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
July 30, 2018
 
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 July 30, 2018, Harmonic Inc. (“Harmonic”) issued a press release regarding its unaudited financial results for the quarter ended June 29, 2018. In the press release, Harmonic also announced that it would be holding a conference call on July 30, 2018 to discuss its financial results for the quarter ended June 29, 2018. 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.
Exhibit No.
99.1


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: July 30, 2018
 
 
 
HARMONIC INC.
 
 
 
 
 
 
 
 
By:
 
/s/ Sanjay Kalra
 
 
 
 
 
 
Sanjay Kalra
 
 
 
 
 
 
Chief Financial Officer



3
Exhibit


Exhibit 99.1
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12376903&doc=3
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12376903&doc=4
FOR IMMEDIATE RELEASE
Harmonic Announces Second Quarter 2018 Results

Revenue Up 20% Year Over Year

SAN JOSE, California, July 30, 2018 - Harmonic Inc. (NASDAQ: HLIT), the worldwide leader in video delivery technology and services, today announced its unaudited results for the second quarter of 2018.

“Continued execution of our CableOS and VOS strategy drove sequential and year over year revenue growth and gross margin expansion, and a return to non-GAAP profitability,” said Patrick Harshman, president and chief executive officer of Harmonic. “Looking ahead, we remain confident that CableOS is firmly on track to become a market-leading cable access platform, and that VOS software and SaaS momentum will continue to enable a more consistently profitable Video segment.”

Q2 Financial and Business Highlights

GAAP revenue $99.2 million, up 20% year over year; non-GAAP revenue $99.4 million, up 21% year over year.
Cable Access segment revenue: GAAP $20.0 million; non-GAAP $20.2 million, up over 70% year over year.
Video segment operating profit: 7.9% operating margin, up $15.2 million year over year.
Operating income: GAAP $0.6 million and non-GAAP $6.8 million, compared to GAAP loss $27.4 million and non-GAAP loss $16.4 million in the year ago period.
EPS: GAAP net loss per share 3 cents and non-GAAP net income per share 5 cents, compared to GAAP net loss per share 39 cents and non-GAAP net loss per share 20 cents in the year ago period.
Bookings $107.9 million, up 18% year over year, drove record backlog and deferred revenue to $230.4 million, up 19% year over year.
CableOS deployments continued to scale, surpassing 400,000 served cable modems, up 100% quarter over quarter.
Over 34,000 OTT channels deployed globally, up 6% quarter over quarter, powered in part by multiple new VOS SaaS wins.

Select Financial Information
 
 
GAAP
 
Non-GAAP
Key Financial Results
 
Q2 2018
 
Q1 2018
 
Q2 2017
 
Q2 2018
 
Q1 2018
 
Q2 2017
 
 
(in millions, except per share data)
Net revenue
 
$
99.2

 
$
90.1

 
$
82.3

 
$
99.4

 
$
90.2

 
$
82.3

Net income (loss)
 
$
(2.9
)
 
$
(13.7
)
 
$
(31.5
)
 
$
4.6

 
$
(1.1
)
 
$
(15.7
)
Diluted EPS
 
$
(0.03
)
 
$
(0.16
)
 
$
(0.39
)
 
$
0.05

 
$
(0.01
)
 
$
(0.20
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Financial Information
Q2 2018
 
Q1 2018
 
Q2 2017
 
(in millions)
Bookings for the quarter
$
107.9

 
$
102.6

 
$
91.1

Backlog and deferred revenue as of quarter end
$
230.4

 
$
224.4

 
$
194.4

Cash as of quarter end
$
54.1

 
$
52.0

 
$
52.9

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”.

1



Financial Guidance
GAAP Financial Guidance
 
Q3 2018
 
Q4 2018
 
2018
 
Low
 
High
 
Low
 
High
 
Low
 
High
 
 
(in millions, except percentages and per share data)
Net Revenue
 
$
93.0

 
$
103.0

 
$
105.0

 
$
118.0

 
$
388.0

 
$
411.0

          Video
 
$
70.0

 
$
76.0

 
$
75.0

 
$
82.0

 
$
296.0

 
$
309.0

          Cable Access
 
$
23.0

 
$
27.0

 
$
30.0

 
$
36.0

 
$
92.0

 
$
102.0

Gross Margin %
 
48.4
%
 
49.5
%
 
48.0
%
 
51.2
%
 
50.3
%
 
51.3
%
Operating Expenses
 
$
55.1

 
$
56.1

 
$
53.5

 
$
54.5

 
$
215.8

 
$
217.8

Operating Income (Loss)
 
$
(11.1
)
 
$
(4.1
)
 
$
(4.1
)
 
$
6.9

 
$
(22.8
)
 
$
(4.8
)
Tax Benefit (Expense)
 
$
(0.7
)
 
$
(0.7
)
 
$
(0.7
)
 
$
(0.7
)
 
$
(2.8
)
 
$
(2.8
)
EPS
 
$
(0.17
)
 
$
(0.09
)
 
$
(0.09
)
 
$
0.03

 
$
(0.45
)
 
$
(0.24
)
Shares
 
86.4

 
86.4

 
87.0

 
88.5

 
85.7

 
85.7

Cash
 
$
50.0

 
$
60.0

 
$
50.0

 
$
60.0

 
$
50.0

 
$
60.0

Non-GAAP Financial Guidance
 
Q3 2018
 
Q4 2018
 
2018
 
Low
 
High
 
Low
 
High
 
Low
 
High
 
 
(in millions, except percentages and per share data)
Net Revenue
 
$
93.0

 
$
103.0

 
$
105.0

 
$
118.0

 
$
388.0

 
$
411.0

          Video
 
$
70.0

 
$
76.0

 
$
75.0

 
$
82.0

 
$
296.0

 
$
309.0

          Cable Access
 
$
23.0

 
$
27.0

 
$
30.0

 
$
36.0

 
$
92.0

 
$
102.0

Gross Margin %
 
51.0
%
 
52.0
%
 
50.0
%
 
52.0
%
 
52.0
%
 
53.0
%
Operating Expenses
 
$
49.0

 
$
50.0

 
$
50.0

 
$
51.0

 
$
195.0

 
$
197.0

Operating Income (Loss)
 
$
(3.0
)
 
$
4.0

 
$
1.0

 
$
12.0

 
$
6.0

 
$
24.0

Tax Rate
 
16
%
 
16
%
 
16
%
 
16
%
 
16
%
 
16
%
EPS
 
$
(0.05
)
 
$
0.03

 
$

 
$
0.09

 
$
(0.01
)
 
$
0.16

Shares
 
86.4

 
87.4

 
87.0

 
88.5

 
85.7

 
86.6

Cash
 
$
50.0

 
$
60.0

 
$
50.0

 
$
60.0

 
$
50.0

 
$
60.0


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. PT (5:00 p.m. ET) on Monday, July 30, 2018. A listen-only broadcast of the conference call can be accessed either from the Company's website at www.harmonicinc.com or by calling 1.574.990.1032 or +1.800.240.9147 (passcode 1778335). A replay will be available after 4:30 p.m. PT on the same web site or by calling +1.404.537.3406 or +1.855.859.2056 (passcode 1778335).


2



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. The company 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, non-GAAP EPS, share count and cash. 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, 2017, 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.

3



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 Access inventory charge - Harmonic from time to time incurs inventory impairment charges associated with material business shifts, such as the repositioning of our Cable Access 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 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.

4



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 our long-term investments 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.
Gain (loss) on equity investments - We exclude the change in fair value of our equity investments 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 and $0.7 million in the third and fourth fiscal quarter of 2017, respectively, 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.
CONTACTS:
 
Sanjay Kalra
Nicole Noutsios
Chief Financial Officer
Investor Relations
Harmonic Inc.
Harmonic Inc.
+1.408.490.6031
+1.510.315.1003
 


5



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


 
June 29, 2018
 
December 31, 2017
ASSETS
 
 
 
Current assets:
 
 
 
   Cash and cash equivalents
$
54,098

 
$
57,024

   Accounts receivable, net
82,635

 
69,844

   Inventories
22,994

 
25,976

   Prepaid expenses and other current assets
19,377

 
18,931

Total current assets
179,104

 
171,775

Property and equipment, net
25,631

 
29,265

Goodwill
241,176

 
242,827

Intangibles, net
17,010

 
21,279

Other long-term assets
42,863

 
42,913

Total assets
$
505,784

 
$
508,059

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
   Other debts and capital lease obligations, current
$
1,723

 
$
7,610

   Accounts payable
28,992

 
33,112

   Income taxes payable
560

 
233

   Deferred revenue
56,278

 
52,429

   Accrued and other current liabilities
51,221

 
48,705

Total current liabilities
138,774

 
142,089

Convertible notes, long-term
111,702

 
108,748

Other debts and capital lease obligations, long-term
14,318

 
15,336

Income taxes payable, long-term
1,086

 
917

Other non-current liabilities
19,169

 
22,626

Total liabilities
285,049

 
289,716

 
 
 
 
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; 85,439 and 82,554 shares issued and outstanding at June 29, 2018 and December 31, 2017, respectively
85

 
83

   Additional paid-in capital
2,283,649

 
2,272,690

   Accumulated deficit
(2,062,988
)
 
(2,057,812
)
   Accumulated other comprehensive income (loss)
(11
)
 
3,382

Total stockholders' equity
220,735

 
218,343

Total liabilities and stockholders' equity
$
505,784

 
$
508,059



6



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

 
Three months ended
 
Six months ended
 
June 29, 2018
 
June 30, 2017
 
June 29, 2018
 
June 30, 2017
Revenue:
 
 
 
 
 
 
 
Product
$
60,599

 
$
50,190

 
$
115,973

 
$
100,594

Service
38,561

 
32,125

 
73,314

 
64,664

Total net revenue
99,160

 
82,315

 
189,287

 
165,258

Cost of revenue:
 
 
 
 
 
 
 
Product
31,251

 
32,005

 
57,860

 
58,107

Service
16,306

 
16,495

 
32,641

 
32,928

Total cost of revenue
47,557

 
48,500

 
90,501

 
91,035

   Gross profit
51,603

 
33,815


98,786


74,223

Operating expenses:
 
 
 
 
 
 
 
   Research and development
21,542

 
27,055

 
44,999

 
51,937

   Selling, general and administrative
27,988

 
32,625

 
59,151

 
67,256

   Amortization of intangibles
800

 
780

 
1,604

 
1,554

   Restructuring and related charges
631

 
777

 
1,717

 
2,056

      Total operating expenses
50,961


61,237


107,471


122,803

Income (loss) from operations
642

 
(27,422
)

(8,685
)

(48,580
)
Interest expense, net
(2,863
)
 
(2,680
)
 
(5,620
)
 
(5,270
)
Other income (expense), net
199

 
(819
)
 
(333
)
 
(1,330
)
Loss before income taxes
(2,022
)
 
(30,921
)

(14,638
)

(55,180
)
Provision for income taxes
891

 
579

 
1,969

 
347

Net loss
$
(2,913
)
 
$
(31,500
)

$
(16,607
)

$
(55,527
)
Net loss per share:
 
 
 
 
 
 
 
   Basic and diluted
$
(0.03
)
 
$
(0.39
)

$
(0.20
)

$
(0.69
)
Shares used in per share calculation:
 
 
 
 
 
 
 
   Basic and diluted
85,304

 
80,590

 
84,616

 
80,203





7



Harmonic Inc.
Preliminary Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
 
Six months ended
 
June 29, 2018
 
June 30, 2017
Cash flows from operating activities:
 
 
 
Net loss
$
(16,607
)
 
$
(55,527
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
   Amortization of intangibles
4,194

 
4,144

   Depreciation
6,771

 
7,139

   Stock-based compensation
8,769

 
7,387

   Amortization of discount on convertible debt
2,954

 
2,676

   Amortization of non-cash warrant
395

 
416

   Restructuring, asset impairment and loss on retirement of fixed assets
93

 
228

   Deferred income taxes
530

 
(38
)
   Foreign currency adjustments
(1,042
)
 
1,131

   Provision for excess and obsolete inventories
822

 
5,094

   Allowance for doubtful accounts, returns and discounts
623

 
3,274

   Other non-cash adjustments, net
64

 
189

   Changes in operating assets and liabilities, net of effects of acquisition:
 
 
 
      Accounts receivable
(13,572
)
 
23,479

      Inventories
2,000

 
2,912

      Prepaid expenses and other assets
1,897

 
5,933

      Accounts payable
(4,187
)
 
1,434

      Deferred revenue
9,378

 
1,308

      Income taxes payable
503

 
228

      Accrued and other liabilities
(337
)
 
(8,793
)
Net cash provided by operating activities
3,248

 
2,614

Cash flows from investing activities:
 
 
 
   Proceeds from maturities of investments

 
3,106

   Proceeds from sale of investments


 
3,792

   Purchases of property and equipment
(3,181
)
 
(5,943
)
Net cash (used in) provided by investing activities
(3,181
)
 
955

Cash flows from financing activities:
 
 
 
Proceeds from other debts and capital leases

 
164

Repayment of other debts and capital leases
(6,176
)
 
(6,650
)
   Proceeds from common stock issued to employees
2,366

 
2,117

   Payment of tax withholding obligations related to net share settlements of restricted stock units
(54
)
 
(2,726
)
Net cash used in financing activities
(3,864
)
 
(7,095
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(588
)
 
935

Net decrease in cash, cash equivalents and restricted cash
(4,385
)
 
(2,591
)
Cash, cash equivalents and restricted cash at beginning of period
58,757

 
57,420

Cash, cash equivalents and restricted cash at end of period
$
54,372

 
$
54,829



8



The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same amounts presented in the Condensed Consolidated Statements of Cash Flows (in thousands):
 
June 29, 2018
 
December 31, 2017
Cash and cash equivalents
$
54,098

 
$
57,024

Restricted cash included in prepaid expenses and other current assets
274

 
530

Restricted cash included in other long-term assets

 
1,203

    Total cash, cash equivalents and restricted cash
$
54,372

 
$
58,757



9



Harmonic Inc.
Preliminary Revenue Information
(Unaudited, in thousands, except percentages)
 
Three months ended
 
June 29, 2018
 
March 30, 2018
 
June 30, 2017
 
GAAP
Adjustments(1)
Non-GAAP
 
GAAP
Adjustments(1)
Non-GAAP
 
GAAP
Adjustments(1)
Non-GAAP
Product
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Video Products
$
50,441

$

$
50,441

51%
 
$
47,412

$

$
47,412

52%
 
$
44,824

$

$
44,824

54%
Cable Access
10,159

117

10,276

10%
 
7,962

67

8,029

9%
 
5,366

$

5,366

7%
Services and Support
38,560

167

38,727

39%
 
34,753

44

34,797

39%
 
32,125


32,125

39%
Total
$
99,160

$
284

$
99,444

100%
 
$
90,127

$
111

$
90,238

100%
 
$
82,315

$

$
82,315

100%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Geography
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Americas
$
52,918

$
284

$
53,202

53%
 
$
48,856

$
111

$
48,967

54%
 
$
40,611

$

$
40,611

50%
EMEA
31,676


31,676

32%
 
23,202


23,202

26%
 
24,953


24,953

30%
APAC
14,566


14,566

15%
 
18,069


18,069

20%
 
16,751


16,751

20%
Total
$
99,160

$
284

$
99,444

100%
 
$
90,127

$
111

$
90,238

100%
 
$
82,315

$

$
82,315

100%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Market
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service Provider
$
54,142

$
284

$
54,426

55%
 
$
52,217

$
111

$
52,328

58%
 
$
46,420

$

$
46,420

56%
Broadcast and Media
45,018


45,018

45%
 
37,910


37,910

42%
 
35,895


35,895

44%
Total
$
99,160

$
284

$
99,444

100%
 
$
90,127

$
111

$
90,238

100%
 
$
82,315

$

$
82,315

100%

 
 
Six months ended
 
 
June 29, 2018
 
June 30, 2017
 
 
GAAP
Adjustments(1)
Non-GAAP
 
GAAP
Adjustments(1)
Non-GAAP
Product
 
 
 
 
 
 
 
 
 
 
Video Products
 
$
97,853

$

$
97,853

52%
 
$
90,342

$

$
90,342

55%
Cable Access
 
18,121

184

18,305

9%
 
10,252

191

10,443

6%
Services and Support
 
73,313

211

73,524

39%
 
64,664

336

65,000

39%
Total
 
$
189,287

$
395

$
189,682

100%
 
$
165,258

$
527

$
165,785

100%
 
 
 
 
 
 
 
 
 
 
 
Geography
 
 
 
 
 
 
 
 
 
 
Americas
 
$
101,774

$
395

$
102,169

54%
 
$
78,517

$
416

$
78,933

48%
EMEA
 
54,878


54,878

29%
 
50,392

111

50,503

30%
APAC
 
32,635


32,635

17%
 
36,349


36,349

22%
Total
 
$
189,287

$
395

$
189,682

100%
 
$
165,258

$
527

$
165,785

100%
 
 
 
 
 
 
 
 
 
 
 
Market
 
 
 
 
 
 
 
 
 
 
Service Provider
 
$
106,359

$
395

$
106,754

56%
 
$
94,448

$
416

$
94,864

57%
Broadcast and Media
 
82,928


82,928

44%
 
70,810

111

70,921

43%
Total
 
$
189,287

$
395

$
189,682

100%
 
$
165,258

$
527

$
165,785

100%

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


10



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

 
Three months ended June 29, 2018
 
Video
 
Cable Access
 
Total Segment Measures
(non-GAAP)
 
Adjustments (1)
 
Consolidated GAAP Measures
Net revenue
$
79,208

 
$
20,236

 
$
99,444

 
$
(284
)
 
$
99,160

Gross profit
43,558

 
10,187

 
53,745

 
(2,142
)
 
51,603

Gross margin%
55.0
 %
 
50.3
 %
 
54.0
 %
 
 
 
52.0
 %
Operating income (loss)
6,239

 
540

 
6,779

 
(6,137
)
 
642

Operating margin%
7.9
 %
 
2.7
 %
 
6.8
 %
 
 
 
0.6
 %
 
Three months ended March 30, 2018
 
Video
 
Cable Access
 
Total Segment Measures
(non-GAAP)
 
Adjustments (1)
 
Consolidated GAAP Measures
Net revenue
$
71,748

 
$
18,490

 
$
90,238

 
$
(111
)
 
$
90,127

Gross profit
41,226

 
8,640

 
49,866

 
(2,683
)
 
47,183

Gross margin%
57.5
 %
 
46.7
 %
 
55.3
 %
 
 
 
52.4
 %
Operating income (loss)
1,995

 
(1,513
)
 
482

 
(9,809
)
 
(9,327
)
Operating margin%
2.8
 %
 
(8.2
)%
 
0.5
 %
 
 
 
(10.3
)%
 
Three months ended June 30, 2017
 
Video
 
Cable Access
 
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
)%
 
Six months ended June 29, 2018
 
Video
 
Cable Access
 
Total Segment Measures
(non-GAAP)
 
Adjustments (1)
 
Consolidated GAAP Measures
Net revenue
$
150,956

 
$
38,726

 
$
189,682

 
$
(395
)
 
$
189,287

Gross profit
84,784

 
18,827

 
103,611

 
(4,825
)
 
98,786

Gross margin%
56.2
 %
 
48.6
 %
 
54.6
 %
 
 
 
52.2
 %
Operating income (loss)
8,234

 
(973
)
 
7,261

 
(15,946
)
 
(8,685
)
Operating margin%
5.5
 %
 
(2.5
)%
 
3.8
 %
 
 
 
(4.6
)%
 
Six months ended June 30, 2017
 
Video
 
Cable Access
 
Total Segment Measures
(non-GAAP)
 
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
)%


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

11



Harmonic Inc.
GAAP to Non-GAAP Reconciliations (Unaudited)
(In thousands, except percentages and per share data)
 
Three months ended June 29, 2018
 
Revenue
Gross Profit
Total Operating Expense
Income from Operations
Total Non-operating Expense, net
Net Income (Loss)
GAAP
$
99,160

$
51,603

$
50,961

$
642

$
(2,664
)
$
(2,913
)
  Accounting impact related to warrant amortization
284

284


284


284

  Stock-based compensation

448

(2,564
)
3,012


3,012

  Amortization of intangibles

1,295

(800
)
2,095


2,095

  Restructuring and related charges

115

(631
)
746


746

  Gain on equity investments





(183
)
(183
)
  Non-cash interest expenses related to convertible notes




1,501

1,501

  Discrete tax items and tax effect of non-GAAP adjustments





22

Total adjustments
284

2,142

(3,995
)
6,137

1,318

7,477

Non-GAAP
$
99,444

$
53,745

$
46,966

$
6,779

$
(1,346
)
$
4,564

As a % of revenue (GAAP)
 
52.0
%
51.4
%
0.6
 %
(2.7
)%
(2.9
)%
As a % of revenue (Non-GAAP)
 
54.0
%
47.2
%
6.8
 %
(1.4
)%
4.6
 %
 
 
 
 
 
 
 
Diluted net income (loss) per share:
 
 
 

 
 
  Diluted net loss per share-GAAP
 
 
 
 
 
$
(0.03
)
  Diluted net income per share-Non-GAAP
 
 
 

 
$
0.05

Shares used to compute diluted net income (loss) per share:
 
 
 
 
 
 
  GAAP
 
 
 
 
 
85,304

  Non-GAAP
 
 
 
 
 
85,758

 
 
 
 
 
 
 
 
Three months ended March 30, 2018
 
Revenue
Gross Profit
Total Operating Expense
Income (Loss) from Operations
Total Non-operating Expense, net
Net Loss
GAAP
$
90,127

$
47,183

$
56,510

$
(9,327
)
$
(3,289
)
$
(13,694
)
  Accounting impact related to warrant amortization
111

111


111


111

  Stock-based compensation

515

(5,242
)
5,757


5,757

  Amortization of intangibles

1,295

(804
)
2,099


2,099

  Restructuring and related charges

762

(1,086
)
1,848


1,848

  Avid litigation settlement and associated legal fees


6

(6
)

(6
)
  Non-cash interest expenses related to convertible notes




1,454

1,454

  Discrete tax items and tax effect of non-GAAP adjustments





1,294

Total adjustments
111

2,683

(7,126
)
9,809

1,454

12,557

Non-GAAP
$
90,238

$
49,866

$
49,384

$
482

$
(1,835
)
$
(1,137
)
As a % of revenue (GAAP)
 
52.4
%
62.7
%
(10.3
)%
(3.6
)%
(15.2
)%
As a % of revenue (Non-GAAP)
 
55.3
%
54.7
%
0.5
 %
(2.0
)%
(1.3
)%
 
 
 
 
 
 

Diluted net loss per share:
 
 
 
 
 


  Diluted net loss per share-GAAP
 
 
 
 
 
$
(0.16
)
  Diluted net loss per share-Non-GAAP
 
 
 
 
 
$
(0.01
)
Shares used to compute diluted net loss per share:
 
 
 
 
 

  GAAP and Non-GAAP
 
 
 
 
 
83,912

 
 
 
 
 
 
 

12



 
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

700

(3,436
)
4,136


4,136

  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

 
 
 
 
 
 
 
 
Six months ended June 29, 2018
 
Revenue
Gross Profit
Total Operating Expense
Income (Loss) from Operations
Total Non-operating Expense
Net Income (Loss)
GAAP
$
189,287

$
98,786

$
107,471

$
(8,685
)
$
(5,953
)
$
(16,607
)
  Accounting impact related to warrant amortization
395

395


395


395

  Stock-based compensation

963

(7,806
)
8,769


8,769

  Amortization of intangibles

2,590

(1,604
)
4,194


4,194

  Restructuring and related charges

877

(1,717
)
2,594


2,594

  Gain on equity investments





(183
)
(183
)
  Non-cash interest expenses related to convertible notes




2,955

2,955

  Avid litigation settlement and associated legal fees


6

(6
)

(6
)
  Discrete tax items and tax effect of non-GAAP adjustments





1,316

Total adjustments
$
395

$
4,825

$
(11,121
)
$
15,946

$
2,772

$
20,034

Non-GAAP
$
189,682

$
103,611

$
96,350

$
7,261

$
(3,181
)
$
3,427

As a % of revenue (GAAP)
 
52.2
%
56.8
%
(4.6
)%
(3.1
)%
(8.8
)%
As a % of revenue (Non-GAAP)
 
54.6
%
50.8
%
3.8
 %
(1.7
)%
1.8
 %
 
 
 
 
 
 
 
Diluted net income (loss) per share:
 
 
 
 
 
 
  Diluted net loss per share-GAAP
 
 
 
 
 
$
(0.20
)
  Diluted net income per share-Non-GAAP
 
 
 
 
 
$
0.04

Shares used to compute diluted net income (loss) per share:
 
 
 
 
 
 
  GAAP
 
 
 
 
 
84,616

  Non-GAAP
 
 
 
 
 
85,052

 
 
 
 
 
 
 

13



 
Six months ended June 30, 2017
 
Revenue
Gross Profit
Total Operating Expense
Loss from Operations
Total Non-operating Expense
Net Loss
GAAP
$
165,258

$
74,223

$
122,803

$
(48,580
)
$
(6,600
)
$
(55,527
)
  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
416

416


416


416

  Stock-based compensation

1,145

(6,242
)
7,387


7,387

  Amortization of intangibles

2,590

(1,554
)
4,144


4,144

  Restructuring and related charges

786

(2,056
)
2,842


2,842

  TVN acquisition-and integration-related costs

342

(2,275
)
2,617


2,617

  Non-cash interest expenses related to convertible notes




2,676

2,676

  Discrete tax items and tax effect of non-GAAP adjustments





5,098

Total adjustments
527

8,706

(12,127
)
20,833

2,676

28,607

Non-GAAP
$
165,785

$
82,929

$
110,676

$
(27,747
)
$
(3,924
)
$
(26,920
)
As a % of revenue (GAAP)
 
44.9
%
74.3
%
(29.4
)%
(4.0
)%
(33.6
)%
As a % of revenue (Non-GAAP)
 
50.0
%
66.8
%
(16.7
)%
(2.4
)%
(16.2
)%
 
 
 
 
 
 
 
Diluted net loss per share:
 
 
 
 
 
 
  Diluted net loss per share-GAAP
 
 
 
 
 
$
(0.69
)
  Diluted net loss per share-Non-GAAP
 
 
 
 
 
$
(0.34
)
Shares used to compute diluted net loss per share:
 
 
 
 
 
 
  GAAP and Non-GAAP
 
 
 
 
 
80,203




14



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

 
Q3 2018 Financial Guidance
 
Revenue
Gross Profit
Total Operating Expense
Income (Loss) from Operations
Total Non-operating Expense, net
Net Income (Loss)
GAAP
$93.0 to $103.0
$45.0 to $51.0
$55.1 to $56.1
$(11.1) to $(4.1)
$(3.3)
$(15.1) to $(7.5)
  Stock-based compensation
0.7
(5.3)
6.0
6.0
  Amortization of intangibles
1.3
(0.8)
2.1
2.1
  Non-cash interest expense related to convertible notes
1.5
1.5
  Tax effect of non-GAAP adjustments
$0.9 to $1.5
Total adjustments
2.0
(6.1)
8.1
1.5
$10.5 to $11.1
Non-GAAP
$93.0 to $103.0
$47.0 to $53.0
$49.0 to $50.0
$(3.0) to $4.0
$(1.8)
$(4.0) to $3.0
As a % of revenue (GAAP)
 
48.4% to 49.5%
53.5% to 60.3%
(11.9)% to (4.0)%
(3.5%)
(16.2)% to (7.3)%
As a % of revenue (Non-GAAP)
 
51% to 52%
47.5% to 54.0%
(3)% to 4%
(2%)
(4)% to 3%
Diluted net income (loss) per share:
 
 
 
 
 
 
  Diluted net loss per share-GAAP
 
 
 
 
$(0.17) to $(0.09)
  Diluted net (loss) income per share-Non-GAAP
 
 
 
 
$(0.05) to $0.03
Shares used to compute diluted net loss per share:
 
 
 
 
 
 
  GAAP and Non-GAAP
 
 
 
 
86.4
Shares used to compute diluted net income per share:
 
 
 
 
 
 
  Non-GAAP
 
 
 
 
87.4





15



 
Q4 2018 Financial Guidance
 
Revenue
Gross Profit
Total Operating Expense
Income (Loss) from Operations
Total Non-operating Expense, net
Net Income (Loss)
GAAP
$105.0 to $118.0
$50.4 to $60.4
$53.5 to $54.5
$(4.1) to $6.9
$(3.4)
$(8.2) to $2.5
  Stock-based compensation
0.3
(2.7)
3.0
3.0
  Amortization of intangibles
1.3
(0.8)
2.1
2.1
  Non-cash interest expense related to convertible notes
1.6
1.6
  Tax effect of non-GAAP adjustments
$(1.2) to $1.5
Total adjustments
1.6
(3.5)
5.1
1.6
$5.5 to $8.2
Non-GAAP
$105.0 to $118.0
$52.0 to $62.0
$50.0 to $51.0
$1.0 to $12.0
$(1.8)
$0.0 to $8.0
As a % of revenue (GAAP)
 
48.0% to 51.2%
45.3% to 51.9%
(3.9)% to 5.8%
(3.0%)
(7.8)% to 2.2%
As a % of revenue (Non-GAAP)
 
50% to 52%
42.5% to 48.5%
1% to 10%
(2%)
0% to 7%
Diluted net income (loss) per share:
 
 
 
 
 
 
  Diluted net income (loss) per share-GAAP
 
 
 
 
$(0.09) to $0.03
  Diluted net (loss) income per share-Non-GAAP
 
 
 
 
$0.00 to $0.09
Shares used to compute diluted net loss per share:
 
 
 
 
 
 
  GAAP and Non-GAAP
 
 
 
 
87.0
Shares used to compute diluted net income per share:
 
 
 
 
 
 
  GAAP and Non-GAAP
 
 
 
 
88.5


16



 
2018 Financial Guidance
 
Revenue
Gross Profit
Total Operating Expense
Income (Loss) from Operations
Total Non-operating Expense, net
Net Income (Loss)
GAAP
$388.0 to $411.0
$195.0 to $211.0
$215.8 to $217.8
$(22.8) to $(4.8)
$(13.3)
$(38.8) to $(20.9)
  Stock-based compensation
1.9
(15.9)
17.8
17.8
  Amortization of intangibles
5.2
(3.2)
8.4
8.4
  Restructuring and related charges
0.9
(1.7)