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Harmonic Announces Second Quarter 2017 Results

SAN JOSE, Calif., July 31, 2017 /PRNewswire/ -- Harmonic Inc. (NASDAQ: HLIT), the worldwide leader in video delivery infrastructure, announced today its unaudited results for the second quarter of 2017.

Harmonic logo

GAAP net revenue for the second quarter of 2017 was $82.3 million, compared with $82.9 million for the first quarter of 2017 and $109.6 million for the second quarter of 2016.

Non-GAAP net revenue for the second quarter of 2017 was $82.3 million, compared with $83.5 million for the first quarter of 2017 and $110.4 million for the second quarter of 2016.

Bookings for the second quarter of 2017 were $91.1 million, compared with $82.1 million for the first quarter of 2017 and $117.3 million for the second quarter of 2016.

The GAAP net loss for the second quarter of 2017 was $(31.5) million, or $(0.39) per diluted share, compared with a GAAP net loss for the first quarter of 2017 of $(24.0) million, or $(0.30) per diluted share, and a GAAP net loss of $(20.7) million, or $(0.27) per diluted share, for the second quarter of 2016.

The non-GAAP net loss for the second quarter of 2017 was $(15.7) million, or $(0.20) per diluted share, compared with non-GAAP net loss for the first quarter of 2017 of $(11.2) million, or $(0.14) per diluted share, and a non-GAAP net loss of $(0.2) million, or $0.00 per diluted share, for the second quarter of 2016. See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Reconciliations" below.

Total cash, cash equivalents and short-term investments were $52.9 million at the end of the second quarter of 2017, down $2.4 million from $55.3 million at the end of the prior quarter.

"Market demand for video infrastructure delivered through SaaS is accelerating," said Patrick Harshman, president and chief executive officer of Harmonic. "During Q2 2017, with respect to our OTT SaaS business, TCV grew 90% sequentially to 8% of total bookings, reducing near-term revenue and profitability but establishing a trajectory for stronger financial performance mid- to long-term. Additionally, recent material CableOS bookings and field deployment success bolster our confidence in the growth outlook for our Cable Edge segment."

Outlook and Financial Guidance


GAAP Financial Guidance


Q3 2017


Q4 2017


2017


Low


High


Low


High


Low


High




(in millions, except percentages and per share data)

Net Revenue


$

80.0



$

90.0



$

90.0



$

100.0



$

335.5



$

355.5



Video


$

72.0



$

81.0



$

80.0



$

86.0



$

299.9



$

314.9



Cable Edge


$

8.0



$

9.0



$

10.0



$

14.0



$

35.6



$

40.6


Gross Margin %


48.0

%


49.0

%


50.0

%


51.0

%


47.0

%


48.0

%


Video


52.0

%


53.0

%


52.0

%


54.0

%


51.0

%


52.0

%


Cable Edge


19.0

%


20.0

%


26.0

%


28.0

%


13.0

%


14.0

%

Operating Expenses


$

55.7



$

57.7



$

53.7



$

55.7



$

232.5



$

236.5


Operating Loss


$

(19.3)



$

(11.3)



$

(10.8)



$

(2.3)



$

(79.3)



$

(62.3)


Tax benefit (expense)


$

1.7



$

1.7



$

(0.7)



$

(0.7)



$

0.6



$

0.6


EPS


$

(0.25)



$

(0.16)



$

(0.18)



$

(0.07)



$

(1.11)



$

(0.94)


Shares


81.4



81.4



82.0



82.0



81.0



81.0


Cash and short-term investments


$

40.0



$

50.0



$

40.0



$

50.0



$

40.0



$

50.0



























Non-GAAP Financial Guidance


Q3 2017


Q4 2017


2017


Low


High


Low


High


Low


High




(in millions, except percentages and per share data)

Net Revenue


$

80.0



$

90.0



$

90.0



$

100.0



$

336.0



$

356.0



Video


$

72.0



$

81.0



$

80.0



$

86.0



$

300.0



$

315.0



Cable Edge


$

8.0



$

9.0



$

10.0



$

14.0



$

36.0



$

41.0


Gross Margin %


51.0

%


52.0

%


52.0

%


53.5

%


51.0

%


51.5

%


Video


55.0

%


56.0

%


55.0

%


57.0

%


54.0

%


55.0

%


Cable Edge


20.0

%


21.0

%


27.0

%


29.0

%


24.0

%


25.0

%

Operating Expenses


$

48.0



$

50.0



$

48.0



$

50.0



$

207.0



$

211.0


Operating Income (Loss)


$

(9.0)



$

(1.0)



$

(3.0)



$

5.5



$

(40.0)



$

(23.0)


Tax rate


15

%


15

%


15

%


15

%


15

%


15

%

EPS


$

(0.11)



$

(0.03)



$

(0.05)



$

0.04



$

(0.50)



$

(0.33)


Shares


81.4



81.4



82.0



84.0



81.0



81.0


Cash and short-term investments


$

40.0



$

50.0



$

40.0



$

50.0



$

40.0



$

50.0


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, July 31, 2017. A listen-only broadcast of the conference call can be accessed either from the Company's website at www.harmonicinc.com or by calling +1.800.240.9147 or +1.574.990.1032 (passcode 53385607). A replay of the conference call will be available after 4:30 p.m. Pacific at the same website address or by calling +1.855.859.2056 or +1.404.537.3406 (passcode 53385607).

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: 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 loss, non-GAAP tax rate and non-GAAP EPS for the third and fourth quarter of 2017 and for the fiscal year ended December 31, 2017, share count, cash and short-term investments at the end of the third and fourth quarter of 2017 and December 31, 2017, accelerating market demand for video infrastructure delivered through SaaS, the trajectory of our future financial performance, and the growth of our Cable Edge segment. 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; 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:

Total Contract Value (TCV) - TCV bookings for OTT SaaS are comprised of the total value of new customer contracts closed during a specified period, including license, maintenance and services contracts, that we believe to be firm commitments to provide our software solutions and related services. Bookings by their nature are significantly based on estimates and judgments that we make regarding total contract values, and bookings are not meant as a substitute measure for revenue in accordance with GAAP.

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 of 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 are 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 entered into a warrant agreement with 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.

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 Condensed Consolidated Balance Sheets

(Unaudited, in thousands, except per share data)



June 30, 2017


December 31, 2016

ASSETS




Current assets:




   Cash and cash equivalents

$

52,885



$

55,635


   Short-term investments



6,923


   Accounts receivable, net

60,427



86,765


   Inventories

35,130



41,193


   Prepaid expenses and other current assets

24,318



26,319


Total current assets

172,760



216,835


Property and equipment, net

31,624



32,164


Goodwill

240,570



237,279


Intangibles, net

25,317



29,231


Other long-term assets

37,745



38,560


Total assets

$

508,016



$

554,069






LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




   Other debts and capital lease obligations, current

$

7,130



$

7,275


   Accounts payable

31,322



28,892


   Income taxes payable

1,349



1,166


   Deferred revenue

55,165



52,414


   Accrued and other current liabilities

50,272



55,150


Total current liabilities

145,238



144,897


Convertible notes, long-term

105,935



103,259


Other debts and capital lease obligations, long-term

9,292



13,915


Income taxes payable, long-term

2,996



2,926


Deferred tax liabilities, long-term

258




Other non-current liabilities

16,716



18,431


Total liabilities

280,435



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; 80,669 and 78,456 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively

81



78


   Additional paid-in capital

2,260,886



2,254,055


   Accumulated deficit

(2,030,384)



(1,976,222)


   Accumulated other comprehensive loss

(3,002)



(7,270)


Total stockholders' equity

227,581



270,641


Total liabilities and stockholders' equity

$

508,016



$

554,069


 


Harmonic Inc.

Preliminary Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except per share data)



Three months ended


Six months ended


June 30, 2017


July 1, 2016


June 30, 2017


July 1, 2016

Revenue:








Product

$

50,190



$

77,413



$

100,594



$

135,057


Services

32,125



32,158



64,664



56,346


Total net revenue

82,315



109,571



165,258



191,403


Cost of revenue:








Product

32,005



44,049



58,107



71,238


Services

16,495



14,482



32,928



28,471


Total cost of revenue

48,500



58,531



91,035



99,709


   Gross profit

33,815



51,040



74,223



91,694


Operating expenses:








   Research and development

27,055



26,507



51,937



50,070


   Selling, general and administrative

32,625



36,516



67,256



69,386


   Amortization of intangibles

780



4,232



1,554



6,597


   Restructuring and related charges

777



1,903



2,056



4,515


      Total operating expenses

61,237



69,158



122,803



130,568


Loss from operations

(27,422)



(18,118)



(48,580)



(38,874)


Interest expense, net

(2,680)



(2,651)



(5,270)



(5,072)


Other Income (expense), net

(819)



332



(1,330)



323


Loss on impairment of long-term investment







(1,476)


Loss before income taxes

(30,921)



(20,437)



(55,180)



(45,099)


Provision for income taxes

579



242



347



760


Net loss

$

(31,500)



$

(20,679)



$

(55,527)



$

(45,859)


Net loss per share:








   Basic and diluted

$

(0.39)



$

(0.27)



$

(0.69)



$

(0.59)


Shares used in per share calculation:








   Basic and diluted

80,590



77,342



80,203



77,168


 


Harmonic Inc.

Preliminary Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)



Six months ended


June 30, 2017


July 1, 2016

Cash flows from operating activities:




Net loss

$

(55,527)



$

(45,859)


Adjustments to reconcile net loss to net cash provided by (used in) operating activities:




   Amortization of intangibles

4,144



8,322


   Depreciation

7,139



7,737


   Stock-based compensation

7,387



5,862


   Amortization of discount on convertible debt

2,676



2,417


   Amortization of non-cash warrant

416




   Restructuring, asset impairment and loss on retirement of fixed assets

228



1,687


   Loss on impairment of long-term investment



1,476


   Deferred income taxes

(38)



38


   Provision for excess and obsolete inventories

5,094



5,203


   Allowance for doubtful accounts, returns and discounts

3,274



697


   Other non-cash adjustments, net

189



144


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




      Accounts receivable

23,479



(16,000)


      Inventories

2,912



3,158


      Prepaid expenses and other assets

5,933



(4,148)


      Accounts payable

1,434



2,168


      Deferred revenue

1,308



25,956


      Income taxes payable

228



(122)


      Accrued and other liabilities

(7,662)



(7,029)


Net cash provided by (used in) operating activities

2,614



(8,293)


Cash flows from investing activities:




Acquisition of business, net of cash acquired



(72,989)


   Proceeds from maturities and sale of investments

6,898



12,842


   Purchases of property and equipment

(5,943)



(7,708)


Net cash provided by (used in) investing activities

955



(67,855)


Cash flows from financing activities:




  Payment of convertible debt issuance costs



(582)


  Proceeds from other debts and capital leases

164



5,972


  Repayment of other debts and capital leases

(6,650)



(6,524)


   Proceeds from common stock issued to employees

2,117



3,737


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

(2,726)



(1,034)


Net cash (used in) provided by financing activities

(7,095)



1,569


Effect of exchange rate changes on cash and cash equivalents

776



(95)


Net decrease in cash and cash equivalents

(2,750)



(74,674)


Cash and cash equivalents at beginning of period

55,635



126,190


Cash and cash equivalents at end of period

$

52,885



$

51,516


 


Harmonic Inc.

Preliminary Revenue Information

(Unaudited, in thousands, except percentages)



Three months ended


June 30, 2017


March 31, 2017


July 1, 2016


GAAP

Adjust-
ments

Non-GAAP


GAAP

Adjust-
ments(1)

Non-GAAP


GAAP

Adjust-
ments(1)

Non-GAAP

Product















Video Products

$

44,824


$


$

44,824


54%


$

45,518


$


$

45,518


55%


$

61,662


$

205


$

61,867


56%

Cable Edge

5,366



5,366


7%


4,886


191


5,077


6%


15,751


$


15,751


14%

Services and Support

32,125



32,125


39%


32,539


336


32,875


39%


32,158


575


32,733


30%

Total

$

82,315


$


$

82,315


100%


$

82,943


$

527


$

83,470


100%


$

109,571


$

780


$

110,351


100%
















Geography















Americas

$

40,611


$


$

40,611


50%


$

37,906


$

416


$

38,322


46%


$

57,680


$

143


$

57,823


52%

EMEA

24,953



24,953


30%


25,439


111


25,550


31%


33,456


467


33,923


31%

APAC

16,751



16,751


20%


19,598



19,598


23%


18,435


170


18,605


17%

Total

$

82,315


$


$

82,315


100%


$

82,943


$

527


$

83,470


100%


$

109,571


$

780


$

110,351


100%
















Market















Service Provider

$

46,420


$


$

46,420


56%


$

48,028


$

416


$

48,444


58%


$

65,733


$

329


$

66,062


60%

Broadcast and Media

35,895



35,895


44%


34,915


111


35,026


42%


43,838


451


44,289


40%

Total

$

82,315


$


$

82,315


100%


$

82,943


$

527


$

83,470


100%


$

109,571


$

780


$

110,351


100%







































Six months ended













June 30, 2017


July 1, 2016













GAAP

Adjust-

ments(1)

Non-GAAP


GAAP

Adjust-
ments(1)

Non-GAAP

Product





















Video Products












$

90,342


$


$

90,342


55%


$

105,874


$

560


$

106,434


55%

Cable Edge












10,252


191


10,443


6%


29,183



29,183


15%

Services and Support












64,664


336


65,000


39%


56,346


843


57,189


30%

Total












$

165,258


$

527


$

165,785


100%


$

191,403


$

1,403


$

192,806


100%






















Geography





















Americas












$

78,517


$

416


$

78,933


48%


$

106,657


$

224


$

106,881


55%

EMEA












50,392


111


50,503


30%


53,311


868


54,179


28%

APAC












36,349



36,349


22%


31,435


311


31,746


17%

Total












$

165,258


$

527


$

165,785


100%


$

191,403


$

1,403


$

192,806


100%






















Market





















Service Provider












$

94,448


$

416


$

94,864


57%


$

117,003


$

478


$

117,481


61%

Broadcast and Media












70,810


111


70,921


43%


74,400


925


75,325


39%

Total












$

165,258


$

527


$

165,785


100%


$

191,403


$

1,403


$

192,806


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 June 30, 2017


Video


Cable Edge


Total Segment
Measures


Adjustments (1)


Consolidated GAAP
Measures

Net revenue

$

73,379



$

8,936



$

82,315



$



$

82,315


Gross profit

37,720



1,699



39,419



(5,604)



33,815


Gross margin%

51.4

%


19.0

%


47.9

%




41.1

%

Operating loss

(8,947)



(7,411)



(16,358)



(11,064)



(27,422)


Operating margin%

(12.2)

%


(82.9)

%


(19.9)

%




(33.3)

%












Three months ended March 31, 2017


Video


Cable Edge


Total Segment
Measures


Adjustments (1)


Consolidated GAAP
Measures

Net revenue

$

74,453



$

9,017



$

83,470



$

(527)



$

82,943


Gross profit

40,884



2,626



43,510



(3,102)



40,408


Gross margin%

54.9

%


29.1

%


52.1

%




48.7

%

Operating loss

(5,725)



(5,664)



(11,389)



(9,769)



(21,158)


Operating margin%

(7.7)

%


(62.8)

%


(13.6)%





(25.5)

%












Three months ended July 1, 2016


Video


Cable Edge


Total Segment
Measures


Adjustments (1)


Consolidated GAAP
Measures

Net revenue

$

91,368



$

18,983



$

110,351



$

(780)



$

109,571


Gross profit

51,233



7,276



58,509



(7,469)



51,040


Gross margin%

56.1

%


38.3

%


53.0

%




46.6

%

Operating income (loss)

1,298



(498)



800



(18,918)



(18,118)


Operating margin%

1.4

%


(2.6)

%


0.7

%




(16.5)

%












Six months ended June 30, 2017


Video


Cable Edge


Total Segment
Measures


Adjustments (1)


Consolidated GAAP
Measures

Net revenue

$

147,832



$

17,953



$

165,785



$

(527)



$

165,258


Gross profit

78,604



4,325



82,929



(8,706)



74,223


Gross margin%

53.2

%


24.1

%


50.0

%




44.9

%

Operating loss

(14,672)



(13,075)



(27,747)



(20,833)



(48,580)


Operating margin%

(9.9)

%


(72.8)

%


(16.7)

%




(29.4)

%












Six months ended July 1, 2016 (2)


Video


Cable Edge


Total Segment
Measures


Adjustments (1)


Consolidated GAAP
Measures

Net revenue

$

156,999



$

35,807



$

192,806



$

(1,403)



$

191,403


Gross profit

86,125



14,524



100,649



(8,955)



91,694


Gross margin%

54.9

%


40.6

%


52.2

%




47.9

%

Operating loss

(5,238)



(2,350)



(7,588)



(31,286)



(38,874)


Operating margin%

(3.3)

%


(6.6)

%


(3.9)

%




(20.3)

%


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


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

 


Harmonic Inc.

GAAP to Non-GAAP Reconciliations (Unaudited)

(In thousands, except percentages and per share data)



Three months ended


June 30, 2017


Revenue

Gross
Profit

Total
Operating
Expense

Loss from
Operations

Total Non-
operating
Expense, net

Net Loss

GAAP

$

82,315


$

33,815


$

61,237


$

(27,422)


$

(3,499)


$

(31,500)


  Cable Edge inventory charge


3,331



3,331



3,331


  Stock-based compensation in cost of revenue


700



700



700


  Stock-based compensation in research and development



(1,337)


1,337



1,337


  Stock-based compensation in selling, general and administrative



(2,099)


2,099



2,099


  Amortization of intangibles


1,295


(780)


2,075



2,075


  Restructuring and related charges


278


(777)


1,055



1,055


  TVN acquisition-and integration-related costs



(467)


467



467


  Non-cash interest expenses related to convertible notes





1,360


1,360


  Discrete tax items and tax effect of non-GAAP adjustments






3,354


Total adjustments


5,604


(5,460)


11,064


1,360


15,778









Non-GAAP

$

82,315


$

39,419


$

55,777


$

(16,358)


$

(2,139)


$

(15,722)


As a % of revenue (GAAP)


41.1

%

74.4

%

(33.3)

%

(4.3)

%

(38.3)

%

As a % of revenue (Non-GAAP)


47.9

%

67.8

%

(19.9)

%

(2.6)

%

(19.1)

%

Diluted net loss per share:







  Diluted net loss per share-GAAP







$

(0.39)


  Diluted net loss per share-Non-GAAP







$

(0.20)


Shares used to compute diluted net loss per share:







  GAAP and Non-GAAP








80,590










Three months ended


March 31, 2017


Revenue

Gross
Profit

Total
Operating
Expense

Loss from
Operations

Total Non-
operating
Expense, net

Net Loss

GAAP

$

82,943


$

40,408


$

61,566


$

(21,158)


$

(3,101)


$

(24,027)


  Cable Edge inventory charge


(15)



(15)



(15)


  Acquisition accounting impact related to TVN deferred revenue

111


111



111



111


  Accounting impact related to warrant amortization

416


416



416



416


  Stock-based compensation in cost of revenue


445



445



445


  Stock-based compensation in research and development



(977)


977



977


  Stock-based compensation in selling, general and administrative



(1,829)


1,829



1,829


  Amortization of intangibles


1,295


(774)


2,069



2,069


  Restructuring and related charges


508


(1,279)


1,787



1,787


  TVN acquisition-and integration-related costs


342


(1,808)


2,150



2,150


  Non-cash interest expenses related to convertible notes





1,316


1,316


  Discrete tax items and tax effect of non-GAAP adjustments






1,744


Total adjustments

527


3,102


(6,667)


9,769


1,316


12,829









Non-GAAP

$

83,470


$

43,510


$

54,899


$

(11,389)


$

(1,785)


$

(11,198)


As a % of revenue (GAAP)


48.7

%

74.2

%

(25.5)

%

(3.7)

%

(29.0)

%

As a % of revenue (Non-GAAP)


52.1

%

65.8

%

(13.6)

%

(2.1)

%

(13.4)

%

Diluted net loss per share:







  Diluted net loss per share-GAAP







$

(0.30)


  Diluted net loss per share-Non-GAAP







$

(0.14)


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







  GAAP and Non-GAAP








79,810



Three months ended


July 1, 2016


Revenue

Gross
Profit

Total
Operating
Expense

Income
(Loss)
from
Operations

Total Non-
operating
Expense, net

Net Loss

GAAP

$

109,571


$

51,040


$

69,158


$

(18,118)


$

(2,319)


$

(20,679)


 Cable Edge inventory charge


4,519



4,519



4,519


  Acquisition accounting impacts related to TVN deferred revenue

780


780



780



780


  Stock-based compensation in cost of revenue


424



424



424


  Stock-based compensation in research and development



(841)


841



841


  Stock-based compensation in selling, general and administrative



(1,503)


1,503



1,503


  Amortization of intangibles


1,307


(4,232)


5,539



5,539


  Restructuring and related charges


6


(1,903)


1,909



1,909


  TVN acquisition-and integration-related costs


433


(2,970)


3,403



3,403


  Non-cash interest expenses related to convertible notes





1,233


1,233


  Discrete tax items and tax effect of non-GAAP adjustments






285


Total adjustments

780


7,469


(11,449)


18,918


1,233


20,436









Non-GAAP

$

110,351


$

58,509


$

57,709


$

800


$

(1,086)


$

(243)


As a % of revenue (GAAP)


46.6

%

63.1

%

(16.5)

%

(2.1)

%

(18.9)

%

As a % of revenue (Non-GAAP)


53.0

%

52.3

%

0.7

%

(1.0)

%

(0.2)