Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 8-K
 
 
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
October 30, 2017
 
Date of Report (Date of earliest event reported)
  
HARMONIC INC.
(Exact name of Registrant as specified in its charter)
 
 
Delaware
000-25826
77-0201147
(State or other jurisdiction of
incorporation or organization)
Commission
File Number
(I.R.S. Employer
Identification Number)
4300 North First Street
San Jose, CA 95134
(408) 542-2500
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
¨

Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐





Item 2.02
Results of Operations and Financial Condition.
On October 30, 2017, Harmonic Inc. (“Harmonic”) issued a press release regarding its unaudited financial results for the quarter ended September 29, 2017. In the press release, Harmonic also announced that it would be holding a conference call on October 30, 2017 to discuss its financial results for the quarter ended September 29, 2017. A copy of the press release is furnished as Exhibit 99.1 hereto, and the information in Exhibit 99.1 is incorporated herein by reference.
The information in this Item 2.02 of this Current Report on Form 8-K and Exhibit 99.1 attached hereto is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, and this Item 2.02 of this Current Report on Form 8-K and Exhibit 99.1 furnished herewith shall not be incorporated by reference into any filing by Harmonic under the Securities Act of 1933, as amended (the “Securities Act”), or under the Exchange Act.
 
Item 9.01
Financial Statements and Exhibits.
(d)    Exhibits
Exhibit No.
Description
99.1
Press release of Harmonic Inc. dated October 30 2017, entitled “Harmonic Announces Third Quarter 2017 Results.”


2



SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
 
 
Date: October 30, 2017
 
 
 
HARMONIC INC.
 
 
 
 
 
 
 
 
By:
 
/s/ Sanjay Kalra
 
 
 
 
 
 
Sanjay Kalra
 
 
 
 
 
 
Chief Financial Officer



3



EXHIBIT INDEX

Exhibit No.
Description
99.1


Exhibit


Exhibit 99.1
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11860057&doc=3
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11860057&doc=4
FOR IMMEDIATE RELEASE
Harmonic Announces Third Quarter 2017 Results
SAN JOSE, Calif.-October 30, 2017-Harmonic Inc. (NASDAQ: HLIT), the worldwide leader in video delivery technology and services, today announced its unaudited results for the third quarter of 2017.
Q3 Financial and Business Highlights
GAAP revenue of $92.0 million up 11.8%, and non-GAAP revenue of $91.6 million up 11.3%, sequentially
GAAP and non-GAAP Video revenue of $84.2 million up 14.7%, sequentially
GAAP gross margin up 10.0% from 41.1% to 51.1%, and non-GAAP gross margin up 5.5% from 47.9% to 53.4%, sequentially
GAAP operating expense flat, and non-GAAP operating expense down 14.5%, sequentially
GAAP operating margin of (15.4%) and non-GAAP operating margin of 1.4%
Record backlog and deferred revenue of $200.9 million, with CableOS backlog greater than $20 million
Video SaaS TCV 6% of total bookings, and ARR of $7 million up 37% sequentially
Surpassed 20,000 live OTT channels powered globally
Further expansion of CableOS deployments and advanced field trials
Settled Avid litigation
“We drove high single digit operating margin in our video segment through growth of our premium live OTT solutions and crisp cost control,” said Patrick Harshman, president and chief executive officer of Harmonic. “Our CableOS program also made significant progress, including a new tier 1 customer design win, expanded commercial deployments and trial activity, and a growing backlog of orders.”
Select Financial Information
 
 
GAAP
 
Non-GAAP
Key Financial Results
 
Q3 2017
 
Q2 2017
 
Q3 2016
 
Q3 2017
 
Q2 2017
 
Q3 2016
 
 
(in millions, except per share data)
Net revenue
 
$
92.0

 
$
82.3

 
$
101.4

 
$
91.6

 
$
82.3

 
$
101.7

Net loss
 
$
(15.6
)
 
$
(31.5
)
 
$
(16.0
)
 
$
(0.5
)
 
$
(15.7
)
 
$
(1.1
)
Diluted EPS
 
$
(0.19
)
 
$
(0.39
)
 
$
(0.21
)
 
$
(0.01
)
 
$
(0.20
)
 
$
(0.01
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Financial Information
Q3 2017
 
Q2 2017
 
Q3 2016
 
(in millions)
Bookings for the quarter
$
96.0

 
$
91.1

 
$
97.3

Backlog and deferred revenue as of quarter end
$
200.9

 
$
194.4

 
$
181.1

Cash and short-term investments as of quarter end
$
50.0

 
$
52.9

 
$
52.7

Explanations regarding our use of non-GAAP financial measures and related definitions, and reconciliations of our GAAP and non-GAAP measures, are provided in the sections below entitled “Use of Non-GAAP Financial Measures” and “GAAP to Non-GAAP Reconciliations”.









Outlook and Financial Guidance
GAAP Financial Guidance
 
Q4 2017
 
2017
 
Low
 
High
 
Low
 
High
 
 
 
(in millions, except percentages and per share data)
Net Revenue
 
$
90.0

 
$
100.0

 
$
347.9

 
$
357.9

 
Video
 
$
80.0

 
$
86.0

 
$
311.9

 
$
317.9

 
Cable Edge
 
$
10.0

 
$
14.0

 
$
36.0

 
$
40.0

Gross Margin %
 
50.0
%
 
51.0
%
 
48.0
%
 
49.0
%
 
Video
 
52.0
%
 
54.0
%
 
52.0
%
 
53.0
%
 
Cable Edge
 
26.0
%
 
28.0
%
 
12.0
%
 
14.0
%
Operating Expenses
 
$
54.4

 
$
56.4

 
$
238.0

 
$
240.0

Operating Loss
 
$
(11.5
)
 
$
(3.0
)
 
$
(73.2
)
 
$
(64.7
)
Tax benefit (expense)
 
$
(0.8
)
 
$
(0.8
)
 
$
0.8

 
$
0.8

EPS
 
$
(0.19
)
 
$
(0.08
)
 
$
(1.06
)
 
$
(0.96
)
Shares
 
82.0

 
82.0

 
81.0

 
81.0

Cash and short-term investments
 
$
40.0

 
$
50.0

 
$
40.0

 
$
50.0

Non-GAAP Financial Guidance
 
Q4 2017
 
2017
 
Low
 
High
 
Low
 
High
 
 
 
(in millions, except percentages and per share data)
Net Revenue
 
$
90.0

 
$
100.0

 
$
348.0

 
$
358.0

 
Video
 
$
80.0

 
$
86.0

 
$
312.0

 
$
318.0

 
Cable Edge
 
$
10.0

 
$
14.0

 
$
36.0

 
$
40.0

Gross Margin %
 
52.0
%
 
53.5
%
 
51.5
%
 
52.0
%
 
Video
 
55.0
%
 
57.0
%
 
55.0
%
 
55.5
%
 
Cable Edge
 
27.0
%
 
29.0
%
 
22.0
%
 
23.0
%
Operating Expenses
 
$
48.0

 
$
50.0

 
$
206.0

 
$
208.0

Operating Income (Loss)
 
$
(3.0
)
 
$
5.5

 
$
(28.5
)
 
$
(20.0
)
Tax rate
 
15
%
 
15
%
 
15
%
 
15
%
EPS
 
$
(0.05
)
 
$
0.04

 
$
(0.38
)
 
$
(0.29
)
Shares
 
82.0

 
82.5

 
81.0

 
81.0

Cash and short-term investments
 
$
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, October 30, 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 99911839). 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 99911839).
About Harmonic Inc.
Harmonic (NASDAQ: HLIT), the worldwide leader in video delivery technology and services, enables media companies and service providers to deliver ultra-high-quality broadcast and OTT video services to consumers globally. Harmonic has also revolutionized cable access networking via the industry’s first virtualized CCAP solution, enabling cable operators to more flexibly deploy gigabit internet service to consumers’ homes and mobile devices. Whether simplifying OTT video delivery via innovative cloud and software-as-a-service (SaaS) technologies, or powering the delivery of gigabit internet cable services,





Harmonic is changing the way media companies and service providers monetize live and VOD content on every screen. More information is available at www.harmonicinc.com.
Legal Notice Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements related to our expectations regarding: GAAP net revenue, GAAP gross margins, GAAP operating expenses, GAAP operating loss, GAAP tax expense, GAAP EPS, non-GAAP revenue, non-GAAP gross margins, non-GAAP operating expenses, non-GAAP operating income (loss), non-GAAP tax rate and non-GAAP EPS for the fourth quarter of 2017 and for the fiscal year ended December 31, 2017, share count, and cash and short-term investments at December 31, 2017. 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:
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 issued a warrant to a customer, Comcast Corporation, in September 2016 pursuant to which Comcast may purchase up to 7.8 million shares of Harmonic common stock. Vesting of the warrant shares is subject to Comcast achieving certain milestones and purchase volume commitments, and therefore the accounting guidance requires that the value of the warrant be recorded as a reduction in the Company’s net revenues. Until final vesting,





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.
Avid litigation settlement and associated legal fees - In the third quarter of fiscal 2017, we settled the patent litigation with Avid Technology, Inc. by entering into a settlement and patent portfolio cross-license agreement with Avid. Under the agreement, we agreed to pay Avid a one-time non-recurring amount of $6 million in installments. $2.5 million was paid upfront in October 2017 and $1.5 million and $2.0 million will be paid in 2019 and 2020, respectively. Also, the Avid litigation costs of approximately $1.4 million in this quarter were significantly higher compared to prior periods. We excluded these expenses from our non-GAAP results because we do not believe they are reflective of our ongoing long-term business and operating results.

Discrete tax items and tax effect of non-GAAP adjustments - The income tax effect of non-GAAP adjustments relates to the tax effect of the adjustments that we incorporate into non-GAAP financial measures in order to provide a more meaningful measure of non-GAAP net income.

The Company has also provided in this release the following non-GAAP financial measures:

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.
Annual recurring revenue (ARR) - ARR is used to assess the trajectory of our OTT SaaS business. ARR means, as of a specified date, the contracted recurring revenue which includes both subscription and maintenance contracts (and excludes perpetual license, term license and service agreements) that are current and booked with a future start date. ARR should be viewed independently of revenue and any other GAAP measure.
CONTACTS:
 
Sanjay Kalra
Blair King
Chief Financial Officer
Director, Investor Relations and Treasurer
Harmonic Inc.
Harmonic Inc.
+1.408.490.6031
+1.408.490.6172
 






Harmonic Inc.
Preliminary Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except per share data)


 
September 29, 2017
 
December 31, 2016
ASSETS
 
 
 
Current assets:
 
 
 
   Cash and cash equivalents
$
50,039

 
$
55,635

   Short-term investments

 
6,923

   Accounts receivable, net
71,582

 
86,765

   Inventories
31,754

 
41,193

   Prepaid expenses and other current assets
22,682

 
26,319

Total current assets
176,057

 
216,835

Property and equipment, net
30,731

 
32,164

Goodwill
241,932

 
237,279

Intangibles, net
23,316

 
29,231

Other long-term assets
39,926

 
38,560

Total assets
$
511,962

 
$
554,069

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
   Other debts and capital lease obligations, current
$
7,434

 
$
7,275

   Accounts payable
31,839

 
28,892

   Income taxes payable
1,411

 
1,166

   Deferred revenue
52,811

 
52,414

   Accrued and other current liabilities
52,828

 
55,150

Total current liabilities
146,323

 
144,897

Convertible notes, long-term
107,318

 
103,259

Other debts and capital lease obligations, long-term
15,439

 
13,915

Income taxes payable, long-term
591

 
2,926

Deferred tax liabilities, long-term
327

 

Other non-current liabilities
21,366

 
18,431

Total liabilities
291,364

 
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; 81,606 and 78,456 shares issued and outstanding at September 29, 2017 and December 31, 2016, respectively
82

 
78

   Additional paid-in capital
2,267,213

 
2,254,055

   Accumulated deficit
(2,045,967
)
 
(1,976,222
)
   Accumulated other comprehensive loss
(730
)
 
(7,270
)
Total stockholders' equity
220,598

 
270,641

Total liabilities and stockholders' equity
$
511,962

 
$
554,069







Harmonic Inc.
Preliminary Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except per share data)

 
Three months ended
 
Nine months ended
 
September 29, 2017
 
September 30, 2016
 
September 29, 2017
 
September 30, 2016
Revenue:
 
 
 
 
 
 
 
Product
$
58,161

 
$
70,285

 
$
158,657

 
$
205,342

Services
33,853

 
31,121

 
98,615

 
87,467

Total net revenue
92,014

 
101,406

 
257,272

 
292,809

Cost of revenue:
 
 
 
 
 
 
 
Product
27,736

 
34,460

 
85,843

 
105,698

Services
17,253

 
15,583

 
50,181

 
44,054

Total cost of revenue
44,989

 
50,043

 
136,024

 
149,752

   Gross profit
47,025

 
51,363


121,248


143,057

Operating expenses:
 
 
 
 
 
 
 
   Research and development
21,289

 
24,202

 
73,226

 
74,272

   Selling, general and administrative
37,121

 
36,112

 
104,377

 
105,498

   Amortization of intangibles
793

 
3,009

 
2,347

 
9,606

   Restructuring and related charges
2,028

 
(27
)
 
4,084

 
4,488

      Total operating expenses
61,231


63,296


184,034


193,864

Loss from operations
(14,206
)
 
(11,933
)

(62,786
)

(50,807
)
Interest expense, net
(2,794
)
 
(2,734
)
 
(8,064
)
 
(7,806
)
Other expense, net
(498
)
 
(328
)
 
(1,828
)
 
(5
)
Loss on impairment of long-term investment

 
(1,259
)
 

 
(2,735
)
Loss before income taxes
(17,498
)
 
(16,254
)

(72,678
)

(61,353
)
(Benefit from) provision for income taxes
(1,915
)
 
(242
)
 
(1,568
)
 
518

Net loss
$
(15,583
)
 
$
(16,012
)

$
(71,110
)

$
(61,871
)
Net loss per share:
 
 
 
 
 
 
 
   Basic and diluted
$
(0.19
)
 
$
(0.21
)

$
(0.88
)

$
(0.80
)
Shares used in per share calculation:
 
 
 
 
 
 
 
   Basic and diluted
81,445

 
78,092

 
80,618

 
77,475









Harmonic Inc.
Preliminary Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
 
Nine months ended
 
September 29, 2017
 
September 30, 2016
Cash flows from operating activities:
 
 
 
Net loss
$
(71,110
)
 
$
(61,871
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
   Amortization of intangibles
6,232

 
12,711

   Depreciation
11,045

 
13,198

   Stock-based compensation
11,107

 
8,542

   Amortization of discount on convertible debt
4,060

 
3,669

   Amortization of non-cash warrant
38

 

   Restructuring, asset impairment and loss on retirement of fixed assets
565

 
1,476

   Loss on impairment of long-term investment

 
2,735

   Foreign currency adjustments
1,795

 
(911
)
   Provision for excess and obsolete inventories
5,578

 
6,246

   Allowance for doubtful accounts, returns and discounts
4,309

 
1,222

   Other non-cash adjustments, net
298

 
251

   Changes in operating assets and liabilities, net of effects of acquisition:
 
 
 
      Accounts receivable
11,367

 
(12,869
)
      Inventories
6,188

 
2,225

      Prepaid expenses and other assets
6,702

 
(5,938
)
      Accounts payable
2,129

 
2,505

      Deferred revenue
(1,098
)
 
20,038

      Income taxes payable
(2,122
)
 
(827
)
      Accrued and other liabilities
(3,053
)
 
(5,040
)
Net cash used in operating activities
(5,970
)
 
(12,638
)
Cash flows from investing activities:
 
 
 
Acquisition of business, net of cash acquired

 
(75,669
)
   Proceeds from maturities and sale of investments
6,898

 
18,692

   Purchases of property and equipment
(9,075
)
 
(11,423
)
Net cash used in investing activities
(2,177
)
 
(68,400
)
Cash flows from financing activities:
 
 
 
Payment of convertible debt issuance costs

 
(582
)
Proceeds from other debts and capital leases
6,344

 
5,968

Repayment of other debts and capital leases
(7,008
)
 
(8,038
)
   Proceeds from common stock issued to employees
4,697

 
3,736

   Payment of tax withholding obligations related to net share settlements of restricted stock units
(2,757
)
 
(1,313
)
Net cash provided by (used in) financing activities
1,276

 
(229
)
Effect of exchange rate changes on cash and cash equivalents
1,275

 
(182
)
Net decrease in cash and cash equivalents
(5,596
)
 
(81,449
)
Cash and cash equivalents at beginning of period
55,635

 
126,190

Cash and cash equivalents at end of period
$
50,039

 
$
44,741







Harmonic Inc.
Preliminary Revenue Information
(Unaudited, in thousands, except percentages)
 
Three months ended
 
September 29, 2017
 
June 30, 2017
 
September 30, 2016
 
GAAP
Adjust-ments(1)
Non-GAAP
 
GAAP
Adjust-ments(1)
Non-GAAP
 
GAAP
Adjust-ments(1)
Non-GAAP
Product
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Video Products
$
54,175

$

$
54,175

59%
 
$
44,726

$

$
44,726

54%
 
$
63,288

$

$
63,288

62%
Cable Edge
3,986

(163
)
3,823

4%
 
5,366


5,366

7%
 
6,997

$

6,997

7%
Services and Support
33,853

(215
)
33,638

37%
 
32,223


32,223

39%
 
31,121

325

31,446

31%
Total
$
92,014

$
(378
)
$
91,636

100%
 
$
82,315

$

$
82,315

100%
 
$
101,406

$
325

$
101,731

100%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Geography
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Americas
$
48,656

$
(378
)
$
48,278

53%
 
$
40,611

$

$
40,611

50%
 
$
47,856

$
166

$
48,022

47%
EMEA
27,528


27,528

30%
 
24,953


24,953

30%
 
32,405

106

32,511

32%
APAC
15,830


15,830

17%
 
16,751


16,751

20%
 
21,145

53

21,198

21%
Total
$
92,014

$
(378
)
$
91,636

100%
 
$
82,315

$

$
82,315

100%
 
$
101,406

$
325

$
101,731

100%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Market
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service Provider
$
50,410

$
(378
)
$
50,032

55%
 
$
46,420

$

$
46,420

56%
 
$
53,459

$
97

$
53,556

53%
Broadcast and Media
41,604


41,604

45%
 
35,895


35,895

44%
 
47,947

228

48,175

47%
Total
$
92,014

$
(378
)
$
91,636

100%
 
$
82,315

$

$
82,315

100%
 
$
101,406

$
325

$
101,731

100%


 
Nine months ended
 
September 29, 2017
 
September 30, 2016
 
GAAP
Adjust-ments(1)
Non-GAAP
 
GAAP(2)
Adjust-ments(1)
Non-GAAP(2)
Product
 
 
 
 
 
 
 
 
 
Video Products
$
144,419

$

$
144,419

56%
 
$
169,162

$
560

$
169,722

58%
Cable Edge
14,238

28

14,266

6%
 
36,180


36,180

12%
Services and Support
98,615

121

98,736

38%
 
87,467

1,168

88,635

30%
Total
$
257,272

$
149

$
257,421

100%
 
$
292,809

$
1,728

$
294,537

100%
 
 
 
 
 
 
 
 
 
 
Geography
 
 
 
 
 
 
 
 
 
Americas
$
127,173

$
38

$
127,211

49%
 
$
154,513

$
390

$
154,903

53%
EMEA
77,920

111

78,031

30%
 
85,716

974

86,690

29%
APAC
52,179


52,179

21%
 
52,580

364

52,944

18%
Total
$
257,272

$
149

$
257,421

100%
 
$
292,809

$
1,728

$
294,537

100%
 
 
 
 
 
 
 
 
 
 
Market
 
 
 
 
 
 
 
 
 
Service Provider
$
144,858

$
38

$
144,896

56%
 
$
170,462

$
575

$
171,037

58%
Broadcast and Media
112,414

111

112,525

44%
 
122,347

1,153

123,500

42%
Total
$
257,272

$
149

$
257,421

100%
 
$
292,809

$
1,728

$
294,537

100%

(1) See “Use of Non-GAAP Financial Measures” above and “GAAP to Non-GAAP Reconciliations” below.
(2) Exclude TVN revenue prior to March 1, 2016.







Harmonic Inc.
Preliminary Segment Information
(Unaudited, in thousands, except percentages)

 
Three months ended September, 29 2017
 
Video
 
Cable Edge
 
Total Segment Measures
(non-GAAP)
 
Adjustments (1)
 
Consolidated GAAP Measures
Net revenue
$
84,155

 
$
7,481

 
$
91,636

 
$
378

 
$
92,014

Gross profit
48,283

 
686

 
48,969

 
(1,944
)
 
47,025

Gross margin%
57.4
 %
 
9.2
 %
 
53.4
 %
 
 
 
51.1
 %
Operating income (loss)
7,009

 
(5,735
)
 
1,274

 
(15,480
)
 
(14,206
)
Operating margin%
8.3
 %
 
(76.7
)%
 
1.4
 %
 
 
 
(15.4
)%
 
Three months ended June 30, 2017
 
Video
 
Cable Edge
 
Total Segment Measures
(non-GAAP)
 
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 September 30, 2016
 
Video
 
Cable Edge
 
Total Segment Measures
(non-GAAP)
 
Adjustments (1)
 
Consolidated GAAP Measures
Net revenue
$
91,678

 
$
10,053

 
$
101,731

 
$
(325
)
 
$
101,406

Gross profit
49,633

 
3,754

 
53,387

 
(2,024
)
 
51,363

Gross margin%
54.1
 %
 
37.3
 %
 
52.5
 %
 
 
 
50.7
 %
Operating income (loss)
5,211

 
(4,767
)
 
444

 
(12,377
)
 
(11,933
)
Operating margin%
5.7
 %
 
(47.4
)%
 
0.4
 %
 
 
 
(11.8
)%
 
Nine months ended September 29, 2017
 
Video
 
Cable Edge
 
Total Segment Measures
(non-GAAP)
 
Adjustments (1)
 
Consolidated GAAP Measures
Net revenue
$
231,987

 
$
25,434

 
$
257,421

 
$
(149
)
 
$
257,272

Gross profit
126,887

 
5,011

 
131,898

 
(10,650
)
 
121,248

Gross margin%
54.7
 %
 
19.7
 %
 
51.2
 %
 
 
 
47.1
 %
Operating loss
(7,663
)
 
(18,810
)
 
(26,473
)
 
(36,313
)
 
(62,786
)
Operating margin%
(3.3
)%
 
(74.0
)%
 
(10.3
)%
 
 
 
(24.4
)%
 
Nine months ended September 30, 2016 (2)
 
Video
 
Cable Edge
 
Total Segment Measures
(non-GAAP)
 
Adjustments (1)
 
Consolidated GAAP Measures
Net revenue
$
248,677

 
$
45,860

 
$
294,537

 
$
(1,728
)
 
$
292,809

Gross profit
135,758

 
18,278

 
154,036

 
(10,979
)
 
143,057

Gross margin%
54.6
 %
 
39.9
 %
 
52.3
 %
 
 
 
48.9
 %
Operating loss
(27
)
 
(7,117
)
 
(7,144
)
 
(43,663
)
 
(50,807
)
Operating margin%
 %
 
(15.5
)%
 
(2.4
)%
 
 
 
(17.4
)%

(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 September 29, 2017
 
Revenue
Gross Profit
Total Operating Expense
Income (loss) from Operations
Total Non-operating Expense, net
Net Loss
GAAP
$
92,014

$
47,025

$
61,231

$
(14,206
)
$
(3,292
)
$
(15,583
)
  Accounting impact related to warrant amortization
(378
)
(378
)

(378
)

(378
)
  Stock-based compensation in cost of revenue

478


478


478

  Stock-based compensation in research and development


(1,183
)
1,183


1,183

  Stock-based compensation in selling, general and administrative


(2,059
)
2,059


2,059

  Amortization of intangibles

1,295

(793
)
2,088


2,088

  Restructuring and related charges

549

(2,028
)
2,577


2,577

  TVN acquisition- and integration-related costs


(117
)
117


117

  Avid litigation settlement fees and associated legal fees


(7,356
)
7,356


7,356

  Non-cash interest expenses related to convertible notes




1,384

1,384

  Discrete tax items and tax effect of non-GAAP adjustments





(1,820
)
Total adjustments
(378
)
1,944

(13,536
)
15,480

1,384

15,044

 
 
 
 
 
 
 
Non-GAAP
$
91,636

$
48,969

$
47,695

$
1,274

$
(1,908
)
$
(539
)
As a % of revenue (GAAP)
 
51.1
%
66.5
%
(15.4
)%
(3.6
)%
(16.9
)%
As a % of revenue (Non-GAAP)
 
53.4
%
52.0
%
1.4
 %
(2.1
)%
(0.6
)%
Diluted net loss per share:
 
 
 

 
 
  Diluted net loss per share-GAAP
 
 
 
 
 
$
(0.19
)
  Diluted net loss per share-Non-GAAP
 
 
 

 
$
(0.01
)
Shares used to compute diluted net loss per share:
 
 
 
 
 
 
  GAAP and Non-GAAP
 
 
 
 
 
81,445

 
 
 
 
 
 
 
 
Three months ended June 30, 2017
 
Revenue
Gross Profit
Total Operating Expense
Loss from Operations
Total Non-operating Expense
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 September 30, 2016
 
Revenue
Gross Profit
Total Operating Expense
Income (loss) from Operations
Total Non-operating Expense
Net Loss
GAAP
$
101,406

$
51,363

$
63,296

$
(11,933
)
$
(4,321
)
$
(16,012
)
Cable Edge inventory charge

(159
)

(159
)

(159
)
Acquisition accounting impacts related to TVN deferred revenue
325

325


325


325

  Stock-based compensation in cost of revenue

360


360


360

  Stock-based compensation in research and development


(771
)
771


771

  Stock-based compensation in selling, general and administrative


(1,549
)
1,549


1,549

  Amortization of intangibles

1,380

(3,009
)
4,389


4,389

  Restructuring and related charges

(1
)
27

(28
)

(28
)
  TVN acquisition-and integration-related costs

119

(5,051
)
5,170

98

5,268

  Loss on impairment of long-term investment




1,259

1,259

  Non-cash interest expenses related to convertible notes




1,252

1,252

  Discrete tax items and tax effect of non-GAAP adjustments





(52
)
Total adjustments
325

2,024

(10,353
)
12,377

2,609

14,934

 
 
 
 
 
 
 
Non-GAAP
$
101,731

$
53,387

$
52,943

$
444

$
(1,712
)
$
(1,078
)
As a % of revenue (GAAP)
 
50.7
%
62.4
%
(11.8
)%
(4.3
)%
(15.8
)%
As a % of revenue (Non-GAAP)
 
52.5
%
52.0
%
0.4
 %
(1.7
)%
(1.1
)%
 
 
 
 
 
 
 
Diluted net loss per share:
 
 
 
 
 
 
  Diluted net loss per share-GAAP
 
 
 
 
 
$
(0.21
)
  Diluted net loss per share-Non-GAAP
 
 
 
 
 
$
(0.01
)
Shares used to compute diluted net loss per share:
 
 
 
 
 
 
  GAAP and Non-GAAP
 
 
 
 
 
78,092

 
 
 
 
 
 
 
 
Nine months ended September 29, 2017
 
Revenue
Gross Profit
Total Operating Expense
Loss from Operations
Total Non-operating Expense
Net Loss
GAAP
$
257,272

$
121,248

$
184,034

$
(62,786
)
$
(9,892
)
$
(71,110
)
  Cable Edge inventory charge

3,316


3,316


3,316

  Acquisition accounting impacts related to TVN deferred revenue
111

111


111


111

  Accounting impact related to warrant amortization
38

38


38


38

  Stock-based compensation in cost of revenue

1,623


1,623


1,623

  Stock-based compensation in research and development


(3,497
)
3,497


3,497

  Stock-based compensation in selling, general and administrative


(5,987
)
5,987


5,987

  Amortization of intangibles

3,885

(2,347
)
6,232


6,232

  Restructuring and related charges

1,335

(4,084
)
5,419


5,419

  TVN acquisition-and integration-related costs

342

(2,392
)
2,734


2,734

  Avid litigation settlement and associated legal fees


(7,356
)
7,356


7,356

  Non-cash interest expenses related to convertible notes




4,060

4,060

  Discrete tax items and tax effect of non-GAAP adjustments





3,278

Total adjustments
149

10,650

(25,663
)
36,313

4,060

43,651

 
 
 
 
 
 
 
Non-GAAP
$
257,421

$
131,898

$
158,371

$
(26,473
)
$
(5,832
)
$
(27,459
)
As a % of revenue (GAAP)
 
47.1
%
71.5
%
(24.4
)%
(3.8
)%
(27.6
)%
As a % of revenue (Non-GAAP)
 
51.2
%
61.5
%
(10.3
)%
(2.3
)%
(10.7
)%
 
 
 
 
 
 
 
Diluted net loss per share:
 
 
 
 
 
 
  Diluted net loss per share-GAAP
 
 
 
 
 
$
(0.88
)
  Diluted net loss per share-Non-GAAP
 
 
 
 
 
(0.34
)
Shares used to compute diluted net loss per share:
 
 
 
 
 
 
  GAAP and Non-GAAP
 
 
 
 
 
80,618

 
 
 
 
 
 
 





 
Nine months ended September 30, 2016
 
Revenue
Gross Profit
Total Operating Expense
Loss from Operations
Total Non-operating Expense
Net Loss
GAAP
$
292,809

$
143,057

$
193,864

$
(50,807
)
$
(10,546
)
$
(61,871
)
  Cable Edge inventory charge

4,360


4,360


4,360

  Acquisition accounting impacts related to TVN deferred revenue
1,728

1,728


1,728


1,728

  Acquisition accounting impacts related to TVN fair value of inventory

189


189


189

  Stock-based compensation in cost of revenue

1,011


1,011


1,011

  Stock-based compensation in research and development


(2,581
)
2,581


2,581

  Stock-based compensation in selling, general and administrative


(4,950
)
4,950


4,950

  Amortization of intangibles

3,105

(9,606
)
12,711


12,711

  Restructuring and related charges

(24
)
(4,488
)
4,464


4,464

  TVN acquisition-and integration-related costs

610

(11,059
)
11,669

98

11,767

  Loss on impairment of long-term investment




2,735

2,735

  Non-cash interest expenses related to convertible notes




3,672

3,672

  Discrete tax items and tax effect of non-GAAP adjustments





2,197

 
1,728

10,979

(32,684
)
43,663

6,505

52,365

 
 
 
 
 
 
 
Non-GAAP
$
294,537

$
154,036

$
161,180

$
(7,144
)
$
(4,041
)
$
(9,506
)
As a % of revenue (GAAP)
 
48.9
%
66.2
%
(17.4
)%
(3.6
)%
(21.1
)%
As a % of revenue (Non-GAAP)
 
52.3
%
54.7
%
(2.4
)%
(1.4
)%
(3.2
)%
 
 
 
 
 
 
 
Diluted net loss per share:
 
 
 
 
 
 
  Diluted net loss per share-GAAP
 
 
 
 
 
$
(0.80
)
  Diluted net loss per share-Non-GAAP
 
 
 
 
 
$
(0.12
)
Shares used to compute diluted net loss per share:
 
 
 
 
 
 
  GAAP and Non-GAAP
 
 
 
 
 
77,475








Harmonic Inc.
GAAP to Non-GAAP Reconciliations on Business Outlook
(In millions, except percentages and per share data)

 
Q4 2017 Financial Guidance
 
Revenue
Gross Profit
Total Operating Expense
Income (Loss) from Operations
Total Non-operating Expense, net
Net Income (Loss)
GAAP
$90.0 to
 $100.0
$44.9 to
 $51.4
$54.4 to
 $56.4
$(11.5) to
 $(3.0)
$(3.1)
$(15.9) to
 $(6.9)
  Stock-based compensation expense
0.8
(4.7)
5.5
5.5
  Amortization of intangibles
1.3
(0.8)
2.1
2.1
  Avid litigation legal fees
(0.3)
0.3
0.3
  Restructuring and related charges and TVN integration costs
(0.6)
0.6
0.6
  Non-cash interest expense related to convertible notes
1.4
1.4
  Discrete tax items and tax effect of non-GAAP adjustments
2.0
Total adjustments
2.1
(6.4)
8.5
1.4
$11.9 to $9.9
 
 
 
 
 
 
 
Non-GAAP
$90.0 to $100.0
$47.0 to $53.5
$48.0 to
 $50.0
$(3.0) to
 $5.5
$(1.7)
$(4.0) to $3.0
As a % of revenue (GAAP)
 
50% to 51%
57% to 60%
(13)% to (3)%
(3)%
(18)% to (7)%
As a % of revenue (Non-GAAP)
 
52.0% to 53.5%
50% to 53%
(3)% to
 5.5%
(2)%
(4)% to 3%
Diluted net income (loss) per share:
 
 
 
 
 
 
  Diluted net loss per share-GAAP
 
 
 
 
$(0.19) to $(0.08)
  Diluted net (loss) income per share-Non-GAAP
 
 
 
 
$(0.05) to $0.04
Shares used to compute diluted net loss per share:
 
 
 
 
 
 
  GAAP and Non-GAAP
 
 
 
 
82.0
Shares used to compute diluted net income per share:
 
 
 
 
 
 
  Non-GAAP
 
 
 
 
82.5










 
2017 Financial Guidance
 
Revenue
Gross Profit
Total Operating Expense
Loss from Operations
Total Non-operating Expense, net
Net Loss
GAAP
$347.9 to
 $357.9
$166.8 to
 $173.3
$238.0 to
 $240.0
$(73.2) to
 $(64.7)
$(13.0)
$(85.7) to
 $(77.7)
  Acquisition accounting impact related to TVN deferred revenue
0.1
0.1
0.1
0.1
  Cable Edge inventory charge
3.3
3.3
3.3
  Stock-based compensation expense
2.4
(14.2)
16.6
16.6
  Amortization of intangibles
5.2
(3.1)
8.3
8.3
  Avid litigation settlement and associated legal fees
(7.7)
7.7
7.7
  Restructuring and related charges and TVN integration costs
1.7
(7)
8.7