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Harmonic Announces Third Quarter 2015 Results

SAN JOSE, CA -- (Marketwired) -- 10/27/15 -- Harmonic Inc.(NASDAQ: HLIT), the worldwide leader in video delivery infrastructure, announced today its preliminary and unaudited results for the third quarter of 2015.

Net revenue for the third quarter of 2015 was $83.3 million, compared with $103.1 million for the second quarter of 2015 and $108.1 million for the third quarter of 2014.

Bookings for the third quarter of 2015 were $74.6 million, compared with $99.3 million for the second quarter of 2015 and $97.8 million for the third quarter of 2014.

Total backlog and deferred revenue was $110.8 million as of October 2, 2015, compared to $120.6 million as of July 3, 2015.

GAAP net loss for the third quarter of 2015 was $(4.8) million, or $(0.05) per diluted share, compared with a GAAP net loss for the second quarter of 2015 of $(1.0) million, or $(0.01) per diluted share, and a GAAP net income of $1.1 million, or $0.01 per diluted share, for the third quarter of 2014.

Non-GAAP net loss for the third quarter of 2015 was $(0.2) million, or $0.00 per diluted share, compared with a non-GAAP net income for the second quarter of 2015 of $4.2 million, or $0.05 per diluted share, and a non-GAAP net income of $5.1 million, or $0.06 per diluted share, for the third quarter of 2014. See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Reconciliations" below.

GAAP gross margin was 55.5% and GAAP operating margin was (7.5)% for the third quarter of 2015, compared with 52.7% and (0.3)%, respectively, for the second quarter of 2015, and 49.4% and (3.3)%, respectively, for the same period in 2014.

Non-GAAP gross margin was 56.3% and non-GAAP operating margin was (0.5)% for the third quarter of 2015, compared with 53.2% and 5.1%, respectively, for the second quarter of 2015, and 53.6% and 6.2%, 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 $87.6 million at the end of the third quarter of 2015, down $17.5 million from $105.1 million at the end of the prior quarter. In the third quarter of 2015, the Company used approximately $5.0 million of cash from operations, and used approximately $7.8 million to repurchase approximately 1.3 million shares of common stock under its share repurchase program.

Business Outlook

For the fourth quarter of 2015, Harmonic anticipates:

  • Net revenue in the range of $78 million to $88 million
  • GAAP gross margins in the range of 53% to 54%
  • GAAP operating expenses in the range of $52 million to $53 million
  • Non-GAAP gross margins in the range of 54% to 55%
  • Non-GAAP operating expenses in the range of $46 million to $47 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 Tuesday, October 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 +1.847.619.6397 or +1.800.708.4540 (passcode 40861736). 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 40861736#).

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 third quarter ended October 2, 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 fourth 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 July 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)
       
  October 2, 2015   December 31, 2014
  (In thousands, except par value amounts)
ASSETS      
Current assets:      
Cash and cash equivalents $ 61,571     $ 73,032  
Short-term investments   25,990       31,847  
Accounts receivable, net   64,128       74,144  
Inventories   39,873       32,747  
Deferred income taxes, short-term   3,375       3,375  
Prepaid expenses and other current assets   31,709       17,539  
Total current assets   226,646       232,684  
           
Property and equipment, net   26,619       27,221  
Goodwill, intangibles and other assets   213,643       220,613  
Total assets $ 466,908     $ 480,518  
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities:          
Accounts payable $ 16,626     $ 15,318  
Income taxes payable   176       893  
Deferred revenue   43,350       38,601  
Accrued liabilities   29,139       35,118  
Total current liabilities   89,291       89,930  
           
Income taxes payable, long-term   4,296       4,969  
Deferred tax liabilities, long-term   3,095       3,095  
Other non-current liabilities   10,358       10,711  
Total liabilities   107,040       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; 87,477 and 87,700 shares issued and outstanding at October 2, 2015 and December 31, 2014, respectively   87       88  
Additional paid-in capital   2,259,757       2,261,952  
Accumulated deficit   (1,896,709 )     (1,888,247 )
Accumulated other comprehensive loss   (3,267 )     (1,980 )
Total stockholders' equity   359,868       371,813  
Total liabilities and stockholders' equity $ 466,908     $ 480,518  
               
 
Harmonic Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
 
  Three months ended   Nine months ended
  October 2, 2015   September 26, 2014   October 2, 2015   September 26, 2014
  (in thousands, except per share amounts)
Net revenue $ 83,305     $ 108,061     $ 290,424     $ 325,682  
Cost of revenue   37,074       54,633       134,780       170,125  
Gross profit   46,231       53,428       155,644       155,557  
Operating expenses:                      
Research and development   21,679       22,803       65,824       70,176  
Selling, general and administrative   28,966       32,114       91,443       98,640  
Amortization of intangibles   1,446       1,661       4,338       5,329  
Restructuring and related charges   397       388       626       821  
Total operating expenses   52,488       56,966       162,231       174,966  
Loss from operations   (6,257 )     (3,538 )     (6,587 )     (19,409 )
Interest and other income (expense), net   178       (214 )     (197 )     (185 )
Loss on impairment of long-term investment   -       -       (2,505 )     -  
Loss before income taxes   (6,079 )     (3,752 )     (9,289 )     (19,594 )
(Benefit from) provision for income taxes   (1,268 )     (4,830 )     (827 )     21,800  
Net income (loss) $ (4,811 )   $ 1,078     $ (8,462 )   $ (41,394 )
Net income (loss) per share:                      
Basic $ (0.05 )   $ 0.01     $ (0.10 )   $ (0.44 )
Diluted $ (0.05 )   $ 0.01     $ (0.10 )   $ (0.44 )
Shares used in per share calculation:                      
Basic   87,991       90,618       88,359       94,113  
Diluted   87,991       91,800       88,359       94,113  
                               
 
Harmonic Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
  Nine months ended
  October 2, 2015   September 26, 2014
  (In thousands)
Cash flows from operating activities:      
Net loss $ (8,462 )   $ (41,394 )
Adjustments to reconcile net loss to net cash provided by operating activities:          
Amortization of intangibles   4,971       18,378  
Depreciation   10,143       12,641  
Stock-based compensation   11,845       12,720  
Loss on impairment of long-term investment   2,505       -  
Deferred income taxes   -       31,782  
Provision for excess and obsolete inventories   1,234       2,013  
Allowance for doubtful accounts, returns and discounts   576       (116 )
Excess tax benefits from stock-based compensation   -       (194 )
Other non-cash adjustments, net   354       1,108  
Changes in assets and liabilities:          
Accounts receivable   9,440       (472 )
Inventories   (7,936 )     2,401  
Prepaid expenses and other assets   (13,817 )     (5,321 )
Accounts payable   1,772       (786 )
Deferred revenue   5,237       7,770  
Income taxes payable   (1,372 )     (8,292 )
Accrued and other liabilities   (7,926 )     (4,717 )
Net cash provided by operating activities   8,564       27,521  
Cash flows from investing activities:          
Purchases of investments   (20,714 )     (26,599 )
Proceeds from sales and maturities of investments   26,534       50,644  
Purchases of property and equipment   (10,393 )     (8,859 )
Purchases of long-term investments   (85 )     (5,867 )
Restricted cash   (1,091 )     -  
Net cash (used in) provided by investing activities   (5,749 )     9,319  
Cash flows from financing activities:          
Payments for repurchase of common stock   (20,007 )     (86,407 )
Net proceeds from common stock issued to employees   5,967       1,241  
Excess tax benefits from stock-based compensation   -       194  
Net cash used in financing activities   (14,040 )     (84,972 )
Effect of exchange rate changes on cash and cash equivalents   (236 )     (169 )
Net decrease in cash and cash equivalents   (11,461 )     (48,301 )
Cash and cash equivalents at beginning of period   73,032       90,329  
Cash and cash equivalents at end of period $ 61,571     $ 42,028  
               
 
Harmonic Inc.
Revenue Information
(Unaudited)
 
  Three months ended   Nine months ended
  October 2, 2015   September 26,
 2014
  October 2, 2015   September 26,
 2014
  (In thousands, except percentages)
Product                              
Video Products $ 48,629     59 %   $ 60,668     56 %   $ 153,439     53 %   $ 181,882     56 %
Cable Edge   8,616     10 %     23,915     22 %     61,726     21 %     77,488     24 %
Services and Support   26,060     31 %     23,478     22 %     75,259     26 %     66,312     20 %
Total $ 83,305     100 %   $ 108,061     100 %   $ 290,424     100 %   $ 325,682     100 %
                                       
Geography                                      
Americas $ 44,926     54 %   $ 60,007     56 %   $ 165,786     57 %   $ 184,959     57 %
EMEA   19,269     23 %     27,430     25 %     71,302     25 %     83,136     25 %
APAC   19,110     23 %     20,624     19 %     53,336     18 %     57,587     18 %
Total $ 83,305     100 %   $ 108,061     100 %   $ 290,424     100 %   $ 325,682     100 %
                                       
Market                                      
Service Provider $ 46,451     56 %   $ 67,497     62 %   $ 178,466     61 %   $ 214,055     66 %
Broadcast and Media   36,854     44 %     40,564     38 %     111,958     39 %     111,627     34 %
Total $ 83,305     100 %   $ 108,061     100 %   $ 290,424     100 %   $ 325,682     100 %
                                                       
 
Harmonic Inc.
Segment Revenue and Operating Income (Loss)
(Unaudited)
 
  Three months ended   Nine months ended
  October 2, 2015   September 26, 2014   October 2, 2015   September 26, 2014
  (In thousands)
Net revenue:              
  Video $ 71,889     $ 81,360     $ 219,378     $ 239,823  
  Cable Edge   11,416       26,701       71,046       85,859  
Total consolidated net revenue $ 83,305     $ 108,061     $ 290,424     $ 325,682  
                       
Operating income (loss):                      
  Video $ 3,575     $ 6,609     $ 8,386     $ 9,426  
  Cable Edge   (3,963 )     120       2,582       3,178  
Total segment operating income (loss)   (388 )     6,729       10,968       12,604  
Unallocated corporate expenses*   (510 )     (403 )     (739 )     (915 )
Stock-based compensation   (3,827 )     (4,352 )     (11,845 )     (12,720 )
Amortization of intangibles   (1,532 )     (5,512 )     (4,971 )     (18,378 )
Loss from operations   (6,257 )     (3,538 )     (6,587 )     (19,409 )
Non-operating income (expense)   178       (214 )     (2,702 )     (185 )
Loss before income taxes $ (6,079 )   $ (3,752 )   $ (9,289 )   $ (19,594 )
                               

*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
  October 2, 2015
  Gross Profit Total Operating Expense Loss from Operations Net loss
GAAP $ 46,231   $ 52,488   $ (6,257 ) $ (4,811 )
  Stock-based compensation in cost of revenue   433     -     433     433  
  Stock-based compensation in research and development   -     (1,074 )   1,074     1,074  
  Stock-based compensation in selling, general and administrative   -     (2,320 )   2,320     2,320  
  Amortization of intangibles   86     (1,446 )   1,532     1,532  
  Restructuring and related charges   113     (397 )   510     510  
  Discrete tax items and tax effect of non-GAAP adjustments   -     -     -     (1,224 )
Non-GAAP $ 46,863   $ 47,251   $ (388 ) $ (166 )
As a % of revenue (GAAP)   55.5 %   63.0 %   (7.5 )%   (5.8 )%
As a % of revenue (Non-GAAP)   56.3 %   56.7 %   (0.5 )%   (0.2 )%
                 
Diluted net loss per share:                
  Diluted net loss per share-GAAP             $ (0.05 )
  Diluted net loss per share-Non-GAAP             $ 0.00  
Shares used to compute diluted net loss per share:                
  GAAP               87,991  
  Non-GAAP               87,991  
                 
    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
    September 26, 2014
    Gross Profit   Total Operating Expense   Income (Loss) from Operations   Net Income
GAAP $ 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 $ 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 net income per share:                
  Diluted net income per share-GAAP             $ 0.01  
  Diluted net income per share-Non-GAAP             $ 0.06  
Shares used to compute diluted net income per share:                
  GAAP               91,800  
  Non-GAAP               91,800  
                     

CONTACTS:

Hal Covert
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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