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Harmonic Announces Second Quarter 2015 Results

SAN JOSE, CA -- (Marketwired) -- 07/27/15 -- Harmonic Inc.(NASDAQ: HLIT), the worldwide leader in video delivery infrastructure, announced today its preliminary and unaudited results for the second quarter of 2015.

Net revenue for the second quarter of 2015 was $103.1 million, compared with $104.0 million for the first quarter of 2015 and $109.6 million for the second quarter of 2014.

Bookings for the second quarter of 2015 were $99.3 million, compared with $97.3 million for the first quarter of 2015 and $113.4 million for the second quarter of 2014.

Total backlog and deferred revenue was $120.6 million as of July 3, 2015, compared to $122.2 million as of April 3, 2015.

GAAP net loss for the second quarter of 2015 was $(1.0) million, or $(0.01) per diluted share, compared with a GAAP net loss for the first quarter of 2015 of $(2.7) million, or $(0.03) per diluted share, and a GAAP net loss of $(37.1) million, or $(0.39) per diluted share, for the second quarter of 2014.

Non-GAAP net income for the second quarter of 2015 was $4.2 million, or $0.05 per diluted share, compared with a non-GAAP net income for the first quarter of 2015 of $4.5 million, or $0.05 per diluted share, and a non-GAAP net income of $1.8 million, or $0.02 per diluted share, for the second quarter of 2014. See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Reconciliations" below.

GAAP gross margin was 52.7% and GAAP operating margin was (0.3)% for the second quarter of 2015, compared with 52.9% and 0.01%, respectively, for the first quarter of 2015, and 45.5% and (7.9)%, respectively, for the same period in 2014.

Non-GAAP gross margin was 53.2% and non-GAAP operating margin was 5.1% for the second quarter of 2015, compared with 53.9% and 5.9%, respectively, for the first quarter of 2015, and 50.1% and 2.2%, respectively, for the same period in 2014. See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Reconciliations" below.

Total cash, cash equivalents and short-term investments were $105.1 million at the end of the second quarter of 2015, up $3.2 million from $101.9 million at the end of the prior quarter. In the second quarter of 2015, the Company generated approximately $11.6 million of cash from operations, and used approximately $7.0 million to repurchase approximately one million shares of common stock under its share repurchase program.

"Year-over-year earnings growth and margin expansion was driven by our Video business, as demand for our new VOS platform accelerated," said Patrick Harshman, President and CEO of Harmonic. "Cable edge segment revenue softened off of a record Q1 as cable industry demand slowed. Consequently, our near-term outlook on cable industry spending is cautious, although we remain confident in mid-to-longer-term cable demand trends and in our CCAP growth strategy. Looking ahead at our Video business, which addresses a wider array of customer verticals, we are encouraged by the competitive momentum of our new VOS offering and associated growth opportunities. We remain resolved to delivering earnings growth and enhanced shareholder value."

Business Outlook

For the third quarter of 2015, Harmonic anticipates:

  • Net revenue in the range of $92 million to $102 million
  • GAAP gross margins in the range of 53% to 54%
  • GAAP operating expenses in the range of $54 million to $55 million
  • Non-GAAP gross margins in the range of 53% to 54%
  • Non-GAAP operating expenses in the range of $49 million to $50 million

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, July 27, 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 40109041). 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 40109041#).

About Harmonic Inc.
Harmonic (NASDAQ: HLIT) is the worldwide leader in video delivery infrastructure for emerging television and video services. Harmonic enables customers to produce, deliver, and monetize amazing video experiences, with unequalled business agility and operational efficiency, by providing market-leading innovation, high-quality service, and compelling total-cost-of-ownership. More information is available at www.harmonicinc.com.

Legal Notice Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements related to our expectations regarding: our final results for the second quarter ended July 3, 2015 and our expectations concerning quarter-on-quarter growth; and net revenue, GAAP gross margins, GAAP operating expenses, non-GAAP gross margins and non-GAAP operating expenses for the third 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, 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 or will expire; a strong U.S. dollar may have a negative impact on our business in certain international markets; 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 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, including in Ukraine; risks associated with our CCAP and VOS™ product initiatives, 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; the effect on our business of natural disasters; 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 Quarterly Report on Form 10-Q for the quarterly period ended April 3, 2015 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 profit, 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, impairment of long-term investment and non-cash items, such as stock-based compensation expense, amortization of intangibles, 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)  
   
    July 3, 2015     December 31, 2014  
    (In thousands, except par value amounts)  
ASSETS                
Current assets:                
Cash and cash equivalents   $ 76,049     $ 73,032  
Short-term investments     29,034       31,847  
Accounts receivable, net     76,079       74,144  
Inventories     31,241       32,747  
Deferred income taxes, short-term     3,375       3,375  
Prepaid expenses and other current assets     30,118       17,539  
Total current assets     245,896       232,684  
                 
Property and equipment, net     27,087       27,221  
Goodwill, intangibles and other assets     216,235       220,613  
Total assets   $ 489,218     $ 480,518  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
Accounts payable   $ 21,286     $ 15,318  
Income taxes payable     112       893  
Deferred revenue     46,922       38,601  
Accrued liabilities     29,985       35,118  
Total current liabilities     98,305       89,930  
                 
Income taxes payable, long-term     4,923       4,969  
Deferred tax liabilities, long-term     3,095       3,095  
Other non-current liabilities     11,679       10,711  
Total liabilities     118,002       108,705  
                 
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; 88,485 and 87,700 shares issued and outstanding at July 3, 2015 and December 31, 2014, respectively     88       88  
Additional paid-in capital     2,264,312       2,261,952  
Accumulated deficit     (1,891,898 )     (1,888,247 )
Accumulated other comprehensive loss     (1,286 )     (1,980 )
Total stockholders' equity     371,216       371,813  
Total liabilities and stockholders' equity   $ 489,218     $ 480,518  
                 
   
Harmonic Inc.  
Condensed Consolidated Statements of Operations  
(Unaudited)  
   
    Three months ended     Six months ended  
    July 3, 2015     June 27, 2014     July 3, 2015     June 27, 2014  
    (in thousands, except per share amounts)  
Net revenue   $ 103,103     $ 109,589     $ 207,119     $ 217,621  
Cost of revenue     48,718       59,772       97,706       115,492  
Gross profit     54,385       49,817       109,413       102,129  
Operating expenses:                                
Research and development     21,816       23,485       44,145       47,373  
Selling, general and administrative     31,281       32,979       62,477       66,526  
Amortization of intangibles     1,446       1,718       2,892       3,668  
Restructuring and related charges     185       284       229       433  
Total operating expenses     54,728       58,466       109,743       118,000  
Loss from operations     (343 )     (8,649 )     (330 )     (15,871 )
Interest and other income (expense), net     76       (60 )     (375 )     29  
Loss on impairment of long-term investment     -       -       (2,505 )     -  
Loss before income taxes     (267 )     (8,709 )     (3,210 )     (15,842 )
Provision for income taxes     727       28,353       441       26,630  
Net loss   $ (994 )   $ (37,062 )   $ (3,651 )   $ (42,472 )
Net loss per share:                                
Basic and diluted   $ (0.01 )   $ (0.39 )   $ (0.04 )   $ (0.44 )
Shares used in per share calculation:                                
Basic and diluted     88,426       93,966       88,541       95,899  
                                 
   
Harmonic Inc.  
Condensed Consolidated Statements of Cash Flows  
(Unaudited)  
   
    Six months ended  
    July 3, 2015     June 27, 2014  
    (In thousands)  
Cash flows from operating activities:                
Net loss   $ (3,651 )   $ (42,472 )
Adjustments to reconcile net loss to net cash provided by operating activities:                
Amortization of intangibles     3,439       12,866  
Depreciation     6,930       8,486  
Stock-based compensation     8,018       8,368  
Loss on impairment of long-term investment     2,505       -  
Deferred income taxes     -       27,407  
Provision for excess and obsolete inventories     843       1,377  
Allowance for doubtful accounts, returns and discounts     (179 )     600  
Excess tax benefits from stock-based compensation     (22 )     (304 )
Other non-cash adjustments, net     252       847  
Changes in assets and liabilities:                
Accounts receivable     (1,756 )     (5,485 )
Inventories     663       5,379  
Prepaid expenses and other assets     (12,893 )     (2,424 )
Accounts payable     6,415       2,324  
Deferred revenue     9,833       10,873  
Income taxes payable     (815 )     562  
Accrued and other liabilities     (5,994 )     (1,625 )
Net cash provided by operating activities     13,588       26,779  
Cash flows from investing activities:                
Purchases of investments     (12,986 )     (26,599 )
Proceeds from sales and maturities of investments     15,744       30,846  
Purchases of property and equipment     (7,505 )     (6,479 )
Purchases of long-term investments     (85 )     -  
Net cash used in investing activities     (4,832 )     (2,232 )
Cash flows from financing activities:                
Payments for repurchase of common stock     (12,171 )     (54,751 )
Net proceeds from (repurchases of) common stock issued to employees     6,491       (1,272 )
Excess tax benefits from stock-based compensation     22       304  
Net cash used in financing activities     (5,658 )     (55,719 )
Effect of exchange rate changes on cash and cash equivalents     (81 )     16  
Net increase (decrease) in cash and cash equivalents     3,017       (31,156 )
Cash and cash equivalents at beginning of period     73,032       90,329  
Cash and cash equivalents at end of period   $ 76,049     $ 59,173  
                 
   
Harmonic Inc.  
Revenue Information  
(Unaudited)  
   
    Three months ended     Six months ended  
    July 3, 2015     June 27, 2014*     July 3, 2015     June 27, 2014*  
    (In thousands, except percentages)  
Product                                                
Video Products(1)   $ 56,096   54 %   $ 57,196   52 %   $ 104,810   50 %   $ 121,214   55 %
Cable Edge     21,351   21 %     29,332   27 %     53,110   26 %     53,574   25 %
Services and Support     25,656   25 %     23,061   21 %     49,199   24 %     42,833   20 %
Total   $ 103,103   100 %   $ 109,589   100 %   $ 207,119   100 %   $ 217,621   100 %
                                                 
Geography                                                
Americas(2)   $ 60,342   58 %   $ 60,066   55 %   $ 120,860   58 %   $ 124,952   57 %
EMEA     27,360   27 %     31,519   29 %     52,033   25 %     55,706   26 %
APAC     15,401   15 %     18,004   16 %     34,226   17 %     36,963   17 %
Total   $ 103,103   100 %   $ 109,589   100 %   $ 207,119   100 %   $ 217,621   100 %
                                                 
Market                                                
Service Provider(3)   $ 64,041   62 %   $ 75,048   68 %   $ 132,015   64 %   $ 146,558   67 %
Broadcast and Media     39,062   38 %     34,541   32 %     75,104   36 %     71,063   33 %
Total   $ 103,103   100 %   $ 109,589   100 %   $ 207,119   100 %   $ 217,621   100 %
                                                 

(1) Video Products now include 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.  
Segment Revenue and Operating Income (Loss)  
(Unaudited)  
   
    Three months ended     Six months ended  
    July 3, 2015     June 27, 2014     July 3, 2015     June 27, 2014  
    (In thousands)  
Net revenue:                                
  Video   $ 78,207     $ 77,311     $ 147,489     $ 158,463  
  Cable Edge     24,896       32,278       59,630       59,158  
Total consolidated net revenue   $ 103,103     $ 109,589     $ 207,119     $ 217,621  
                                 
Operating income (loss):                                
  Video   $ 4,901     $ 382     $ 4,811     $ 2,817  
  Cable Edge     357       2,014       6,545       3,058  
Total segment operating income     5,258       2,396       11,356       5,875  
Unallocated corporate expenses*     (185 )     (284 )     (229 )     (512 )
Stock-based compensation     (3,884 )     (4,561 )     (8,018 )     (8,368 )
Amortization of intangibles     (1,532 )     (6,200 )     (3,439 )     (12,866 )
Income (loss) from operations     (343 )     (8,649 )     (330 )     (15,871 )
Non-operating income (expense)     76       (60 )     (2,880 )     29  
Loss before income taxes   $ (267 )   $ (8,709 )   $ (3,210 )   $ (15,842 )
                                 

*Unallocated corporate expenses include certain corporate-level operating expenses and charges such as restructuring and related charges.

   
Harmonic Inc.  
GAAP to Non-GAAP Reconciliations (Unaudited)  
(In thousands, except percentages and per share data)  
   
    Three months ended  
    July 3, 2015  
    Gross Profit     Total Operating Expense     Income (Loss) from Operations     Net Income (Loss)  
GAAP   $ 54,385     $ 54,728     $ (343 )   $ (994 )
  Stock-based compensation in cost of revenue     422       -       422       422  
  Stock-based compensation in research and development     -       (1,027 )     1,027       1,027  
  Stock-based compensation in selling, general and administrative     -       (2,435 )     2,435       2,435  
  Amortization of intangibles     86       (1,446 )     1,532       1,532  
  Restructuring and related charges     -       (185 )     185       185  
  Discrete tax items and tax effect of non-GAAP adjustments     -       -       -       (393 )
Non-GAAP   $ 54,893     $ 49,635     $ 5,258     $ 4,214  
  As a % of revenue (GAAP)     52.7 %     53.1 %     (0.3 ) %     (1.0 ) %
  As a % of revenue (Non-GAAP)     53.2 %     48.1 %     5.1 %     4.1 %
                                 
Diluted net income (loss) per share:                                
  Diluted net loss per share-GAAP                           $ (0.01 )
  Diluted net income per share-Non-GAAP                           $ 0.05  
Shares used to compute diluted net income (loss) per share:                                
  GAAP                             88,426  
  Non-GAAP                             89,444  
                                 
    Three months ended  
    April 3, 2015  
    Gross Profit     Total Operating Expense     Income from Operations     Net Income (Loss)  
GAAP   $ 55,028     $ 55,015     $ 13     $ (2,657 )
  Stock-based compensation in cost of revenue     528       -       528       528  
  Stock-based compensation in research and development     -       (1,148 )     1,148       1,148  
  Stock-based compensation in selling, general and administrative     -       (2,458 )     2,458       2,458  
  Amortization of intangibles     461       (1,446 )     1,907       1,907  
  Restructuring and related charges     -       (44 )     44       44  
  Loss on impairment of long-term investment     -       -       -       2,505  
  Discrete tax items and tax effect of non-GAAP adjustments     -       -       -       (1,472 )
Non-GAAP   $ 56,017     $ 49,919     $ 6,098     $ 4,461  
  As a % of revenue (GAAP)     52.9 %     52.9 %     0.01 %     (2.6 ) %
  As a % of revenue (Non-GAAP)     53.9 %     48.0 %     5.9 %     4.3 %
Diluted net income (loss) per share:                                
  Diluted net loss per share-GAAP                           $ (0.03 )
  Diluted net income per share-Non-GAAP                           $ 0.05  
Shares used to compute diluted net income (loss) per share:                                
  GAAP                             88,655  
  Non-GAAP                             90,100  
                                 
    Three months ended  
    June 27, 2014  
    Gross Profit     Total Operating Expense     Income (Loss) from Operations     Net Income (Loss)  
GAAP   $ 49,817     $ 58,466     $ (8,649 )   $ (37,062 )
  Stock-based compensation in cost of revenue     623       -       623       623  
  Stock-based compensation in research and development     -       (1,269 )     1,269       1,269  
  Stock-based compensation in selling, general and administrative     -       (2,669 )     2,669       2,669  
  Amortization of intangibles     4,482       (1,718 )     6,200       6,200  
  Restructuring and related charges     -       (284 )     284       284  
  Discrete tax items and tax effect of non-GAAP adjustments     -       -       -       27,863  
Non-GAAP   $ 54,922     $ 52,526     $ 2,396     $ 1,846  
  As a % of revenue (GAAP)     45.5 %     53.4 %     (7.9 ) %     (33.8 ) %
  As a % of revenue (Non-GAAP)     50.1 %     47.9 %     2.2 %     1.7 %
Diluted net income (loss) per share:                                
  Diluted net loss per share-GAAP                           $ (0.39 )
  Diluted net income per share-Non-GAAP                           $ 0.02  
Shares used to compute diluted net income (loss) per share:                                
  GAAP                             93,966  
  Non-GAAP                             95,294  
                                   

CONTACTS:

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

Blair King
Director, Investor Relations
Harmonic Inc.
+1.408.490.6172

Source: Harmonic Inc.

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