAQ: HLIT), the worldwide leader in video delivery infrastructure, announced today its preliminary and unaudited results for the fourth quarter and fiscal year ended December 31, 2014.

Net revenue for the fourth quarter of 2014 was $107.9 million, compared with $108.1 million for the third quarter of 2014 and $120.2 million for the fourth quarter of 2013. For the full year 2014, net revenue was $433.6 million, compared with $461.9 million for 2013.

Bookings for the fourth quarter of 2014 were $121.1 million, compared with $97.8 million for the third quarter of 2014 and $113.3 million for the fourth quarter of 2013.

Total backlog and deferred revenue was $128.7 million as of December 31, 2014, compared to $116.6 million as of September 26, 2014. 

The GAAP net loss from continuing operations for the fourth quarter of 2014 was $(4.9) million, or $(0.06) per diluted share, compared with GAAP net income from continuing operations for the third quarter of 2014 of $1.1 million, or $0.01 per diluted share, and GAAP net loss from continuing operations for the fourth quarter of 2013 of $(2.2) million, or $(0.02) per diluted share. For the full year 2014, GAAP net loss from continuing operations was $(46.2) million, or $(0.50) per share, compared to a GAAP net income from continuing operations of $21.6 million, or $0.20 per diluted share, for 2013.

Non-GAAP net income from continuing operations for the fourth quarter of 2014 was $5.3 million, or $0.06 per diluted share, compared with non-GAAP net income from continuing operations for the third quarter of 2014 of $5.1 million, or $0.06 per diluted share, and non-GAAP net income from continuing operations for the fourth quarter of 2013 of $8.3 million, or $0.08 per diluted share. For the full year 2014, non-GAAP net income from continuing operations was $15.1 million, or $0.16 per diluted share, compared with $18.3 million, or $0.17 per diluted share, for 2013. See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Reconciliations" provided below.

GAAP gross margin was 52.6% and GAAP operating margin was (2.0)% for the fourth quarter of 2014, compared with 49.4% and (3.3)%, respectively, for the third quarter of 2014, and 49.6% and (0.8)%, respectively, for the fourth quarter of 2013.

Non-GAAP gross margin was 54.1% and non-GAAP operating margin was 6.2% for the fourth quarter of 2014, compared with 53.6% and 6.2%, respectively, for the third quarter of 2014, and 54.3% and 8.9%, respectively, for the fourth quarter of 2013. See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Reconciliations" provided below.

Total cash, cash equivalents and short-term investments were $104.9 million at the end of the fourth quarter of 2014, up $7.7 million from $97.2 million as of the end of the prior quarter. In the fourth quarter of 2014, the Company generated approximately $19.8 million of cash from operations, and used approximately $6.7 million to repurchase approximately 1.0 million shares of common stock under its share repurchase program.

"We were pleased to see year-over-year growth in fourth quarter orders and backlog, driven by stronger video product demand from our Service Provider customers," said Patrick Harshman, President and Chief Executive Officer. "While continuing soft macro-economic conditions within several EMEA geographies limit our visibility, we enter the year with positive momentum, a strong competitive position and accelerating strategic progress on our transformational product initiatives. This was evidenced by our sequential and full year gross margin expansion, new VOS wins with tier 1 customers and our first DOCSIS CMTS orders. Pairing this progress with our purchase of 14% of Harmonic's stock throughout the year, and our ongoing careful management of expenses, we remain positioned and committed to delivering strong earnings growth in 2015."

Business Outlook

For the first quarter of 2015, Harmonic anticipates:

  • Net revenue in the range of $100 million to $110 million
  • GAAP gross margins in the range of 51.5% to 52.5%
  • GAAP operating expenses in the range of $57.0 million to $58.0 million
  • Non-GAAP gross margins in the range of 52.5% to 53.5%
  • Non-GAAP operating expenses in the range of $50.5 million to $51.5 million

See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Reconciliations" provided 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 Thursday, January 29, 2015. A listen-only broadcast of the conference call can be accessed either from the Company's website at www.harmonicinc.com or by calling +1.847.619.6547 or +1.888.895.5271 (passcode# 38791834). A replay of the conference call will be available after 4:30 p.m. Pacific at the same website address or by calling +1.630.652.3042 or +1.888.843.7419 (passcode 38791834#).

About Harmonic Inc.

Harmonic (NASDAQ: HLIT) is the worldwide leader in video delivery infrastructure for emerging television and video services. The Company's production-ready innovation enables content and service providers to efficiently create, prepare, and deliver differentiated services for television and new media video 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 fourth quarter and fiscal year ended December 31, 2014; our expectations concerning quarter-on-quarter and year-on-year growth; and net revenue, GAAP gross margins, GAAP operating expenses, non-GAAP gross margins and non-GAAP operating expenses for the first quarter of 2015. Our expectations regarding these matters may not materialize, and actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include 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 the strength of the dollar relative to other currencies, 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; dependence on market acceptance of several 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; the effect of competition, on both revenue and gross margins; difficulties associated with rapid technological changes in our markets; risks associated with unpredictable sales cycles; our dependence on contract manufacturers and sole or limited source suppliers; the effect on our business of natural disasters; 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; and the risk that our share repurchase program will not continue to result in material purchases of our common stock. The forward-looking statements contained in this press release are also subject to other risks and uncertainties, including those more fully described in Harmonic's filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K for the year ended December 31, 2013, our recent 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.

Use of Non-GAAP Financial Measures

In establishing operating budgets, managing its business performance, and setting internal measurement targets, we exclude a number of items required by GAAP. Management believes that these accounting charges and credits, most of which are non-cash or non-recurring in nature, are not useful in managing its operations and business. Historically, the Company has also publicly presented these supplemental non-GAAP measures in order to assist the investment community to see the Company "through the eyes of management," and thereby enhance understanding of its operating performance. The non-GAAP measures presented here are gross margin, operating expenses, income (loss) from operations and net income (loss) (including those amounts as a percentage of revenue), and net income (loss) per diluted share. The presentation of non-GAAP information is not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP, and is not necessarily comparable to non-GAAP results published by other companies. A reconciliation of the historical non-GAAP financial measures discussed in this press release to the most directly comparable historical GAAP financial measures is included with the financial statements provided with this press release. The non-GAAP adjustments described below have historically been excluded from our GAAP financial measures. These adjustments are restructuring and related charges and non-cash items, such as stock-based compensation expense, amortization of intangibles, 2013 proxy contest-related expenses, and adjustments that normalize the tax rate. With respect to our expectations under "Business Outlook" above, reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available without unreasonable efforts on a forward-looking basis due to the high variability and low visibility with respect to the charges which are excluded from these non-GAAP measures. The effects of stock-based compensation expense specific to common stock options are directly impacted by unpredictable fluctuations in our stock price. We expect the variability of the above charges to have a significant impact on our GAAP financial results.

 
Harmonic Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
 
 
  December 31, 2014   December 31, 2013
  (In thousands, except par value amounts)
ASSETS              
Current assets:              
Cash and cash equivalents $ 73,032     $ 90,329  
Short-term investments   31,847       80,252  
Accounts receivable   74,144       75,052  
Inventories   32,747       36,926  
Deferred income taxes   3,375       24,650  
Prepaid expenses and other current assets   17,539       21,521  
Total current assets   232,684       328,730  
Property and equipment, net   27,221       34,945  
Goodwill, intangibles and other assets   220,613       242,409  
Total assets $ 480,518     $ 606,084  
LIABILITIES AND STOCKHOLDERS' EQUITY              
Current liabilities:              
Accounts payable $ 15,318     $ 22,380  
Income taxes payable   893       331  
Deferred revenues   38,601       27,020  
Accrued liabilities   35,118       35,349  
Total current liabilities   89,930       85,080  
Income taxes payable, long-term   4,969       15,165  
Deferred income taxes, long-term   3,095       -  
Other non-current liabilities   10,711       11,673  
Total liabilities   108,705       111,918  
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; 87,700 and 99,413 shares issued and outstanding at December 31, 2014 and 2013, respectively   88       99  
Capital in excess of par value   2,261,952       2,336,275  
Accumulated deficit   (1,888,247 )     (1,841,999 )
Accumulated other comprehensive loss   (1,980 )     (209 )
Total stockholders' equity   371,813       494,166  
Total liabilities and stockholders' equity $ 480,518     $ 606,084  
 
 
Harmonic Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
 
  Three months ended   Year ended
  December 31, 2014   December 31, 2013   December 31, 2014   December 31, 2013
  (In thousands, except per share amounts)
Net revenue $ 107,875     $ 120,222     $ 433,557     $ 461,940  
Cost of revenue   51,084       60,626       221,209       241,495  
Gross profit   56,791       59,596       212,348       220,445  
Operating expenses:                              
Research and development   22,885       24,307       93,061       99,938  
Selling, general and administrative   32,682       33,794       131,322       134,014  
Amortization of intangibles   1,446       1,997       6,775       8,096  
Restructuring and asset impairment charges   1,940       496       2,761       1,421  
Total operating expenses   58,953       60,594       233,919       243,469  
Loss from operations   (2,162 )     (998 )     (21,571 )     (23,024 )
Interest and other income (expense), net   (39 )     (199 )     (224 )     (128 )
Loss from continuing operations before income taxes   (2,201 )     (1,197 )     (21,795 )     (23,152 )
Provision for (benefit from) income taxes   2,653       982       24,453       (44,741 )
Income (loss) from continuing operations   (4,854 )     (2,179 )     (46,248 )     21,589  
Income (loss) from discontinued operations, net of taxes (including gain on disposal of $14,663, net of taxes, for the year ended December 31, 2013)   -       (181 )     -       15,438  
Net income (loss) $ (4,854 )   $ (2,360 )   $ (46,248 )   $ 37,027  
Basic net income (loss) per share from:                              
Continuing operations $ (0.06 )   $ (0.02 )   $ (0.50 )   $ 0.20  
Discontinued operations $ -     $ -     $ -     $ 0.14  
Net income (loss) $ (0.06 )   $ (0.02 )   $ (0.50 )   $ 0.35  
Diluted net income (loss) per share from:                              
Continuing operations $ (0.06 )   $ (0.02 )   $ (0.50 )   $ 0.20  
Discontinued operations $ -     $ -     $ -     $ 0.14  
Net income (loss) $ (0.06 )   $ (0.02 )   $ (0.50 )   $ 0.34  
Shares used in per share calculations:                              
Basic   88,012       100,372       92,508       106,529  
Diluted   88,012       100,372       92,508       107,808  
 
 
Harmonic Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
  Year ended
  December 31, 2014   December 31, 2013
  (In thousands)
Cash flows from operating activities:              
Net income (loss) $ (46,248 )   $ 37,027  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:              
Amortization of intangibles   20,520       27,329  
Depreciation   16,459       16,641  
Stock-based compensation   17,287       16,089  
Gain on sale of discontinued operations, net of tax   -       (14,663 )
Restructuring, asset impairment and loss on retirement of fixed assets   1,622       244  
Deferred income taxes   32,163       (8,537 )
Provision for doubtful accounts and sales returns   1,943       960  
Provision for excess and obsolete inventories   2,569       3,475  
Excess tax benefits from stock-based compensation   (15 )     (141 )
Other non-cash adjustments, net   1,108       2,098  
Changes in assets and liabilities:              
Accounts receivable   (1,035 )     9,908  
Inventories   1,610       13,290  
Prepaid expenses and other assets   (3,332 )     1,807  
Accounts payable   56       (3,363 )
Deferred revenues   11,162       (1,922 )
Income taxes payable   (7,094 )     (40,546 )
Accrued and other liabilities   (1,406 )     (5,937 )
Net cash provided by operating activities   47,369       53,759  
Cash flows from investing activities:              
Purchases of investments   (26,599 )     (78,764 )
Proceeds from sales and maturities of investments   73,856       100,924  
Purchases of property and equipment   (10,065 )     (14,581 )
Proceeds from sale of discontinued operations, net of selling costs   -       43,515  
Purchases of long-term investments   (9,393 )     -  
Net cash provided by (used in) investing activities   27,799       51,094  
Cash flows from financing activities:              
Proceeds from issuance of common stock, net   1,106       5,186  
Payments for repurchases of common stock   (93,128 )     (116,529 )
Excess tax benefits from stock-based compensation   15       141  
Net cash used in financing activities   (92,007 )     (111,202 )
Effect of exchange rate changes on cash and cash equivalents   (458 )     8  
Net (decrease) increase in cash and cash equivalents   (17,297 )     (6,341 )
Cash and cash equivalents at beginning of period   90,329       96,670  
Cash and cash equivalents at end of period $ 73,032     $ 90,329  
 
 
Harmonic Inc.
Revenue Information
(Unaudited)
 
  Three months ended   Year ended
  December 31,
 2014
      December 31, 2013*       December 31,
 2014
      December 31, 2013*    
  (In thousands, except percentages)   
                                               
Product                                              
Video Products (1) $ 65,975   61 %   $ 80,561   67 %   $ 247,857   57 %   $ 307,466   67 %
Cable Edge   17,840   17 %     18,072   15 %     95,329   22 %     69,132   15 %
Services and Support   24,060   22 %     21,589   18 %     90,371   21 %     85,342   18 %
Total $ 107,875   100 %   $ 120,222   100 %   $ 433,557   100 %   $ 461,940   100 %
                                               
                                               
Geography                                              
Americas (2) $ 60,890   56 %   $ 58,754   49 %   $ 245,849   57 %   $ 237,799   51 %
EMEA   26,509   25 %     35,860   30 %     109,645   25 %     140,929   31 %
APAC   20,476   19 %     25,608   21 %     78,063   18 %     83,212   18 %
Total $ 107,875   100 %   $ 120,222   100 %   $ 433,557   100 %   $ 461,940   100 %
                                               
                                               
Market                                              
Service Provider (3) $ 72,844   68 %   $ 69,620   58 %   $ 286,899   66 %   $ 275,197   60 %
Broadcast and Media   35,031   32 %     50,602   42 %     146,658   34 %     186,743   40 %
Total $ 107,875   100 %   $ 120,222   100 %   $ 433,557   100 %   $ 461,940   100 %
                                               

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

 
 
Harmonic Inc.
GAAP to Non-GAAP Reconciliations (Unaudited)
(in thousands, except percentages and per share data)
 
  Three months ended
  December 31, 2014
  Gross Profit   Total Operating Expense   Income (loss) from Operations   Net Income
(Loss)
GAAP from continuing operations $ 56,791     $ 58,953     $ (2,162 )   $ (4,854 )
  Stock-based compensation in cost of revenue   608       -       608       608  
  Stock-based compensation in research and development   -       (1,255 )     1,255       1,255  
  Stock-based compensation in selling, general and administrative   -       (2,704 )     2,704       2,704  
  Amortization of intangibles   696       (1,446 )     2,142       2,142  
  Restructuring and asset impairment charges   220       (1,941 )     2,161       2,161  
  Discrete tax items and tax effect of non-GAAP adjustments   -       -       -       1,251  
Non-GAAP from continuing operations $ 58,315     $ 51,607     $ 6,708     $ 5,267  
As a % of revenue (GAAP)   52.6 %     54.6 %     (2.0 )%     (4.5 )%
As a % of revenue (Non-GAAP)   54.1 %     47.8 %     6.2 %     4.9 %
                               
Diluted income (loss) per share from continuing operations:                              
  Diluted net loss per share from continuing operations-GAAP                         $ (0.06 )
  Diluted net income per share from continuing operations-Non-GAAP                         $ 0.06  
Shares used to compute diluted income (loss) per share from continuing operations:                              
  GAAP                           88,012  
  Non-GAAP                           89,342  
                               
                               
                               
                               
  Three months ended
  September 26, 2014
  Gross Profit   Total Operating Expense   Income (loss) from Operations   Net Income
GAAP from continuing operations $ 53,428     $ 56,966     $ (3,538 )   $ 1,078  
  Stock-based compensation in cost of revenue   612       -       612       612  
  Stock-based compensation in research and development   -       (1,219 )     1,219       1,219  
  Stock-based compensation in selling, general and administrative   -       (2,521 )     2,521       2,521  
  Amortization of intangibles   3,851       (1,661 )     5,512       5,512  
  Restructuring and related charges   15       (388 )     403       403  
  Discrete tax items and tax effect of non-GAAP adjustments   -       -       -       (6,198 )
Non-GAAP from continuing operations $ 57,906     $ 51,177     $ 6,729     $ 5,147  
As a % of revenue (GAAP)   49.4 %     52.7 %     (3.3 )%     1.0 %
As a % of revenue (non-GAAP)   53.6 %     47.4 %     6.2 %     4.8 %
                               
Diluted income per share from continuing operations:                              
  Diluted net income per share from continuing operations-GAAP                         $ 0.01  
  Diluted net income per share from continuing operations-Non-GAAP                         $ 0.06  
Shares used to compute diluted income per share from continuing operations:                              
  GAAP                           91,800  
  Non-GAAP                           91,800  
                               
                               
  Three months ended
  December 31, 2013
  Gross Profit   Total Operating Expense   Income (loss) from Operations   Net Income (Loss)
GAAP from continuing operations $ 59,596     $ 60,594     $ (998 )   $ (2,179 )
  Stock-based compensation in cost of revenue   574       -       574       574  
  Stock-based compensation in research and development   -       (1,031 )     1,031       1,031  
  Stock-based compensation in selling, general and administrative   -       (2,531 )     2,531       2,531  
  Amortization of intangibles   4,763       (1,997 )     6,760       6,760  
  Restructuring and related charges   293       (496 )     789       789  
  Discrete tax items and tax effect of non-GAAP adjustments   -       -       -       (1,220 )
Non-GAAP from continuing operations $ 65,226     $ 54,539     $ 10,687     $ 8,286  
As a % of revenue (GAAP)   49.6 %     50.4 %     (0.8 )%     (1.8 )%
As a % of revenue (Non-GAAP)   54.3 %     45.4 %     8.9 %     6.9 %
                               
Diluted income (loss) per share from continuing operations:                              
  Diluted net loss per share from continuing operations-GAAP                         $ (0.02 )
  Diluted net income per share from continuing operations-Non-GAAP                         $ 0.08  
Shares used to compute diluted income (loss) per share from continuing operations:                              
  GAAP                           100,372  
  Non-GAAP                           101,937  
                               
   
   
  Year ended
  December 31, 2014
  Gross Profit   Total Operating Expense   Income (Loss) from Operations   Net Income (Loss)
GAAP from continuing operations $ 212,348     $ 233,919     $ (21,571 )   $ (46,248 )
  Stock-based compensation in cost of revenue   2,359       -       2,359       2,359  
  Stock-based compensation in research and development   -       (4,844 )     4,844       4,844  
  Stock-based compensation in selling, general and administrative   -       (10,084 )     10,084       10,084  
  Amortization of intangibles   13,745       (6,775 )     20,520       20,520  
  Restructuring and asset impairment charges   314       (2,762 )     3,076       3,076  
  Discrete tax items and tax effect of non-GAAP adjustments   -       -       -       20,445  
Non-GAAP from continuing operations $ 228,766     $ 209,454     $ 19,312     $ 15,080  
As a % of revenue (GAAP)   49.0 %     54.0 %     (5.0 )%     (10.7 )%
As a % of revenue (Non-GAAP)   52.8 %     48.3 %     4.5 %     3.5 %
                               
Diluted income (loss) per share from continuing operations:                              
  Diluted net loss per share from continuing operations-GAAP                         $ (0.50 )
  Diluted net income per share from continuing operations-Non-GAAP                         $ 0.16  
Shares used to compute diluted income (loss) per share from continuing operations:                              
  GAAP                           92,508  
  Non-GAAP                           93,802  
                               
  Year ended
  December 31, 2013
  Gross Profit   Total Operating Expense   Income (Loss) from Operations   Net Income
GAAP from continuing operations $ 220,445     $ 243,469     $ (23,024 )   $ 21,589  
  Stock-based compensation in cost of revenue   2,412       -       2,412       2,412  
  Stock-based compensation in research and development   -       (4,431 )     4,431       4,431  
  Stock-based compensation in selling, general and administrative   -       (9,159 )     9,159       9,159  
  Proxy contest consultant expenses in selling, general and administrative   -       (750 )     750       750  
  Amortization of intangibles   19,233       (8,096 )     27,329       27,329  
  Restructuring and related charges   823       (1,421 )     2,244       2,244  
  Discrete tax items and tax effect of non-GAAP adjustments   -       -       -       (49,607 )
Non-GAAP from continuing operations $ 242,913     $ 219,612     $ 23,301     $ 18,307  
As a % of revenue (GAAP)   47.7 %     52.7 %     (5.0 )%     4.7 %
As a % of revenue (Non-GAAP)   52.6 %     47.5 %     5.0 %     4.0 %
                               
Diluted income per share from continuing operations:                              
  Diluted net loss per share from continuing operations-GAAP                         $ 0.20  
  Diluted net income per share from continuing operations-Non-GAAP                         $ 0.17  
Shares used to compute diluted income per share from continuing operations:                              
  GAAP                           107,808  
  Non-GAAP                           107,808  

CONTACTS:

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

Blair King
Investor Relations
+1.408.490.6172 

Source: Harmonic Inc.

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